Understanding Regulation D 506(c)

1. What Is Regulation D?

Regulation D is a set of SEC rules that allow private companies to raise capital from investors without registering the offering with the SEC. It operates under Section 4(a)(2) of the Securities Act of 1933, which exempts transactions not involving a public offering.

Regulation D contains three primary exemptions:

• Rule 504 — Offerings up to $10 million in a 12-month period. Rarely used for institutional raises.
• Rule 506(b) — No general solicitation. Up to 35 non-accredited sophisticated investors allowed. Most common exemption for private placements.
• Rule 506(c) — General solicitation permitted. All investors must be verified accredited. No dollar cap on raise size.

Rule 506(c) was created by the JOBS Act of 2012 and took effect in September 2013. It was the first time the SEC allowed private companies to publicly advertise securities offerings in over 80 years.

2. 506(b) vs. 506(c): Key Differences

The practical implication: 506(c) lets you run a full inbound marketing campaign, post on LinkedIn, send cold outreach, and advertise your offering publicly. The trade-off is a stricter verification process, as issuers must take reasonable steps to verify each investor's accredited status.

3. Who Can Invest: Accredited Investor Defined

Under SEC Rule 501(a), an individual qualifies as an accredited investor if they meet one of the following criteria:

Individual Qualification

• Income test: Annual income exceeding $200,000 (or $300,000 jointly with a spouse) in each of the two most recent years, with a reasonable expectation of the same in the current year.
• Net worth test: Net worth exceeding $1,000,000 individually or jointly with a spouse, excluding the value of the primary residence.
• Professional credentials: Holders of Series 7, Series 65, or Series 82 licenses in good standing (added by SEC in 2020).
• Knowledgeable employees: Employees of the fund being offered who are knowledgeable about the fund's investments.

Entity Qualification

• Entities with total assets exceeding $5 million, not formed for the specific purpose of acquiring the offered securities.
• Any entity in which all equity owners are accredited investors.
• Banks, broker-dealers, registered investment advisers, insurance companies, and other institutional investors.
• Family offices with at least $5 million in assets under management.
• "Spousal equivalents" were added in 2020 and may jointly qualify on the same terms as married couples.

4. General Solicitation: What You Can and Cannot Do

Under 506(c), general solicitation is permitted. This includes:

Key nuance: once you engage in general solicitation under 506(c), you cannot retroactively convert the offering to 506(b). The exemption used is determined at the time of first sale.

5. Verification Requirements

The most operationally significant difference between 506(b) and 506(c) is verification. Under 506(b), investors can self-certify their accredited status via a questionnaire or checkbox. Under 506(c), issuers must take "reasonable steps" to verify accredited status.

The SEC provides a non-exclusive list of acceptable methods:

For Income-Based Qualification

• Review of IRS Form W-2, 1099, or Schedule K-1 from the prior two years
• Review of federal tax returns for the prior two years
• Confirmation from a registered broker-dealer, investment adviser, licensed attorney, or CPA

For Net Worth-Based Qualification

• Bank, brokerage, or retirement account statements dated within 90 days
• Appraisal or assessment reports for real property
• Consumer credit report to check for liabilities
• Written confirmation from a licensed attorney, CPA, or registered broker-dealer

6. Form D: Filing Requirements and Timeline

All Regulation D offerings require the issuer to file Form D with the SEC. Form D is a notice filing, not a registration, and is submitted through EDGAR (the SEC's online filing system).

• Deadline: Within 15 calendar days after the first sale of securities in the offering.
• Contents: Issuer information, exemption relied upon (506(c)), amount offered, amount sold, use of proceeds, and executive officer details.
• Amendments: Required annually if the offering is ongoing and when any information changes materially.
• Final amendment: Filed within 30 days of completion or termination of the offering.

Note: Form D is a public document. Filing it makes certain offering details visible on the SEC's EDGAR database. There is no fee to file Form D, but late filing can impact future offerings and may attract state-level scrutiny.

7. State Blue Sky Laws

While Section 18 of the Securities Act preempts most state registration requirements for Rule 506 offerings (often called "covered securities"), issuers must still comply with state notice filing requirements and pay applicable fees.

State obligations typically include:

• Filing a copy of the federal Form D with each state where sales occur
• Paying state filing fees (ranges vary widely, from under $100 to over $1,000 per state)
• Complying with state anti-fraud provisions (these are not preempted)

California, New York, Texas, and Florida have particularly active securities regulators. Issuers raising in multiple states should maintain a state-by-state filing tracker and work with securities counsel to ensure timely compliance.

8. Common Mistakes and How to Avoid Them

9. How Deal Box Supports 506(c) Raises

Deal Box is a technology and advisory platform built specifically for Regulation D private placements. We provide the infrastructure that growing companies need to run a compliant, professional capital raise.

• Company-branded investor portal with access controls and document watermarking
• Investor pipeline CRM with automated outreach sequences and engagement analytics
• Data room built for institutional diligence, including deal room permissions by investor tier
• Cap table and subscription agreement workflow management
• Strategic advisory to guide your raise from setup through close