Regulation D: Differences Between Two Rules

Within Regulation D, Forms 506(b) and 506(c) serve as key mechanisms for companies seeking to raise capital while adhering to specific rules and requirements. The distinctions between these two rules can have significant implications how a private fund approaches fundraising:

• Rule 506(b) permits a company to raise an unlimited amount of capital from accredited investors and up to 35 non-accredited, sophisticated investors without general solicitation.
• Rule 506(c) allows for general advertising and solicitation but requires that all participating investors be accredited, and mandates that issuers take reasonable steps to verify this accredited status.

When should you use a Form 506(b) vs 506(c)?
Regulation D Form 506(b) is one of the most widely used exemptions, allowing companies to raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited investors. One of the key advantages of utilizing Form 506(b) is that it allows companies to solicit investments from existing relationships and business contacts, making it a preferred option for many startups and small businesses. However, companies relying on this exemption are prohibited from engaging in general solicitation or advertising to attract investors.

On the other hand, Regulation D Form 506(c) permits general solicitation and advertising, enabling companies to reach a broader pool of potential investors. However, all investors participating in the offering must be accredited, and the company must take reasonable steps to verify their accredited status. This may involve reviewing financial documents, tax returns, or obtaining written confirmation from a third-party professional. While Form 506(c) offers greater flexibility in marketing and fundraising efforts, it also imposes stricter requirements on verifying investor accreditation, adding an extra layer of compliance burden for issuers.

Soreide Law Group Can Help You Select The Right Offering.
While these two Regulation D forms provide exemptions from full SEC registration, they cater to different types of offerings and investor bases, offering varying levels of flexibility and regulatory requirements. Understanding the differences between Forms 506(b) and 506(c) is essential for companies seeking to access capital markets efficiently and compliantly. Whether opting for the more traditional approach of 506(b) or embracing the broader reach of 506(c), careful consideration of the requirements and implications is paramount for success in private placements.

For further information on Regulation D, please contact Lars K. Soreide, Esq., at Soreide Law Group for a no-cost consultation at 888-760-6552, or visit https://www.securitiealawyer.com.

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