How Can You Benefit from a Reg D 506(c)?
Reg D 506 (c) allows issuers to advertise and solicit an offering, as long as certain criteria are met. All purchases need to be made by accredited investors and issuers need to take reasonable steps to ensure that their accredited status is verified.
Since 2025, the Securities and Exchange Commission (SEC) has provided new guidance on this rule. They provide amended reasonable steps issuers need to take, to make them easier to navigate. These changes have made Reg D 506(c) offerings more appealing to investors and issuers alike.
Read the rest of this article to learn more about Reg D 506(c) and their new guidelines.
What Does the New Reg D 506(c) Guideline State?
To ease the burden on issuers when verifying an investor's accredited status, the following conditions need to be met, as outlined in the SEC’s “No-action” letter which has simplified the process of verifying accredited investors.
- The issuer needs to get a written representation from the purchaser to confirm they are an accredited investor and they haven’t financed the investment via a third party.
- Investor commitment needs to be a minimum of $1 million for legal entities (or $200,000 for natural person investors).
- Issuers must not have any knowledge of any facts that display the purchaser as someone who isn’t an accredited investor or has financed the investment.
For an entity investor that is accredited because of its beneficial owners, the investor needs to represent that:
- Its equity owners are accredited investors.
- Each of its equity owners’ investments have met the minimum thresholds of $200,000 for individuals and $1 million for legal entities.
- The investments weren’t financed by a third party.
What is Rule 506(c)?
The Rule 506(c) was created to make it easier for companies to raise capital for their businesses while protecting their investors. It enables companies to market their investment opportunities to find a wider range of investors.
Under Rule 506(c), issuers are allowed to make use of general solicitation and general advertising. This can include posting information about the offerings on websites or in the media, which isn’t allowed on other Regulation D offerings.
How Can Investors Be Verified?
It can feel challenging to know exactly how to verify accredited investors. The SEC makes it easier by providing various methods to achieve this, such as reviewing tax forms or scrutinizing their credit reports to confirm the investor’s income earned.
Here’s are other acceptable ways in which to verify accredited investors:
- Reviewing copies of IRS forms that report income, such as W-2 or 1099 forms.
- Reviewing bank statements and brokerage statements.
- Getting written confirmation from a registered broker-dealer, SEC-registered investment advisor, licensed attorney, or certified public account that states the issuer has taken reasonable steps to verify the accredited status of the investor and has determined they are accredited.
It’s important to note that self-certification from the investor (such as ticking a box to show that they are accredited) without the issuer being informed of their financial circumstances isn’t enough to ensure the issuer has taken reasonable steps to verify the investor.
How Do You Become an Accredited Investor?
You can become an accredited investor for Rule 506(c) by meeting the following criteria, as determined by the SEC:
- You have to earn more than $200,000 on your own or $300,000 jointly with a spouse in the last two years and expect that the current year will provide the same earnings.
- You have a net worth over $1 million, which doesn’t include your primary residence.
- You have professional certifications or licenses, such as Series 7, 65, or 82.
Is Investor Accreditation Permanent?
Once you’ve verified your accreditation, it isn’t necessarily valid for a long time. It depends on what documents are being used to verify your accredited investor status.
For example, CPA letters tend to be valid for three months, while third-party verification platforms can sometimes ensure you stay valid for up to five years as long as your financial situation hasn’t changed much.
Investors need to ensure that they stay up to date with their verification. If there is a material change in their finances, the verification won’t be considered valid anymore.
“Material change” basically means a significant change to their financial situation, such as losing their job or a massive drop in their net worth.
Do You Need a Lawyer for a Reg D 506(c) Offering?
While it’s not legally required for you to hire a lawyer for Reg D 506(c) offerings, it’s usually in your best interest to consult with a qualified lawyer. They have the experience to guide you through the process.
Here are some ways in which they can help you.
- A lawyer will help you choose the best verification method depending on the type of investment and your specific situation.
- They will consider if a 506(c) offering is a solid investment for your specific case.
- They will ensure that your verification is up to date.
- If you’re an issuer, a lawyer can help you review and verify your investors correctly.
- They can review your marketing materials and ads to ensure they are legal and valid.
- They’ll help you when you need to file Form D with the SEC.
- They’ll draft and review any documents required so that you can be sure they’re legal and transparent.
Where Can You Find a Lawyer for a Reg D 506(c) Offering?
If you’re interested in working with a lawyer for a Reg D 506(c) offering, whether you’re an issuer or investor, you should hire one from ContractsCounsel.
All lawyers on this legal marketplace have been vetted on the platform. They have the credentials and expertise to assist you through all aspects of the 506(c) offering so you remain protected and legally compliant. They can also draft and review any required documents, giving you peace of mind that everything is in order so you can raise capital for your business.
