Regulation D Rule 506(c): What Issuers Need to Know About General Solicitation

For companies raising capital through private placements, Regulation D under the Securities Act of 1933 provides a critical exemption from the costly and time-consuming process of SEC registration. Within Regulation D, Rule 506(c) — introduced by the JOBS Act in 2012 — permits issuers to engage in general solicitation and advertising, a significant departure from the traditional restrictions on private offerings.

What Rule 506(c) Permits

Under Rule 506(c), an issuer may broadly advertise its offering to the public — through websites, social media, press releases, and investor conferences — without violating the prohibition on general solicitation that applies to Rule 506(b) offerings. This makes 506(c) particularly attractive for issuers who want to reach a wide pool of potential investors.

The Accredited Investor Verification Requirement

The trade-off for this expanded marketing freedom is a heightened verification obligation. Under Rule 506(c), issuers must take reasonable steps to verify that every purchaser is an accredited investor. Relying solely on a self-certification checkbox — as is common in 506(b) offerings — is not sufficient.

The SEC has identified several acceptable verification methods, including:

• Review of IRS forms (W-2, 1040, K-1) to verify income
• Review of bank, brokerage, or other financial statements to verify net worth
• Written confirmation from a licensed attorney, CPA, investment adviser, or broker-dealer
• Use of a third-party verification service

Failure to properly verify accredited investor status can result in the loss of the exemption — meaning the offering may be deemed an unregistered securities offering, with significant legal consequences for the issuer.

Form D Filing Requirements

Issuers relying on Rule 506(c) must file a Form D with the SEC within 15 days of the first sale of securities. Many states also require notice filings under their own blue sky laws. Missing these deadlines can complicate future fundraising and, in some states, trigger enforcement action.

Ongoing Compliance Considerations

A 506(c) offering is not a one-time filing event. Issuers must maintain records of their verification procedures, update their Form D if material information changes, and ensure that all offering materials comply with the anti-fraud provisions of the federal securities laws.

The Law Office of Carl G. Hawkins, PLLC assists issuers with Regulation D offerings, Form D filings, investor verification procedures, and ongoing securities compliance. Contact the firm to discuss your capital-raising needs.