506(b), 506(c) and what general solicitation actually means
Read this to see what each of the two exemptions demands of you, and what picking one costs you in the other direction. It runs in the rule's own order, from whether it reaches you to the clock that keeps running after the raise closes.
- March 1982One set of conditionsRule 506 arrives. Meet the conditions and the sale is deemed not to involve a public offering, rather than argued about later.
- September 23, 2013A second set appearsWhat is now 506(c) is added, with the disqualification check covering both. The rule still uses this date in its own text.
- January 2021Tidied, not changedRegulation D is amended again in a wider harmonising of the exempt-offering rules. Both halves survive, and so does the condition between them.
Does it reach you?
Four situations cover most sponsors. Only the last is a genuine maybe, and it is where the raise stands on something other than Rule 506.
One exemption, two ways in
Section 4(a)(2) exempts transactions by an issuer “not involving any public offering”, then declines to say what that means. The SEC is blunt about the consequence: the precise limits are not defined by rule, and as buyers multiply and their distance from management grows, qualifying gets harder to show.
Rule 506 ends that argument. Satisfy the conditions in paragraph (b) or (c) and the sale is deemed not to involve a public offering. So the two are not two rules. They are two lists of conditions on one exemption, and an offering sits on one list or the other for its whole life.
“General solicitation” is never defined anywhere in Rule 506. It arrives as a condition one list imports and the other leaves out, which is why the phrase only has consequences once you know which half you are on.
The conditions, in the rule's order
The lists diverge in fewer places than most sponsors expect. Left, the text as written. Right, what it asks of a sponsor raising for a deal. The first and last rows reach both halves; the middle is where they part.
Four words that settle most arguments
A disagreement about a raise is usually a disagreement about one of these, not about the rule.
Accredited
Not a judgement about character. It is a list of categories at 230.501(a): net worth over a million dollars not counting the home, income over $200,000 individually or $300,000 jointly for two years running with a reasonable expectation of the same this year, plus entity tests and designated credentials.
Verify
Appears on the (c) side only. It asks for reasonable steps, not certainty, and the five listed methods are options rather than the definition. The safe harbour falls away the moment you know otherwise.
Sophisticated
The rule uses it once, at 230.501(a)(7), only to point back at 506(b)(2)(ii). It means able to evaluate the merits and risks of this investment. No exam, no credential, so your record of the conclusion is the only evidence.
Purchaser
A counting word, and 230.501(e) is the counting rule. Accredited investors do not count at all. An entity counts as one, unless it was assembled to buy this deal and is not itself accredited, when you count through to its owners.
“Reasonable steps to verify”
One line decides whether 506(c) is workable for your investor base, and it is usually read as lighter or heavier than it is.
Get the investor to sign a form saying they are accredited, and keep it in the file.
That is the 506(b) answer, where reasonable belief is the standard. On the (c) side the rule names two situations where a representation stands alone, and neither is a new investor.
Take steps somebody else would recognise as steps, and be able to show what they were.
Tax forms for the two most recent years with a written expectation for this one. Or asset statements dated within the prior three months, with a liabilities representation and a consumer report. Or written confirmation from a broker-dealer, an adviser, an attorney or a CPA in good standing.
The number 35, and what it switches on
Choosing between the halves feels like a marketing decision and is really a decision about who you may take money from. Drag the count and watch options close.
- 506(c) is available to you (c)(2)(i) Open
- 506(b) is available to you (b)(2)(i) Open
- A written information package for each one 502(b) Not engaged
Everybody in the raise meets the accredited definition, so both halves are open and the information package never switches on. The only setting where the choice between them is genuinely free.
There is no forgiveness for either of these two. Regulation D carries a rule excusing insignificant deviations, a real comfort for most conditions on this page. It then names its exceptions: the ban on how you may offer, and the limit on the number of buyers. A failure of either is deemed significant to the offering as a whole, so there is no argument left to have.
The information package is the cost most sponsors underestimate. It sets what you must furnish by pointing at what a Regulation A filing would need, and adds that you be available to answer the buyer's questions before the sale.
What keeps running after the raise closes
A filing and a clock. The filing is short and dated from the first sale. The clock only starts if the exemption failed, which is why it is worth knowing before it does.
If the conditions were not met the sale was unregistered, and the statute lets the buyer recover what they paid with interest, less anything they received, on handing the interest back. It does not ask whether the deal went well or whether anyone was misled. A lost exemption is not a fine. It is a right of return held by every investor in the raise.
Conditions met, so the sale is treated as one not involving a public offering and nothing here starts. That is the commercial value of a safe harbour, and why the conditions above repay pedantry while the raise is open.
What Verand checks in a draft, and what it does not
Everything above stands whether or not you buy anything. This is how much of it software can see in a page of text before a person reads it.
What it checks
- Blocks a return figure with nothing attached. A percentage presented as what an investor will earn cannot publish until it is labelled a target, a projection or historical.
- Blocks language that works a live deal. Invest now, limited spots remaining, closing soon, join our fund.
- Blocks open-to-everyone language, and the claim that a private placement memorandum is not needed. Four hard blocks on the Regulation D rulebook.
- Blocks three from the syndication rulebook under it: property values always rise, a tax benefit is guaranteed, the interest is liquid.
- Blocks six from the floor beneath both: guaranteed results, guaranteed returns, cannot lose, get rich quick, risk free, zero risk. The last two release only on a written reason, logged.
- Requires the disclaimer block and the sources. Five citations, two of them from a primary regulator, above what the floor asks.
What it does not
- It does not know which half your raise is on. There is no 506(b) or 506(c) setting in the product and no check reads one. Naming Regulation D at setup loads one rulebook, and the same checks run either way.
- It does not decide whether a post is a general solicitation. That turns on which offering is open and what the piece reaches toward, neither of which is in the text. The scope question →
- It does not verify an investor, count purchasers or run the disqualification inquiry. Those live in your subscription process.
- It does not file your Form D or track state notice filings.
- One disclaimer block renders per article, chosen by what the article is. Offering content gets the 506(c) notice instead of the standing block, not alongside it.
- It does not publish. Nothing reaches your site without a person at your firm approving it, and no setting changes that.
Validated against the SEC's rules. AI-researched and operator-reviewed. Your counsel confirms applicability. Not legal advice. How we label review →
The ones that come up
About the rule, not about our software. Each points at the paragraph it comes from.
Can I move a raise from 506(b) to 506(c) halfway through?
Not by deciding to. They are condition lists on one offering, and an offering that has taken money from someone who is not accredited cannot later satisfy a list requiring that all purchasers are. Whether a new offering counts as separate is the integration question, and that is a conversation with counsel rather than a setting you change.
Does 506(c) mean I can say whatever I like?
It removes one condition, the one about the manner of offering. Everything else stays: the anti-fraud provisions, the limit on reselling, the notice filing, the disqualification check, the requirement that every buyer is accredited and verified. Read as a licence rather than a trade, it presents its bill at the wrong end.
Is a signed accreditation questionnaire enough?
Under 506(b) you may act on a reasonable belief, and a representation is evidence toward one. Under 506(c) a bare representation appears in only two of the listed methods: an investor already verified within the last five years, and one who bought into the same issuer's 506(b) offering before September 2013.
Does Rule 506 get me out of state securities law?
Out of state registration, yes: securities sold under rules made under section 4(2) are covered securities and a state cannot require you to register them. Not out of anything else. The same statute preserves the state's right to a notice filing, its fee, and actions for fraud or deceit. A sponsor raising across several states still has a filing calendar.
What actually happens if we get a condition wrong?
There is a rule excusing a failure that did not affect the particular buyer, was insignificant to the offering as a whole, and came despite a good faith and reasonable attempt to comply. It will not reach the ban on how you may offer or the limit on buyers. Where the exemption is genuinely lost, each buyer has a right to their money back with interest.
Where every line came from
Primary sources only. Quoted phrases are the regulation's or the statute's own words. The rest is our plain-English rendering, worth checking against the text.
Paragraph references are to 17 CFR 230.506 unless another rule is named. Last checked against these sources on September 17, 2026. Not legal advice.
The next questions this one raises
Verand for real estate syndicators
What the software does, and refuses to do.
/real-estate-syndicators ExplainerIs investor education content general solicitation?
The applied test, run against pages a sponsor site already has.
/what-counts-as-advertising QuestionCan real estate syndicators use AI to write content?
What the rules ask of a draft, whatever produced it.
/using-ai-to-write-content ChecklistSyndication blog disclaimer requirements
The accredited-investor block, and the offering notice that replaces it.
/disclaimer-requirements The mechanismWhich block a draft ends up carrying
One per article, chosen by what the article is.
/features/sources-and-disclaimers TrustHow we label compliance review
Operator-reviewed, not attorney-verified, and why we print it.
/compliance-standardsPicking the exemption takes an afternoon. Publishing inside it takes the whole raise.
Verand drafts in the sponsor's voice, from the deal experience you gave it, and runs the Regulation D checks before anything reaches a reviewer. Somebody at your firm still presses publish.
Packs are AI-researched and operator-reviewed against the governing body's published rules. Not attorney-verified. Not legal advice.