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Glossary

Rule 506(c)

What Rule 506(c) of Regulation D allows, why every buyer must be an accredited investor, and what reasonable steps to verify means.

Rule 506(c) is the Regulation D exemption that allows general solicitation. A company may advertise its offering publicly and raise an unlimited amount, provided every purchaser is an accredited investor and the company takes reasonable steps to verify that they are (17 CFR 230.506(c)).

The conditions

  • All purchasers are accredited. There is no allowance for non-accredited investors.
  • Verification is required, not just a questionnaire. The rule lists non-exclusive methods, such as reviewing tax documents for income, reviewing statements and a credit report for net worth, or a written confirmation from a registered broker-dealer, investment adviser, attorney, or CPA.
  • A Form D is filed within 15 calendar days after the first sale, and the bad actor rule applies.

Compare Rule 506(b), which bans general solicitation but allows up to 35 sophisticated non-accredited purchasers.

Further reading

This page is general information about securities rules, not legal advice.

Topics:glossaryregulationreg d

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