Rule 506(c)

Rule 506(c) changes the distribution model

Rule 506(c) was designed to permit general solicitation and general advertising in an exempt Regulation D offering.^[1]

That means an issuer can publicly market the securities, including through channels that would ordinarily be incompatible with Rule 506(b).

The trade-off is stricter purchaser eligibility and verification.

Every purchaser must be accredited

Under Rule 506(c), all purchasers in the offering must be accredited investors.^[1]

It is not enough for most investors to qualify. A non-accredited purchaser does not fit the exemption.

The issuer also must take reasonable steps to verify accredited-investor status.^[1][2]

That is more demanding than simply accepting an investor's unchecked representation in circumstances where verification is required.

What does verification mean?

Rule 506(c) provides a principles-based verification standard and non-exclusive methods that issuers may use for certain natural persons.^[2][3]

Depending on how a person qualifies, verification can involve reviewing information such as:

• tax forms or income documentation
• bank or brokerage statements
• credit reports and liability information
• written confirmations from specified professionals
• prior verification combined with a qualifying written representation when the rule's conditions are satisfied

The correct method depends on the investor's qualification route and the surrounding facts.

General solicitation is permission, not validation

Public promotion can make an offering look more like a conventional investment product, but Rule 506(c) is still an exempt offering.

The SEC does not approve the issuer merely because the deal can be advertised.

Investors can still face:

• limited standardized disclosure
• valuation uncertainty
• issuer-specific business risk
• illiquidity
• transfer restrictions
• conflicts involving promoters or intermediaries

Advertising reach should not be confused with public-market liquidity or public-company reporting.

Form D and restricted securities

The issuer generally must file Form D within 15 days after the first sale.^[4]

Purchasers receive restricted securities.^[1]

That means a buyer who enters through a widely advertised campaign can still own an investment that cannot be freely resold into a public market.

506(c) versus 506(b)

The simplest distinction is:

506(b): private distribution, limited non-accredited participation possible.

506(c): public solicitation permitted, but all purchasers must be accredited and verified.

Both have no federal dollar cap, both are part of Regulation D, and both can involve restricted securities.^[1][3]

Common mistakes

“If the investor checks an accredited box, verification is complete.”

Not necessarily. Rule 506(c) requires reasonable verification steps.

“An advertised private offering is effectively public stock.”

No. The distribution method can be public while the securities remain restricted and privately issued.

“Accredited means low risk.”

No. Accredited status is an eligibility classification, not a credit rating or investment recommendation.

“506(c) eliminates state requirements.”

It preempts state registration and qualification, but states can still require notices and fees and retain antifraud authority.^[1]

For a 506(c) offering, examine the verification process as closely as the marketing. A polished public campaign says little about whether purchaser eligibility was properly verified, the valuation is supportable or a practical exit market exists.