506(b) vs. 506(c): What's the Difference?

Rule 506(b) and Rule 506(c) are the two main Regulation D exemptions founders use for private offerings. The core difference is simple: 506(b) does not allow general solicitation, while 506(c) does — but 506(c) requires every purchaser to be accredited and requires the issuer to take reasonable steps to verify that status.

In practice, 506(b) is the quiet private round. 506(c) is the market-it round. Both let you raise an unlimited amount without SEC registration, and both generally preempt state registration requirements, though state notice filings and fees still usually apply.

Public promotion is the dividing line.

506(c) does not relax the accredited-investor rule. It tightens how you prove it.

What are Rule 506(b) and Rule 506(c)?

Rule 506(b) and Rule 506(c) are exemptions under Regulation D that let companies sell securities without registering the offering with the SEC. Startups commonly use them for angel, venture, and other private fundraising rounds.

Both exemptions are widely used. The right choice usually turns on two questions:

1. Will you publicly market the raise?
2. Do you want any non-accredited investors in this specific offering?

If you want public promotion, you are generally in 506(c) territory. If you want the option to include a limited number of sophisticated non-accredited investors, 506(c) will not work.

What is Regulation D?

Regulation D is a set of SEC rules that provides exemptions from SEC registration for certain private offerings. When founders say they are “doing a Reg D round,” they usually mean they are relying on one of the Rule 506 exemptions.

One key concept is accredited investor status. For individuals, that commonly includes:

• Income over $200,000 individually, or $300,000 with a spouse or spousal equivalent, in each of the last two years, with an expectation of the same in the current year
• Net worth over $1,000,000, excluding the value of the primary residence

There are additional accredited-investor categories, including certain entities and some individuals with specific professional certifications. If accredited status matters in your round, check the actual rule and confirm the analysis with counsel.

An exemption from registration is not an exemption from anti-fraud rules.

Even in a private offering, your materials and statements still need to be accurate and not misleading.

506(b) vs. 506(c) at a glance

Question	Rule 506(b)	Rule 506(c)
Can you publicly market the raise?	No. General solicitation is not allowed.	Yes. General solicitation is allowed.
Can non-accredited investors invest?	Yes, up to 35, if they are sophisticated and other requirements are met.	No. Every purchaser must be accredited.
How is accredited status handled?	The issuer can often rely on investor representations if that reliance is reasonable.	The issuer must take reasonable steps to verify accredited status.
Maximum amount you can raise	No SEC dollar cap under the rule	No SEC dollar cap under the rule
Investor friction	Usually lower for accredited investors	Usually higher because verification is required
Typical fit	Targeted rounds driven by intros, existing networks, and private outreach	Rounds where public promotion is part of the fundraising plan

Rule 506(b): the traditional private raise

506(b) is the classic private-placement path. It works best when you are raising through existing relationships, warm introductions, and targeted outreach rather than public promotion.

Key rules under 506(b)

• No general solicitation. Public advertising or broad public promotion can jeopardize the exemption.
• You can sell to an unlimited number of accredited investors.
• You can include up to 35 non-accredited investors if they are sophisticated, but added disclosure and compliance requirements can apply.
• For accredited investors, issuers often rely on investor representations in subscription documents, so long as that reliance is reasonable and red flags are not ignored.

In practice, many startups using 506(b) avoid taking non-accredited investors because doing so can add legal complexity and disclosure burden.

What counts as general solicitation under 506(b)?

There is no single perfect bright line. The analysis is fact-specific. But public posts about the offering, advertising, open internet promotion, or broad outreach to people with whom you do not have a substantive relationship can create general-solicitation risk.

Founders often hear that 506(b) requires a “pre-existing relationship.” That phrase is useful shorthand, but it is not a magic checkbox in the rule. The real issue is whether your fundraising activity looks like private outreach or public solicitation.

No general solicitation is broader than “no paid ads.”

If your plan includes public posts, podcasts, large email blasts, events, or online communities, assume you may be drifting toward 506(c) unless counsel says otherwise.

Rule 506(c): the exemption that allows marketing

506(c) was created so issuers could use general solicitation and general advertising in private offerings. If you want to talk publicly about the raise, this is usually the cleaner path.

Key rules under 506(c)

• You may generally solicit the offering.
• Every purchaser must be accredited.
• You must take reasonable steps to verify accredited status. A simple self-certification checkbox is generally not enough.

The tradeoff is straightforward: more marketing freedom, more verification friction.

What “reasonable steps to verify” means

Under 506(c), the issuer must do more than collect an investor representation. The SEC has described methods that can satisfy verification requirements in certain cases, often referred to as verification safe harbors.

Common approaches include:

1. Income-based verification by reviewing certain IRS forms for prior years and obtaining a written representation about expected current-year income.
2. Net-worth-based verification by reviewing reasonably current asset and liability documentation.
3. Written confirmation from certain third parties, such as a licensed attorney, CPA, registered broker-dealer, or SEC-registered investment adviser, that they have taken reasonable steps to verify accredited status.
4. In some situations, a prior verification in an earlier 506(c) offering by the same issuer, combined with an updated representation. The conditions matter here.

Many issuers use third-party verification providers to reduce friction and protect investor privacy. If a platform or SPV provider is involved, ask exactly how verification works, what records you will receive, and what happens if an investor cannot be verified.

How to choose between 506(b) and 506(c)

Most founders can get to the right answer quickly.

A simple decision framework

1. If you want to publicly market the round, start with 506(c).
2. If you want non-accredited investors in the offering, 506(c) is not available.
3. If your investors are coming through private intros and targeted outreach, 506(b) is often the simpler path.
4. If speed matters and you do not want verification friction, 506(b) is often easier, assuming you can stay truly private.

If the raise will live on the internet, start by analyzing 506(c).

A common structure is to pair a public Regulation Crowdfunding round with a 506(c) offering for accredited investors who want to invest larger amounts. That can work, but combining exemptions is fact-specific. Integration issues are real, so the structure should be planned with securities counsel before marketing begins.

When 506(b) usually makes sense

• You are raising from people already in your network or through controlled introductions.
• You do not need public promotion to find investors.
• You want lower process friction for accredited investors.
• You may want the option to include a limited number of sophisticated non-accredited investors, understanding the added complexity.

When 506(c) usually makes sense

• You want to post publicly about the raise.
• You plan to use broad online distribution, media, events, communities, or email lists.
• You are comfortable requiring verification for every purchaser.
• You are willing to accept more process and documentation in exchange for wider reach.

Common mistakes

• Marketing a 506(b) round. If public promotion is even a real possibility, analyze 506(c) before you launch.
• Assuming “I know them” makes outreach safe under 506(b). The issue is the full facts and circumstances, not a casual label.
• Using self-certification alone for 506(c). The rule requires reasonable verification steps.
• Switching exemptions midstream without a plan. Changing course after money is in can create messy integration and compliance questions.
• Treating Form D and state notice filings as an afterthought. These are routine, but they are still real compliance items.

You do not get the marketing freedom of 506(c) and the lighter process of 506(b) at the same time.

Frequently asked questions

Can I advertise a 506(b) offering?

No. A 506(b) offering cannot involve general solicitation. If you want to advertise or broadly promote the raise, 506(c) is usually the right starting point.

Can non-accredited investors invest in a 506(c) round?

No. Every purchaser in a 506(c) offering must be accredited.

Can non-accredited investors invest in a 506(b) round?

Potentially, yes. Rule 506(b) can include up to 35 non-accredited investors if they are sophisticated and other requirements are met. In practice, many startups avoid this because it increases legal complexity.

Do I need to verify accredited status in 506(b)?

Not in the same way as 506(c). In 506(b), issuers often rely on investor representations if that reliance is reasonable. You generally cannot ignore red flags suggesting the representation is false.

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

Sometimes, but not casually. Public solicitation can affect how earlier sales are analyzed, and trying to fix a bad process after taking money is painful. Talk to securities counsel before making the switch.

Can I run a 506(b) and a 506(c) offering at the same time?

Usually that is risky. Marketing permitted for the 506(c) side can create general-solicitation problems for the 506(b) side. If you are considering parallel exemptions, get a clean plan from counsel first.

Do I still need to file anything with the SEC or states?

Usually yes. Rule 506 offerings typically involve a Form D filing with the SEC after the first sale, and many states require notice filings and fees. The details can vary by state and by timing.

What is the biggest practical difference for investors?

Under 506(c), investors usually face more paperwork or third-party review because accredited status must be verified. Under 506(b), the process is often lighter, assuming the offering stays private.

Bottom line

Use 506(b) when you want a private, targeted raise and can avoid general solicitation. Use 506(c) when you want to publicly market the raise and are prepared to verify that every purchaser is accredited.

The mistake is waiting to decide until after the fundraising campaign has already started. Choose the exemption before the first public post, investor blast, or accepted check.