Rule 506(b) vs. 506(c): What’s the Difference?

April 7, 2025

For investment professionals launching their own fund or private offering, one of the first and most important decisions is whether to pursue Rule 506(b) or Rule 506(c) under Regulation D of the Securities Act. This decision directly impacts your ability to market the offering, the types of investors you can accept, and the compliance steps required throughout the fundraising process.

Rule 506(b) is the more traditional option. It allows issuers to raise an unlimited amount of capital from accredited investors and up to 35 non-accredited but sophisticated investors. However, it prohibits any form of general solicitation or public advertising. This path is best suited for those with strong personal or professional networks, as it relies on existing relationships to raise capital. One of its main advantages is that accredited investors can self-certify their status, making the onboarding process smoother. The ability to include a limited number of non-accredited investors can also help broaden the investor base. That said, including non-accredited investors increases disclosure obligations, and the lack of marketing flexibility can make it harder to reach new prospects.

Rule 506(c), introduced through the JOBS Act in 2012, offers a more modern approach by allowing public advertising and general solicitation. This opens the door to digital marketing, social media, public events, and more—but it comes with stricter requirements. Only accredited investors are allowed to participate, and issuers must take “reasonable steps” to verify each investor’s accredited status through documentation like tax returns, W-2s, or third-party confirmations. This added compliance step can lengthen the process and create some friction, but the expanded visibility can significantly increase access to capital and allow for faster scaling.

Importantly, issuers can begin with a 506(b) offering and later switch to 506(c) if broader outreach becomes necessary. However, this switch is one-way—once general solicitation occurs under 506(c), you cannot revert to 506(b) for that offering. Before making the transition, all existing investors must be accredited, and offering documents and Form D filings must be updated to reflect the change.

In the end, the decision between 506(b) and 506(c) should be based on your access to investors, your marketing strategy, and your readiness to handle the associated compliance requirements.