Rule 506(b) vs Rule 506(c)

Jurisdiction and status

Both rules are US federal law in Regulation D, the Securities and Exchange Commission's (SEC) exempt-offering rules, at 17 CFR 230.506, last amended in 2021. Rule 506(c) dates from 2013. The accredited investor definition they rely on (Rule 501(a)) was last substantively amended effective 8 December 2020. A Division of Corporation Finance no-action letter of 12 March 2025 added a minimum-investment route to 506(c) verification; it is a staff position, not a rule amendment. The SEC's 30 September 2026 request for comment on new accredited-investor credentials is a proposal and changes neither rule.

Side by side

Verifying accredited status under 506(c)

The rule requires "reasonable steps to verify", judged on the facts, and lists non-exclusive methods for natural persons that are deemed to satisfy it, provided the issuer does not know the purchaser is not accredited:

• Income: reviewing Internal Revenue Service (IRS) forms that report income (for example Form W-2, 1099, Schedule K-1 or Form 1040) for the two most recent years, with a written representation about the current year.
• Net worth: reviewing asset statements (bank, brokerage, appraisals) and a consumer credit report for liabilities, each dated within the prior three months, with a written representation that all liabilities are disclosed.
• Third-party confirmation: a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant that it has taken reasonable steps within the prior three months to verify the purchaser's status and has determined that the purchaser is accredited.
• Re-verification: an investor the issuer verified within the prior five years, with a written representation that the investor remains accredited.

Minimum-investment route (2025 no-action letter). Staff agreed an issuer could reasonably conclude it has taken reasonable steps where the minimum investment is at least $200,000 for natural persons or $1 million for legal entities (binding commitments paid in instalments as called count), the purchaser represents in writing that it is accredited and that the minimum is not financed by a third party for the purpose of the investment, and the issuer has no actual knowledge to the contrary.

How funds choose

Most private funds have historically used 506(b): investors are approached through existing relationships and a placement agent's network, and status is documented by representation in the subscription documents. Sponsors that want to market openly (websites with fund information, media, conferences, online platforms) use 506(c). Because many institutional fund minimums exceed $200,000 for individuals and $1 million for entities, the 2025 letter reduced the verification burden that had kept many sponsors on 506(b).

Two constraints apply under either rule. An SEC-registered adviser's advertisements, which under Rule 206(4)-1(e)(1) include communications to more than one person offering its advisory services to prospective investors in a private fund it advises, are subject to the SEC Marketing Rule, whatever the offering exemption. And the fund still needs an Investment Company Act exclusion such as 3(c)(1) or 3(c)(7), each conditioned on no public offering; under Securities Act section 4(b), added by the Jumpstart Our Business Startups (JOBS) Act of 2012, offers and sales under Rule 506 as revised in 2013 are not deemed public offerings under the federal securities laws because of general advertising or general solicitation.

In 506(b) practice, sponsors commonly document a pre-existing, substantive relationship with each investor they approach.

Not the same as

• Rule 144A: Rule 144A governs resales to qualified institutional buyers, not the issuer's offering under Rule 506.
• Private Placement: Both 506(b) and 506(c) offerings are private placements in the market sense; only 506(c) allows general solicitation.

Common mistakes

• Saying 506(b) "limits" general solicitation. It prohibits general solicitation and general advertising.
• Relying on a bare self-certification under 506(c) without one of the verification methods, the 2025 minimum-investment conditions, or another documented reasonable-steps analysis.
• Admitting a few non-accredited investors under 506(b) without providing the required disclosure and financial information.
• Reading the 2025 no-action letter as a rule change, or as covering investments below $200,000 (individuals) or $1 million (entities).
• Describing the September 2026 accredited-investor credential proposals as in force.

Edge cases

• Once an issuer has generally solicited, it cannot fall back on 506(b) for that offering.
• A purchaser whom the issuer reasonably believed to be accredited at the time of sale counts as accredited under Rule 501(a), but under 506(c) that belief must rest on reasonable verification steps.
• Under the 2025 letter, an uncalled binding commitment counts toward the minimum, which fits closed-end funds that draw capital over several years.

Questions

Sources

1. 17 CFR 230.506 - Exemption for limited offers and sales without regard to dollar amount of offering (Rule 506(b) and 506(c)). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2021-06-09. Status: in force (checked 2026-10-01). 17 CFR 230.506(a); 230.506(b)(1)–(2)(i)–(ii); 230.506(c)(1), (c)(2)(i)–(ii)(A)–(E) and Instructions; 230.506(d); source note (78 FR 44770, 44804, 2013-07-24; 86 FR 3598, 2021-01-14) — supports: Both forms deemed section 4(a)(2) transactions; 35 non-accredited / 90-day limit and sophistication; accredited-only, reasonable steps and listed verification methods for natural persons (including five-year re-verification); no 502(b) information condition under 506(c); bad actors; 506(c) added 2013; last amended 2021
2. Private placements - Rule 506(b). U.S. Securities and Exchange Commission, Page last updated 2026-09-21. Status: current (checked 2026-10-01). Rule 506(b) page (updated 2026-09-21) — supports: No general solicitation; unlimited amount; disclosure to non-accredited purchasers
3. General solicitation - Rule 506(c). U.S. Securities and Exchange Commission, Page last updated 2026-03-17. Status: current (checked 2026-10-01). Rule 506(c) page (updated 2026-03-17) — supports: General solicitation permitted; restricted securities; bad actors; Form D within 15 days
4. No-Action Letter: Latham & Watkins LLP (Rule 506(c) verification via minimum investment amounts). U.S. Securities and Exchange Commission, Division of Corporation Finance, 2025-03-12. Status: in force (staff position) (checked 2026-10-01). No-action letter, 2025-03-12 — supports: $200,000 / $1,000,000 minimum-investment route, written representations, no actual knowledge to the contrary
5. Rule 506 of Regulation D (glossary). U.S. Securities and Exchange Commission (Investor.gov), Accessed 2026-10-01. Status: current (checked 2026-10-01). Glossary: Rule 506 — supports: 506(b) is a safe harbor under section 4(a)(2)
6. 17 CFR 239.500 - Form D, notice of sales of securities under Regulation D and section 4(a)(5) of the Securities Act of 1933. U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2016 (81 FR 83553, Nov. 21, 2016; eCFR version dated 2017-05-23). Status: in force (checked 2026-10-01). 17 CFR 239.500(a)(1), (a)(3)(iii) — supports: Form D timing and annual amendment
7. 17 CFR 230.501 - Definitions and terms used in Regulation D (accredited investor). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2025-02-18 (technical, 90 FR 9684); last substantive amendment effective 2020-12-08 (85 FR 64234). Status: in force (checked 2026-10-01). 17 CFR 230.501(a) — supports: Accredited investor definition, including reasonable belief
8. SEC Proposes Amendments to Expand Responsible Retailization of Private Markets (press release 2026-96). U.S. Securities and Exchange Commission, 2026-09-30. Status: proposed (checked 2026-10-01). Press release 2026-96 (2026-09-30) — supports: Credential pathways request for comment (proposal only)
9. 17 CFR 230.502 - General conditions to be met (Regulation D: information requirements, limitation on manner of offering, limitations on resale). U.S. Securities and Exchange Commission (CFR text via LII mirror), LII text accessed 2026-10-01; last amended 2021-01-14 per LII. Status: in force (checked 2026-10-01). 17 CFR 230.502(b)(1)-(2), (c) — supports: Disclosure to non-accredited 506(b) purchasers; general solicitation prohibited except under 506(c)
10. 15 U.S.C. 77d - Exempted transactions (Securities Act of 1933, section 4). U.S. Congress (U.S. Code via LII), Current U.S. Code text opened 2026-10-02. Status: in force (checked 2026-10-02). Sec. 4(b) — supports: Rule 506 offerings (as revised under JOBS Act sec. 201) not deemed public offerings because of general solicitation
11. Potential Designation of Chartered Financial Analyst Designation as Qualifying Natural Persons for Accredited Investor Status (notice; request for comment), Release No. 33-11447, File No. 4-933. U.S. Securities and Exchange Commission, 2026 (exact issue date not printed in the SEC-issued PDF; comment period 60 days after FR publication). Status: proposed (notice and request for comment) (checked 2026-10-01). Release 33-11447, n. 4-5 — supports: 506(b) summary; 506(c) adopted under JOBS Act section 201(a)
12. 17 CFR 275.206(4)-1 - Investment adviser marketing (Marketing Rule). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2022-04-15 (later versions technical). Status: in force (checked 2026-10-01). 17 CFR 275.206(4)-1(e)(1) (advertisement) — supports: Advertisement includes communications to more than one person offering advisory services to prospective private fund investors
13. 15 U.S.C. 80a-3 - Definition of investment company (Investment Company Act sec. 3, incl. 3(c)(1) and 3(c)(7)). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). 15 U.S.C. 80a-3(c)(1), (c)(7)(A) — supports: 3(c)(1) and 3(c)(7) conditioned on no public offering

• Accredited Investor
• Form D
• Placement Agent
• Subscription Agreement (Subscription Documents)
• 3(c)(1) Fund
• 3(c)(7) Fund
• Regulation D (Reg D)