The Securities and Exchange Commission’s amendment of Rule 506 of Regulation D and Rule 144A under the JOBS Act lifted one of the most significant restrictions on private capital formation in decades: the prohibition on general solicitation. For startups, growth-stage companies, and investment funds, this change opened new pathways to raise capital from accredited investors while staying within the private offering exemptions from Securities Act registration. Understanding the new rules—and the compliance requirements they impose—is essential for any business considering a general solicitation offering.
Prior to the JOBS Act amendments, Rule 506 offerings under Regulation D prohibited issuers from making any general solicitation or general advertising in connection with the offering. This meant no press releases, no social media posts about the investment opportunity, no public pitches, and no open investor meetings—at least not without risking disqualification from the Regulation D exemption.
The amended Rule 506(c) creates a new category of offering that permits general solicitation subject to one critical condition: the issuer must take reasonable steps to verify that all purchasers are accredited investors. This is not simply a matter of checking a box. The SEC expects issuers to take affirmative, documented steps to verify accredited investor status—not just collect self-certification forms.
The SEC defines accredited investor at Rule 501(a) of Regulation D. The categories most relevant to private offerings include:
In 2020, the SEC expanded the accredited investor definition to include additional categories: individuals holding certain professional certifications (Series 7, Series 65, or Series 82 licenses), knowledgeable employees of private funds, and certain SEC- and state-registered entities.
Under Rule 506(c), an issuer’s reasonable steps to verify accredited investor status must go beyond self-certification. The SEC’s adopting release identified several non-exclusive safe harbor methods for verification:
Review two years of tax returns, W-2s, Form 1099s, Schedule K-1s, or other government documents showing income. Obtain a written representation that the investor expects to qualify in the current year.
Review third-party documentation of assets (bank statements, brokerage statements, certificates of deposit) and liabilities (credit reports or consumer reports). Obtain a written representation from the investor confirming any liabilities not reflected in the documentation.
Obtain written confirmation from a registered broker-dealer, investment adviser, licensed attorney, or certified public accountant that such person has verified the investor’s accredited status within the prior three months. This is often the most practical approach for issuers conducting general solicitation campaigns.
The SEC’s Rule 144A amendment permits general solicitation in Rule 144A offerings, provided that securities are sold only to Qualified Institutional Buyers (QIBs)—entities that own and invest on a discretionary basis at least $100 million in securities of issuers not affiliated with the entity. This change facilitates more efficient marketing of large private placement transactions to institutional investors.
General solicitation under Rule 506(c) offers significant fundraising opportunities, but it also imposes compliance obligations that must be taken seriously. Required steps include:
Revision Legal advises startups, growth-stage companies, and investment funds on securities law compliance, including Regulation D offerings, Rule 506(c) general solicitation campaigns, and Regulation Crowdfunding. If you are planning a capital raise, contact us to ensure your offering is structured to take advantage of available exemptions while maintaining full regulatory compliance.
The SEC’s 2013 amendments to Regulation D — implementing the JOBS Act’s mandate to lift the ban on general solicitation in certain private offerings — created Rule 506(c) as a complement to the existing Rule 506(b). Under Rule 506(b), issuers could raise unlimited capital from an unlimited number of accredited investors and up to 35 non-accredited sophisticated investors, but could not use general solicitation or advertising. Rule 506(c) permits general solicitation and advertising, but imposes a corresponding requirement: the issuer must take reasonable steps to verify that all purchasers are accredited investors.
The SEC identified several non-exclusive verification methods in its adopting release. For income-based accreditation (annual income exceeding $200,000, or $300,000 with a spouse), issuers may review IRS documents such as W-2s, K-1s, or tax returns for the two most recent years. For net worth-based accreditation (net worth exceeding $1 million excluding primary residence), issuers may review bank statements, brokerage statements, and credit reports. Third-party verification letters from licensed attorneys, CPAs, registered investment advisers, or registered broker-dealers also satisfy the rule.
Self-certification — where the investor simply checks a box or signs a questionnaire — is not adequate verification under Rule 506(c), distinguishing it sharply from the longstanding 506(b) practice. Issuers who use general solicitation but fail to properly verify accredited investor status lose the exemption entirely and may face registration violations.
Rule 506(c) opened significant new channels for capital formation. Issuers can now publicize offerings on websites, social media, and through broker-dealers engaging in general solicitation — without triggering registration requirements under the Securities Act of 1933. For emerging growth companies, real estate syndicators, and private equity funds, this enables broader marketing reach while maintaining the cost and disclosure advantages of a private offering.
However, general solicitation under Rule 506(c) also triggers additional compliance considerations. Form D must be filed with the SEC within 15 days of first sale, and the Form D must identify the offering as relying on Rule 506(c). State blue sky laws are preempted for 506(c) offerings under § 18 of the Securities Act, limiting state review to notice filings and fees. Issuers advertising across multiple states should ensure state notice filings are current to avoid technical violations. An experienced securities attorney can build the verification procedures and Form D filing process into the offering workflow before the first communication reaches potential investors.
Securities counsel can also help issuers navigate the interaction between Rule 506(c) and Regulation A+, Regulation CF (crowdfunding), and Regulation S offerings, structuring the capital raise to maximize investor reach while managing integration risk — the risk that two offerings within a six-month window are treated as a single offering for purposes of the applicable exemption’s conditions. Integration is a particularly acute concern for issuers who use 506(c) for one tranche and a different exemption for another, and proper sequencing requires experienced securities counsel at the outset of any multi-stage raise.
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