What is Rule 506(c)?
What is Rule 506(c)?
Rule 506(c) of Regulation D allows issuers to advertise and solicit publicly for their securities offerings, but they can only sell to accredited investors, whom they must take reasonable steps to verify. Like Rule 506(b), it requires filing a Form D with the SEC and places no cap on the amount of capital raised. However, securities sold are restricted and generally cannot be resold without registration or an applicable exemption.
The most important aspects of Rule 506(c) are:
- Sales Only to Accredited Investors: Unlike Rule 506(b), Rule 506(c) permits issuers to sell securities only to accredited investors. This means all investors in the offering must meet specific income or net worth criteria.
- Verification of Accredited Status: Issuers must take reasonable steps to verify that all investors in the offering are indeed accredited. This is a stricter requirement than Rule 506(b), where self-certification by investors is generally sufficient.
- General Solicitation and Advertising Allowed: Issuers can advertise their offerings and solicit investments from the public, a major difference from Rule 506(b), which prohibits general solicitation and advertising.
- Filing Requirements: Similar to Rule 506(b), issuers must file a Form D with the SEC, typically within 15 days after the first sale of securities.
- Resale Restrictions: Securities sold under Rule 506(c) are also considered restricted securities and generally cannot be resold without registration or an applicable exemption.
- No Limit on Amount Raised: Issuers can raise an unlimited amount of capital under Rule 506(c).
Rule 506(c) is particularly advantageous for issuers who wish to leverage broader advertising and solicitation methods to reach potential investors, provided they adhere to the strict verification requirements for accredited investors.
