General solicitation arrived in 2013 with a verification duty

The record

Rule 506 of Regulation D, at 17 CFR 230.506, has offered two distinct paths since 23 September 2013: paragraph (b), the traditional route with no general solicitation, and paragraph (c), added to implement Section 201(a) of the JOBS Act. The SEC's adopting release, Release No. 33-9415, states the amendment "permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify" that status, and the final rule and form amendments took effect on 23 September 2013.

What the documents establish

The rule's text draws the operative line: a 506(b) offering may sell to up to 35 non-accredited but financially sophisticated purchasers alongside unlimited accredited investors, so long as the issuer does not generally solicit or advertise. A 506(c) offering may advertise publicly, but every purchaser must be accredited, and the issuer must affirmatively verify that status rather than simply accept a signed representation. The rule's text lists non-exclusive verification methods: reviewing IRS forms such as W-2, 1099, Schedule K-1 or Form 1040 for income-based accreditation together with a written representation of continuing eligibility; reviewing bank, brokerage or tax-assessment documentation dated within the prior three months for net-worth-based accreditation, paired with a consumer report on liabilities; or obtaining a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a CPA who has verified the purchaser's status within the prior three months.

The operating read

Choosing 506(c) is a trade: the ability to advertise a private offering publicly in exchange for a documented verification burden that 506(b) does not impose, where a signed accredited-investor questionnaire is generally accepted practice. This is an editorial reading, not the rule's own text: a company that intends to raise under 506(c) should decide before the first advertisement runs which verification method it will use, because switching from self-certification to document-based verification mid-offering can be harder to reconcile for investors who already committed under a lighter standard. Rule 506(c) does not replace 506(b); an issuer with no need to advertise generally may still prefer the lighter compliance load of the traditional route.

What to check before you decide

Before choosing between 506(b) and 506(c) for a private offering, check:

• Will any general solicitation or public advertising of the offering occur, which forecloses reliance on 506(b)?
• Which of the rule's verification methods will be used for each purchaser, and is the supporting documentation actually available before the offering opens?
• Are any non-accredited purchasers involved, which is only permitted, in limited number, under 506(b)?

This entry describes what the rule's text and the Commission's own adopting release state; it is not a recommendation to use one exemption over the other for a specific offering.