Rule 506(b) vs. Rule 506(c)
You can advertise the offering, or you can take money from investors who are not accredited. You cannot do both.
The trade
One decision, made early, that shapes everything after it.
Both are exemptions under Regulation D. Both let a company raise an unlimited amount without registering the offering with the SEC. The difference is a single trade, and issuers routinely discover it after they have already started marketing.
Rule 506(b) is the traditional private placement. No general solicitation and no general advertising. In exchange, up to 35 non-accredited but sophisticated purchasers may participate alongside an unlimited number of accredited investors.
Rule 506(c) lets you advertise to the world. In exchange, every purchaser must be accredited, and the issuer must take reasonable steps to verify it — not merely believe it.
Rule 506(b)
The traditional private placement. Quiet, relationship-driven, and the more forgiving of the two on investor eligibility.
Advertising
No general solicitation. No general advertising. Offers go to people with whom a pre-existing, substantive relationship already exists.
Who may purchase
Unlimited accredited investors, plus up to 35 non-accredited purchasers who are sophisticated — alone or with a purchaser representative.
Confirming status
A reasonable belief that a purchaser is accredited. In practice, a completed investor questionnaire.
Disclosure
If every purchaser is accredited, no prescribed disclosure. Admit one non-accredited purchaser and specified information — including financial statements — becomes mandatory for all of them.
Rule 506(c)
Public marketing permitted. The price is a verification obligation that cannot be satisfied by taking the investor's word.
Advertising
General solicitation and general advertising permitted. Website, email campaign, conference, social media, press.
Who may purchase
Accredited investors only. No exceptions, and no allowance for a sophisticated non-accredited purchaser.
Confirming status
Reasonable steps to verify — an affirmative obligation. Tax returns, bank or brokerage statements, or written confirmation from a lawyer, accountant, broker-dealer or investment adviser.
Disclosure
No prescribed disclosure package, because non-accredited purchasers cannot participate. The antifraud rules still apply in full.
The same for both
Securities sold are restricted — they cannot be freely resold. A Form D notice must be filed with the SEC within 15 days after the first sale. Both are subject to bad actor disqualification. And both produce federal covered securities, so state registration is preempted — but the states may still require notice filings and fees, and missing those is one of the more common unforced errors.
Choosing
Which one you actually want.
The question is not which rule is better. It is which constraint you can live with.
If the money is already in your network — 506(b)
Most sponsors raising from existing relationships never needed 506(c). The advertising freedom buys nothing if the investors were going to come from a list you already had, and 506(b) leaves room for a long-standing investor who does not happen to clear the accredited thresholds.
If you intend to market publicly — 506(c), and budget for it
A website describing the offering, a conference presentation, an email to a purchased list: each is general solicitation. If that is the plan, 506(c) is the only route — and the verification obligation is a real operational cost that should be priced in before the first advertisement runs, not after.
You cannot decide later
This is the expensive version of the mistake. An issuer markets publicly, then tries to characterize the raise as a 506(b) private placement. The general solicitation has already happened. It cannot be withdrawn, and the exemption it broke does not come back.
Traps
Where these offerings actually go wrong.
"Pre-existing substantive relationship" is doing more work than people think
It is the concept that decides whether an approach was a private offer or a general solicitation. Pre-existing means the relationship came before the offering. Substantive means enough is known about the person to evaluate their sophistication and financial position. A business card and a LinkedIn connection are neither.
Under 506(c), a signed representation is not verification
Self-certification satisfies 506(b). It does not satisfy 506(c), where the issuer must take reasonable steps and be able to show what those steps were. This is the most frequently missed distinction between the two rules.
Minimum investment size can now do some of that work
In March 2025 the SEC staff accepted that a sufficiently high minimum commitment — with written representations from the purchaser, and absent anything the issuer knows to the contrary — can be a reasonable step toward verification. The thresholds are $200,000 for an individual and $1 million for an entity. It is a meaningful simplification for funds with high minimums. It is not a general escape from verifying.
Bad actor checks cover more people than the founders
The disqualification provisions reach directors, executive officers, certain shareholders, promoters and compensated solicitors. The diligence has to be done, has to be documented, and has to be refreshed for a continuous offering.
Preemption is not the same as being left alone
Rule 506 securities are federal covered securities, so states cannot require registration. States can and do require notice filings and fees, usually on a deadline tied to the first sale in that state. Missing them is administratively awkward and entirely avoidable.
Worth watching
Both the accredited investor definition and the verification guidance have been in motion, and further change to the definition is under active consideration. Any offering being planned now should be checked against the rules as they stand on the day it launches, not against a summary written earlier.
This page is general information, not legal or tax advice. How it applies depends on facts this page cannot know, and the rules change. Reading it creates no attorney-client relationship. Please see our Attorney Advertising, Legal Notices & Disclaimers.
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