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Rule 506(b) vs. Rule 506(c)
Rule 506(b) generally prohibits public advertising. Rule 506(c) permits general solicitation if every purchaser is accredited and the issuer takes reasonable steps to verify accredited status.
The decision shapes who can invest, how the offering can be marketed, and how the company documents the offering file. Capital Markets Law Group helps companies choose between the two and prepare the offering on the terms the selected rule requires.
How Do the Exemptions Compare?
The two rules share a family name and little else in practice. The table shows the differences that matter most to issuers.
| Issue | Rule 506(b) | Rule 506(c) |
|---|---|---|
| Public advertising | Generally prohibited | Permitted |
| Accredited investors | Permitted | Every purchaser must be accredited |
| Non-accredited investors | Limited number of sophisticated purchasers | Not permitted |
| Verification | Reasonable belief standard | Reasonable verification required |
| Offering cap | No stated cap | No stated cap |
| Securities | Restricted | Restricted |
| Form D | Required | Required |
| State notices | Generally required | Generally required |
In practice, the choice usually comes down to the audience the company can actually reach. An offering built on existing relationships belongs under 506(b). A company that needs to advertise publicly, or that cannot document a pre-existing relationship with every buyer, needs 506(c) and the verification file that goes with it.
When Is Rule 506(b) Appropriate?
It may be appropriate when the company:
- Has existing investor relationships
- Does not need public advertising
- Wants potential flexibility for sophisticated non-accredited investors
- Plans a targeted financing
When Is Rule 506(c) Appropriate?
It may be appropriate when the company wants to:
- Advertise publicly
- Use unrestricted online communications
- Reach investors outside its network
- Work with platforms involving general solicitation
- Accept only verified accredited investors
What May Constitute General Solicitation?
Potential examples include:
- Public websites
- Unrestricted social-media posts
- Public seminars
- Mass emails
- Promotional press releases
- Advertisements
- Communications to persons without an appropriate relationship
How Is Accredited Status Verified?
Verification may involve:
- Tax forms
- Brokerage or bank statements
- Credit reports
- Appraisals
- Professional certifications
- Written confirmation from qualified professionals
- Other reliable methods
Under Rule 506(c), the issuer takes reasonable steps to verify that each purchaser is accredited. The rule also recognizes defined verification methods, including confirmation by a registered broker-dealer or an SEC-registered investment adviser that it verified the investor's accredited status within the prior three months.
How Does Capital Markets Law Group Help?
Our services may include:
- Selecting between the rules before solicitation begins
- Structuring the offering and securities
- Reviewing solicitation methods and materials
- Designing the accredited-investor verification process
- Preparing offering documents
- Preparing Form D and state notices
- Preparing closing documents
- Advising on resale restrictions
Keep Reading: SEC Securities Offerings, Going Public and Form S-1 Registration Statements, Nasdaq and NYSE American Uplistings, Nasdaq Listing Applications and Uplisting Counsel.
Frequently Asked Questions
Can a Rule 506(b) Offering Be Converted to Rule 506(c)?
Potentially, but prior solicitation, communications, documents, verification, and filings must be reviewed.
Can Friends and Family Invest Under Rule 506(b)?
Possibly. Accredited status, sophistication, relationship, and information access must be considered.
Can Sophisticated Non-Accredited Investors Buy Under Rule 506(c)?
No.
Does Filing Form D Make the Offering Compliant?
No. The issuer must independently satisfy the exemption.
When Is Form D Due?
The issuer must file a new notice for each new offering of securities no later than 15 calendar days after the date of first sale, the date on which the first investor becomes irrevocably contractually committed to invest.
How Many Investors Can Participate?
A Rule 506 offering is limited to no more than 35 purchasers other than accredited investors, in any 90-calendar-day period. There is no stated limit on the number of accredited purchasers. The count follows defined rules, and issues such as pre-existing relationships and aggregation can affect it.
Does a Shared Form D Filing Cover Later Offerings?
A Form D notice covers the offering it identifies. An issuer that conducts a new offering after its last Form D must file a new notice no later than 15 calendar days after that offering's date of first sale.
What Happens If Verification Is Weaker Than the Rule Requires?
A 506(c) offering with inadequate verification may lose the exemption, which exposes the offering to rescission claims by investors. The verification file is a core deliverable of the offering, not an afterthought. Counsel should design it before the first investor is contacted.
Get Started
Talk to Capital Markets Law Group About Your Rule 506 Offering
Capital Markets Law Group assists companies with Rule 506(b), Rule 506(c), accredited-investor analysis, offering documents, Form D, state notices, and closings. Contact the firm before the offering is advertised or the first investor is contacted.