Rule 506 of Regulation D lets a company raise money without registering the offering with the SEC, as long as it follows the rule’s limits on who may invest and how the offering is advertised. Most private real estate funds rely on one of its two exemptions.

Key Takeaways

• Rule 506 allows companies to raise capital without SEC registration if they comply with investor limits and advertising restrictions.
• Rule 506(b) prohibits advertising but permits a limited number of non-accredited investors; 506(c) allows advertising but requires all investors be accredited.
• Accredited investors typically have annual income exceeding $200,000 or net worth over $1 million excluding home equity.
• Rule 506(c) offerings may be advertised provided every investor is verified as accredited before investing, usually completed within days.

Under 506(b), a sponsor may not advertise and may accept a limited number of non-accredited investors. Under 506(c), a sponsor may advertise, but every investor must be accredited and verified. How Our Fees Work: Transparent Pricing to see how we charge for this work.

Who counts as an accredited investor?

Broadly, a person with income over $200,000 a year for the last two years, or a net worth over $1 million not counting their home.

Can a 506(c) offering be advertised?

Yes, as long as every investor is verified as accredited before they invest.

How long does verification take?

Usually a few days, with a letter from a CPA, attorney or registered adviser who has reviewed the investor’s records.