Insights · Raising Capital

506(b) vs. 506(c): which exemption fits your raise?

Two flavors of Regulation D, two very different fundraising playbooks. Here is the practical difference and how to choose.

First-time managersAnyone raising a fund

If you are raising a private fund, one of your first decisions is which flavor of Regulation D to use: Rule 506(b) or Rule 506(c). They lead to very different fundraising behavior, and choosing wrong can cost you the exemption. Here is the practical difference.

The short answer

Use 506(b) if you can raise from your existing network without advertising. Use 506(c) if you need to market publicly — but then you must verify every investor is accredited.

What both rules have in common

Both are exemptions under Regulation D that let you sell fund interests without registering the offering with the SEC. Both require a Form D filing and state "blue-sky" notices. Both are workhorses of private fund raising. The difference is about advertising and verification.

Rule 506(b): the traditional private raise

  • No general solicitation. You cannot publicly advertise the fund — no open website pitches, no cold outreach to strangers, no public posts soliciting investment. You raise through people you (or your team) already have a relationship with.
  • Who can invest: an unlimited number of accredited investors, plus up to 35 sophisticated non-accredited investors (most funds take accredited only to keep it clean).
  • Verification: investors can self-certify their accredited status in the subscription questionnaire. You are entitled to rely on that, absent red flags.

This is the default for most managers. If you have a real network of potential investors and do not need to advertise, 506(b) is simpler and lighter.

Rule 506(c): the advertised raise

  • General solicitation is allowed. You can market the fund publicly — website, social media, conferences, press, email campaigns.
  • Who can invest: accredited investors only (no non-accredited allowance).
  • Verification: here is the catch. You must take reasonable steps to verify that each investor is actually accredited. Self-certification is not enough. In practice that means collecting tax returns or brokerage statements, or accepting a written verification letter from the investor's CPA, attorney, or a third-party verification service.

506(c) is powerful for managers building a public brand or raising beyond their immediate circle — but you take on the verification burden and a permanent, public marketing trail that must itself comply with securities-marketing rules.

RULE 506(b) No advertising raise from your network Self-certification OK accredited (+35 sophisticated) simpler · most common RULE 506(c) May advertise publicly website, social, press Must VERIFY accreditation accredited only for building a public brand

How to choose

Ask yourself one question: do I need to advertise to fill this fund? If your network can carry the raise, 506(b) keeps things simpler and lets investors self-certify. If you need to reach beyond your circle or you are building a public-facing brand, 506(c) opens that door — at the price of verifying everyone and complying with marketing rules on everything you publish.

One more consideration: the choice interacts with your fund's Investment Company Act exemption (3(c)(1) vs 3(c)(7)) and your investment-adviser status. These should be decided together at formation. See our overview of raising a fund for how the pieces fit.

A common mistake

Don't accidentally "generally solicit"

Managers on a 506(b) raise sometimes blow the exemption by posting about the fund publicly or pitching strangers. Once you have generally solicited, you usually cannot use 506(b) for that offering. If you think you might advertise, plan for 506(c) from the start — or keep the raise strictly private.

Frequently asked

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

It is complicated and risky. Once you have generally solicited you typically cannot fall back to 506(b) for that offering. Decide up front; if advertising is even possible, structure for 506(c).

What counts as "general solicitation"?

Broadly, any public communication offering the investment to people you do not have a substantive pre-existing relationship with — public posts, open webinars, press, cold outreach. The line can be subtle, which is why marketing review matters.

How do I "verify" accreditation under 506(c)?

Reasonable steps include reviewing tax returns or brokerage/bank statements, or obtaining a written confirmation from the investor's CPA, attorney, broker, or a third-party verification service. Self-certification alone is not sufficient under 506(c).

Talk it through

Not sure which exemption fits your raise?

Tell me how you plan to raise and from whom, and I will tell you whether 506(b) or 506(c) is the right path — and how it interacts with the rest of your structure.

Book a time to talk

Or email hello@randall.law · (435) 612-0422