How to Structure a Reg D 506(b) vs 506(c) Offering

The choice between Rule 506(b) and Rule 506(c) determines everything about how you market your offering, who can invest, and what verification you must perform. Get this decision wrong and you either limit your reach unnecessarily or blow your exemption entirely. In 2024, issuers raised $1.7 trillion under 506(b) versus $125 billion under 506(c) — but a March 2025 SEC no-action letter is about to change that ratio significantly.

Both rules fall under Regulation D, the most heavily used securities exemption in the United States. Both allow unlimited capital raises with no SEC registration. But they take fundamentally different approaches to investor protection, and the compliance requirements are not interchangeable.

At Angel Investors Network, we have structured offerings under both exemptions across nearly 1,000 capital raises since 1997. The right choice depends on your investor base, your marketing strategy, and your tolerance for compliance complexity. Here is the complete framework for making that decision.

506(b) vs 506(c): Side-by-Side Comparison

Before diving into the nuances, here is the complete comparison in one table:

Feature	Rule 506(b)	Rule 506(c)
General solicitation / advertising	Prohibited	Allowed
Investor types	Unlimited accredited + up to 35 non-accredited (sophisticated)	Accredited investors only
Verification requirement	Self-certification (questionnaire)	Issuer must take "reasonable steps" to verify
Pre-existing relationship	Required with all investors	Not required
Maximum raise amount	Unlimited	Unlimited
Form D filing	Within 15 days of first sale	Within 15 days of first sale
Disclosure to non-accredited	Must provide Reg A-like disclosures	Not applicable (no non-accredited investors)
Bad actor disqualification	Applies	Applies
State blue sky filings	Required (46 states)	Required (46 states)
Federal preemption	Yes (NSMIA)	Yes (NSMIA)
Integration risk with other offerings	Moderate	Lower (distinct marketing activities)
Percentage of Reg D capital raised	~93% ($1.7T in 2023-2024)	~7% ($125B in 2023-2024)

The headline difference: 506(b) gives you flexibility on who can invest but restricts how you reach them. 506(c) restricts who can invest but gives you freedom to market however you want.

What Is General Solicitation and Why It Matters

General solicitation is any communication that offers securities or conditions the market for a securities offering to the general public. Under 506(b), any general solicitation destroys your exemption — retroactively making your entire offering non-compliant.

Activities that constitute general solicitation:

• Website pages describing the investment opportunity
• Social media posts about the offering
• Email blasts to purchased lists
• LinkedIn ads or sponsored content about the deal
• Press releases mentioning the offering
• Public pitch events or demo days
• Cold calls to people you do not have a pre-existing relationship with

Under 506(c), all of these activities are permitted — provided every purchaser is a verified accredited investor. This is the fundamental trade-off that makes the structure decision so consequential.

The gray area that trips up most issuers: educational content and thought leadership. Under 506(b), you can publish general market commentary, industry analysis, and educational content. But the moment that content references a specific offering or is designed to generate interest in a specific investment, it becomes solicitation. The line is subjective, and the SEC does not issue bright-line guidance. When in doubt, consult your securities attorney before publishing.

The Pre-Existing Relationship Requirement Under 506(b)

Under 506(b), you can only offer securities to investors with whom you have a pre-existing substantive relationship. The SEC has not defined this term precisely, but guidance and no-action letters establish several principles:

The relationship must predate the offering. You cannot meet someone at a conference and offer them securities the same day. The relationship must have existed before you began the current offering.

The relationship must be substantive. A LinkedIn connection is not a substantive relationship. The issuer (or a person acting on the issuer's behalf) must have enough knowledge of the prospective investor to evaluate their financial sophistication and ability to bear the investment risk.

Broker-dealers can establish relationships on your behalf. If your offering involves a registered broker-dealer, their pre-existing relationships with their clients satisfy this requirement. This is one reason some 506(b) issuers engage broker-dealers even when not using a full placement agent.

Online platforms with questionnaires may qualify. The SEC has issued no-action letters (e.g., IPONET, Lamp Technologies) suggesting that online platforms that collect detailed financial information from investors before granting access to offering materials may establish sufficient pre-existing relationships. However, this is fact-specific and not a blanket safe harbor.

This is the primary reason 506(b) dominates the market despite its marketing restrictions. Most private fund managers, real estate syndicators, and private companies raise from people they already know — existing investors, referral networks, and professional relationships built over years. For them, the general solicitation restriction is not a meaningful limitation.

Accredited Investor Verification Methods Under 506(c)

Rule 506(c) requires issuers to take "reasonable steps" to verify that every purchaser is an accredited investor. The SEC identified several verification methods in the adopting release:

Income verification: Review IRS forms (W-2, 1099, K-1, tax returns) for the prior two years showing $200,000 individual income ($300,000 joint), plus a written representation of reasonable expectation of meeting the threshold in the current year.

Net worth verification: Review bank statements, brokerage statements, and credit reports demonstrating net worth exceeding $1 million excluding primary residence.

Third-party professional letter: Obtain a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed CPA, or attorney that they have taken reasonable steps to verify the investor's accredited status within the prior three months.

Existing investor verification: For investors who previously invested in the same issuer's 506(c) offering, updated certification plus a check for any indication of changed status.

Third-party verification services handle this process digitally:

Service	Cost per Investor	Process
VerifyInvestor.com	$50 – $150	Online submission, ~5-minute investor process
Parallel Markets	$100 pay-as-you-go	No minimums, no platform fees
InvestReady	Starting at $75	Online platform with multiple verification paths
CPA / Attorney Letter	$250 – $500	Traditional written confirmation

The March 2025 No-Action Letter That Changed Everything

On , the SEC Division of Corporation Finance issued a no-action letter (Latham & Watkins) that fundamentally changed the economics of 506(c) verification. This is the most significant Reg D development in years.

The new verification pathway: Issuers can now satisfy the "reasonable steps" requirement by:

1. Requiring a minimum investment of $200,000 for natural persons or $1,000,000 for entities
2. Obtaining a written representation from the investor that they are accredited
3. Obtaining a written representation that the investment is not financed by a third party for the purpose of meeting the minimum
4. Having no actual knowledge that the investor is not accredited

What this eliminates: No tax returns. No bank statements. No brokerage statements. No credit reports. No CPA or attorney letters. No third-party verification service fees. Just a minimum investment size plus self-certification.

Why this matters for capital raisers: The primary friction point that kept most issuers on 506(b) was the burdensome verification process. Asking potential investors to share tax returns or bank statements killed deals. This new guidance removes that friction entirely for offerings with $200,000+ minimums — which includes most real estate syndications, private funds, and growth equity offerings.

The SEC also updated its Compliance and Disclosure Interpretations (C&DIs) with two new questions clarifying verification in 506(c) offerings, further signaling that the agency views this pathway as a legitimate simplification, not a loophole.

For capital raisers who previously defaulted to 506(b) solely to avoid verification burden, the calculus has changed. If your minimum investment is $200,000 or more, 506(c) now offers general solicitation advantages with minimal additional compliance cost. Consult your securities attorney about whether a structure change makes sense for your offering.

Form D Filing Requirements

Both 506(b) and 506(c) offerings require a Form D filing with the SEC within 15 days of the first sale of securities. Key requirements:

What Form D discloses: Issuer name and address, related persons (executive officers, directors, promoters), offering details (type and amount of securities), exemption claimed, minimum investment amount, total offering amount, amount already sold, and number of investors.

How to file: Electronically via the SEC's EDGAR system. There is no filing fee. You will need EDGAR access codes (CIK number and filing codes), which require a separate registration process that takes 2-5 business days.

Annual amendments: If your offering continues beyond 12 months, file an annual amendment to Form D. Also file amendments for any material changes in information.

Enforcement risk: The SEC brought enforcement actions in December 2024 specifically for failure to file Form D on time. While historically unenforced, this signals increased regulatory attention. Failure to file can, in some states, result in loss of your Regulation D exemption eligibility for future offerings. Do not miss the 15-day deadline.

For complete Reg D filing data, the SEC maintains quarterly statistics at sec.gov/data-research. In 2024, there were 56,721 total Form D filings, raising $2.148 trillion in aggregate capital.

State Blue Sky Requirements

Despite federal preemption under the National Securities Markets Improvement Act (NSMIA), 46 states require notice filings for Rule 506 offerings. This applies to both 506(b) and 506(c).

What is required: A copy of the federal Form D, a consent to service of process, any state-specific supplemental form, and a filing fee. Filings are submitted through the NASAA Electronic Filing Depository (EFD).

Timing: Most states require filing within 15 days of the first sale to a resident of that state. Some states require filing before the first sale.

Fee examples:

State	Filing Fee	Notes
New York	$1,200	One of the highest fees
California	$300 – $2,000+	Scales with offering size and investor count
Texas	$500	Active enforcement of non-filers
Florida	$0	No blue sky filing required
Delaware	$0	No filing required
Nevada	$0	No filing required
Most other states	$200 – $600	Standard range

Total cost for multi-state compliance: State filing fees of $3,000-$10,000 plus blue sky filing service fees of $5,000-$15,000. Total: $8,000-$25,000 for a typical offering sold in 15-25 states. Your securities attorney or a dedicated blue sky filing service (Colonial Stock Transfer, Blue Sky Comply) handles this process.

Penalty for non-compliance: Fines of $10,000-$100,000, rescission rights for investors (they can demand their money back), and cease-and-desist orders. Some states actively enforce — Texas, in particular, has pursued non-filers aggressively.

Which Structure Is Right for Your Raise?

Use this decision framework:

Choose 506(b) if:

• Your investors are primarily people you already know (existing relationships, referral networks)
• You want to include up to 35 non-accredited but sophisticated investors
• You are not planning to use digital marketing, advertising, or public outreach
• Your minimum investment is under $200,000 (making the new 506(c) verification shortcut unavailable)
• Your raise is relationship-driven, not marketing-driven

Choose 506(c) if:

• You want to use general solicitation — LinkedIn ads, email marketing, website, webinars, public events
• Your minimum investment is $200,000 or higher (leveraging the March 2025 verification shortcut)
• You do not need to include non-accredited investors
• You want to build a scalable, marketing-driven investor acquisition engine
• You are raising without a placement agent and need to reach investors beyond your existing network

Consider a hybrid approach if: You are running multiple offerings (e.g., a fund under 506(b) and individual deals under 506(c)), or you want to test general solicitation on a smaller offering before committing your main raise to 506(c). Consult your securities attorney on integration risk between concurrent offerings.

Common Mistakes to Avoid

1. Accidental general solicitation under 506(b). This is the number one compliance killer. A single LinkedIn post promoting your offering to the public, a forwarded email that reaches non-relationship contacts, or a website page describing investment terms can destroy your exemption. If there is any chance your marketing activities could constitute general solicitation, file under 506(c).

2. Insufficient verification under 506(c). Self-certification alone is not sufficient for 506(c) (unless you meet the new March 2025 minimum investment thresholds). If your minimum investment is under $200,000, you must use one of the traditional verification methods. Document every verification step — the SEC can request your verification records during an examination.

3. Mixing 506(b) and 506(c) investors in the same offering. You cannot have some investors who were solicited generally (506(c)) and others who were approached through pre-existing relationships (506(b)) in the same offering. You must choose one exemption for the entire offering.

4. Forgetting state blue sky filings. Federal preemption prevents states from imposing substantive requirements on Rule 506 offerings, but it does not eliminate notice filing obligations. Missing state filings can result in fines, rescission rights, and future exemption disqualification.

5. Not filing Form D on time. The 15-day deadline is firm. The SEC enforced this in December 2024. Set a calendar reminder for day one of your offering and file well before the deadline. EDGAR registration (CIK and filing codes) takes 2-5 business days — do not wait until the last minute.

Frequently Asked Questions

Can I switch from 506(b) to 506(c) mid-offering?

This is extremely difficult and risky. Once you have sold securities under 506(b), switching to 506(c) creates integration issues — you would need to retroactively verify all existing investors as accredited, which may not be possible if non-accredited investors already participated. If you think you might want general solicitation capability, start with 506(c) from the beginning. Consult your securities attorney before attempting any structure change.

What happens if a 506(c) investor turns out not to be accredited?

If you took reasonable steps to verify and had no actual knowledge that the investor was not accredited, you may still be able to rely on the 506(c) exemption. The SEC has stated that the verification requirement is a "reasonableness" standard, not absolute certainty. However, if you failed to take any verification steps or ignored red flags, a single non-accredited investor can blow your entire exemption.

Does the March 2025 no-action letter apply to all 506(c) offerings?

The letter applies to natural persons investing $200,000 or more and entities investing $1,000,000 or more. If your minimum investment is below these thresholds, you must still use traditional verification methods. The investor must also represent that the investment is not financed by a third party specifically to meet the minimum, and you must have no actual knowledge that the investor is not accredited.

How many non-accredited investors can participate in a 506(b) offering?

Up to 35 non-accredited investors, but they must be "sophisticated" — meaning they have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the investment. If you include any non-accredited investors, you must provide them with disclosure documents comparable to those used in Regulation A offerings, which significantly increases your compliance costs. Most issuers limit their 506(b) offerings to accredited investors only to avoid this burden.

Is a PPM required for both 506(b) and 506(c) offerings?

A PPM is not technically required for either exemption (unless you include non-accredited investors in a 506(b) offering, which triggers specific disclosure requirements). However, a PPM is strongly recommended for both structures as it provides essential liability protection. See our complete guide on how to create a PPM.

The Bottom Line

The choice between Reg D 506(b) and 506(c) is not just a legal technicality — it fundamentally shapes your marketing strategy, your investor universe, and your compliance obligations. The March 2025 no-action letter has tilted the balance toward 506(c) for offerings with $200,000+ minimums by eliminating the verification burden that previously made 506(b) the default choice.

Choose deliberately. If you are raising from your network, 506(b) remains efficient and proven. If you want to market broadly and build a scalable investor acquisition system, 506(c) is now more practical than ever. Either way, work with a qualified securities attorney and file your Form D on time.

Ready to structure your offering? The Capital Raiser's OS includes offering structure decision tools, compliance checklists, and Form D filing guides. Or download the free Raise Capital Guide to start planning your Reg D offering today.