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506c Offering: How It Works, Changes, Filing Form D

This page explains what a 506c offering is, how it works, and how a lawyer from ContractsCounsel can keep you compliant with all regulations.

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What is a 506c Offering?

Rule 506c is a securities offering that legally allows companies to raise unlimited capital from investors without having to register it with the U.S. Securities and Exchange Commission (SEC).

However, there are important things to know about 506(c) offerings and how they work, especially since some of their rules have changed.

Read the rest of this article to learn how Rule 506(c) works, how the rule has changed, and when you should consult with a lawyer for assistance.

How Does Rule 506(c) Work?

Unlike with Rule 506(b), companies using 506(c) to raise money can advertise their endeavor in any legal way they want, which gives them more options.

Here are some of Rule 506(c)’s characteristics:

  • General solicitation is allowed. Companies can advertise the offering in ads on websites, in newspapers, and on commercials. This enables them to increase their reach.
  • Only accredited investors are allowed. Companies need to ensure that the investors are accredited, such as by reviewing all their documentation.
  • They’re covered securities. This means that they’re exempt from certain state registration requirements.
  • There’s no limit on raised capital. 506(c) offerings are appealing to companies who need to raise significant amounts of money.
  • They don’t require strict disclosure requirements. Full SEC registration disclosure isn’t required for 506(c), but it’s essential that all communication is aligned with anti-fraud regulations.

What Should You Know About the Rule 506(c) Changes?

Rule 506(c) has previously been avoided by some people because it used to have highly restrictive investor verification requirements. It also provided a risk to issuers because they could lose their exemption if they accepted funds from an unverified investor.

This rule has changed. Issuers can now state that they have verified investor’s accreditation if the following criteria are met:

  • The issuer has received written representation from the investor that states the investor is accredited and the investment isn’t fully or partially financed by any third party for the purpose of making the investment.
  • The issuer does not believe that the written statements could be untrue.
  • Issuers can use traditional verification methods for smaller investments, which makes them easier to conduct.

When Should Companies Choose a 506(c) Offering?

There are certain situations in which 506(c) offerings make sense for companies. These include the following:

  • The company is hoping to extend their search for investors, which they can achieve via public advertising.
  • The company can handle verifying the investors are accredited.

Do Companies Need to File for a 506(c) Offering?

Although a company that meets all criteria for Rule 506(c) doesn’t have to register their securities offering with the SEC, they have to file a Form D.

Form D is a notice that provides information about the company’s directors or officers, including their names and addresses. The offering’s details will be included, such as their industry group and types of securities that are being offered (with pooled investment fund interests and equity being examples).

If you don’t file a Form D, you risk not being compliant with all state-level and regulatory rules. It’s also important to do because it increases the confidence your investors have in the investment.

What Securities Can Be Offered in 506(c)?

There are various securities that can be offered in a 506(c). These include:

  • Debt securities. Examples include corporate bonds and promissory notes.
  • Equity securities. Common or preferred stock are examples, which display company ownership.
  • Convertible securities. After starting as one type of security, the item can become something else, such as equity.
  • Membership units in LLCs. These are a display of ownership in an LLC.

What are the Limitations of 506(c)?

Although 5069(c) offerings have much flexibility, there are some limitations. These include the following:

  • Non-accredited investors are prohibited. This varies from Rule 506(b) which allows up to 35 non-accredited investors.
  • Investors need to be verified. It’s up to the issuer to verify the accredited status of their investors, such as by reviewing their bank statements, tax returns, and credit reports.
  • Anti-fraud laws need to be considered. Issuers need to avoid making any false or misleading statements, or omit important facts. This applies to all their communications, including ads or information on websites.
  • Companies must file Form D. Not doing this can cause regulatory consequences and hamper future offerings from the company.

How Do You File Form D?

Form D must be filed within 15 days of the first sale of securities in an offering. Although it doesn’t require a filing fee, you need to be meticulous about filing Form D notices and changes online, by using the SEC’s EDGAR (Electronic Data Gathering, Analysis and Retrieval) system.

Do You Need a Lawyer for a 506(c) Offering?

If your company is interested in a 506(c) offering, you might wonder if you should consult with a lawyer for legal guidance. Although this isn’t legally required, there are various benefits of hiring a lawyer. These include the following:

  • A lawyer will help you decide if a 506(c) offering is right for you.
  • They’ll draft and/or review all documents involved in the offering to ensure they’re legal, fair, and transparent.
  • They’ll help you follow through on investor verification processes.
  • They’ll review your ads and other marketing materials to ensure they’re all valid and legal.
  • They’ll prepare and file Form D on your behalf.

Where can you find a lawyer for a 506(c) offering?

You should hire a lawyer from ContractsCounsel, an online legal marketplace that connects lawyers with vetted lawyers on the platform. They have the credentials and expertise to help you navigate 506(c) offerings, ensuring your company remains protected and legally compliant, while raising the capital you need to be successful.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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