Finance term
Regulation D (Rule 506(b) / 506(c)) — Private Placement
Also known as: Reg D, Rule 506(b), Rule 506(c), private placement, Regulation D exemption, 506(b), 506(c)
Definition
Regulation D Rules 506(b) and 506(c) are the most widely used SEC exemptions from Securities Act registration, allowing companies to raise unlimited capital from accredited investors without a public registration statement. Rule 506(b) permits up to 35 non-accredited investors with no general solicitation; Rule 506(c) allows general advertising but requires all investors to be verified accredited. All Reg D offerings require a Form D filing with the SEC within 15 days. See sec.gov/fast-answers/answersregdhtm.html.
Detailed explanation
Regulation D (17 CFR §§ 230.501–230.508) is the SEC's primary safe harbor for private securities offerings exempt from the registration requirements of Section 5 of the Securities Act of 1933. Rules 506(b) and 506(c) are the two Reg D exemptions available to any issuer (no size cap, no dollar limit on raise), making them the backbone of U.S. private capital markets.
**Rule 506(b) — the traditional private placement:** - No general solicitation or general advertising (no public marketing) - Unlimited number of accredited investors - Up to 35 non-accredited but 'sophisticated' investors (rare in practice) - Investors must have access to information comparable to a registered offering - Form D must be filed with the SEC within 15 days of first sale - State blue sky laws: preempted for accredited investors; some states require notice filings
**Rule 506(c) — general solicitation allowed (post-JOBS Act 2013):** - General solicitation and general advertising permitted - ALL purchasers must be verified accredited investors (written verification required) - Verification methods: W-2/tax returns, third-party verification letters, minimum investment of $200K+ in context - More compliance burden (verification documentation) vs. 506(b) - Form D required within 15 days
**Accredited investor definition (SEC Rule 501(a)):** As updated by the SEC in 2020, accredited investors include: (1) individuals with $200K+ annual income ($300K with spouse) in each of the last two years with reasonable expectation of same; (2) individuals with $1M+ net worth (excluding primary residence); (3) licensed investment professionals (Series 7, 65, 82); (4)'knowledgeable employees' of private funds; (5) entities with $5M+ in assets or all equity owners are accredited.
**Common uses:** VC/PE fund formation, startup equity rounds, real estate syndications, private credit, convertible note or SAFE offerings, growth equity raises. The Reg D market transacts over $2 trillion annually per SEC Form D data — dwarfing public offering volume. See sec.gov/fast-answers/answersregdhtm.html for the SEC's Reg D guidance.
◈ Worked example
- Seed round under 506(b): A startup raises $1.5M from 12 accredited angel investors via convertible SAFEs. No marketing materials or public announcements (no general solicitation). Form D filed with SEC within 15 days of first closing. State blue sky notice filings completed for investors' states of residence.
- 506(c) real estate syndication: A developer uses 506(c) to raise $10M from investors via social media and LinkedIn marketing. All 45 investors must provide W-2s, tax returns, or CPA/attorney verification letters confirming accredited status. Verified documentation retained for 3 years.
- VC fund formation: A private equity fund raises $50M from institutional investors (pension funds, endowments, family offices — all accredited investors or qualified purchasers) under 506(b). No public marketing; investor solicitations are to pre-existing relationships. Form D filed with SEC listing fund type and aggregate offering amount.
Common questions
The most-asked questions about Regulation D (Rule 506(b) / 506(c)) — Private Placement — answered straightforwardly.
What is an 'accredited investor' under SEC rules? +
Under SEC Rule 501(a), accredited investors include: individuals with $200K+ annual income (or $300K joint) in each of the prior two years with expectation of same; individuals with $1M+ net worth excluding primary residence; holders of certain SEC licenses (Series 7, 65, 82); 'knowledgeable employees' of private funds; entities with $5M+ assets where no entity was formed specifically to invest; and financial institutions and other specified entities. See sec.gov/smallbusiness/exemptofferings/amendmentaccredinvestordefinition for the current definition.
What is the difference between Rule 506(b) and Rule 506(c)? +
Rule 506(b) prohibits general solicitation (public advertising), allowing up to 35 non-accredited sophisticated investors alongside unlimited accredited investors. Rule 506(c) permits general solicitation (social media, advertising, public marketing), but requires that ALL investors be verified accredited — self-certification is not sufficient. Most startup and VC raises use 506(b) due to lower verification burden; real estate and fund managers advertising to high-net-worth audiences often use 506(c).
Do Reg D offerings require SEC approval? +
No. Reg D is a safe harbor exemption from registration — the SEC does not review or approve Reg D offerings. The Form D filing is a notice, not an approval request. The SEC monitors Reg D filings for red flags and may conduct examinations or enforcement actions if violations are detected, but there is no pre-clearance process.
Further reading
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