Insight
Rule 506(b) vs. 506(c) vs. Reg CF: choosing a private offering exemption
Raising a round means selling securities, and the exemption you pick decides who can invest, whether you can advertise, and what you file. For most companies it comes down to three.
Published
June 12, 2026
Updated
June 12, 2026
Raising money from investors means selling securities, even when the “investor” is a friend, a former colleague, or an angel you met at a demo day. Federal law starts from a strict premise: every sale of a security has to be registered with the SEC unless it fits an exemption (Securities Act section 5, 15 U.S.C. section 77e). Registration is far too expensive for a closely held company, so the real work of a private raise is choosing the exemption and following its rules exactly. For most companies, the choice comes down to three: Rule 506(b), Rule 506(c), and Regulation Crowdfunding.
They are not interchangeable. The exemption decides who is allowed to invest, whether the company can advertise the round at all, what it has to verify about each investor, and what it files with regulators. Pick the wrong one, or break the rules of the one you picked, and the exemption can collapse, taking the protection of the whole raise with it.
Rule 506(b) vs. Rule 506(c)
Both are safe harbors under Regulation D, the private-placement exemption in Securities Act section 4(a)(2) (15 U.S.C. section 77d(a)(2)), and both let a company raise an unlimited amount. The line between them is one thing: whether you can publicly solicit.
Rule 506(b) is the traditional private placement. A company can raise from an unlimited number of accredited investors plus up to 35 sophisticated non-accredited ones, but it cannot generally solicit: no public advertising, no posting the round online, no pitching it from a stage to a room you did not already know. In exchange for that restraint, the company can accept an investor’s own written representation that they are accredited under Rule 501. It is the structure for a relationship-based raise from a network the founders already have.
Rule 506(c) flips the trade. The company may market the offering openly, online, at events, anywhere, but every purchaser has to be an accredited investor, and the company must take reasonable steps to verify it rather than take the investor’s word. Verification usually means reviewing tax returns or brokerage statements, or getting a written confirmation from the investor’s accountant or attorney. The freedom to advertise is bought with the burden of proving every check came from an accredited source.
Where Regulation CF fits
When a company wants to raise from ordinary investors, not just accredited ones, Regulation Crowdfunding is the path. Built on Securities Act section 4(a)(6), Reg CF lets a company raise from any investor, subject to income and net-worth limits on how much each can put in, but the raise runs through a registered online funding portal and is capped per twelve-month period, currently at five million dollars. The disclosure is public: the company files a Form C and financial statements that anyone can read. It is the structure for a broad, small-dollar, community-style raise rather than a handful of large checks.
Here is how the three line up on the dimensions that decide which one a raise can use.
An exemption from registration is not an exemption from fraud
The most common misunderstanding about a private offering is that an exemption frees the company from securities law generally. It does not. Every offering, exempt or not, stays subject to the antifraud rule, Rule 10b-5 (17 CFR 240.10b-5), which makes a material misstatement or a misleading omission in the sale of a security actionable. That is why most companies prepare a private placement memorandum even when the exemption does not strictly require one: it documents what investors were told about the business, the security, and the risks, and it limits the claims that can be made later.
The stakes for getting the exemption right show up after the money is in. An offering that loses its exemption gives every investor a rescission right under Securities Act section 12(a)(1) (15 U.S.C. section 77l), the right to demand their money back, with interest. That liability tends to surface at the worst possible time, in a down round, a dispute, or the diligence for a sale, which is exactly when a company cannot afford to unwind its last raise.
The traps that break a good exemption
Most blown exemptions are not close calls; they are avoidable mistakes. A few recur.
General solicitation is the classic one. A company running a Rule 506(b) raise that posts the round on its website or pitches it publicly has just engaged in the general solicitation 506(b) forbids, and the exemption is gone. Integration is the subtler trap: two offerings close together in time can be treated as one, which can break an exemption each raise would have satisfied on its own. The bad-actor rule, Rule 506(d), disqualifies a Regulation D offering entirely if an officer, director, or major shareholder has certain securities or criminal violations in their past. And the state layer is easy to forget: while a Rule 506 offering is a covered security that states cannot require to be registered (Securities Act section 18, 15 U.S.C. section 77r), Washington still requires a notice filing and fee under the Securities Act of Washington (RCW 21.20), as does every other state where an investor lives.
How to choose
The exemption follows who you are raising from and how you intend to reach them.
- Raising from a network you already know, on relationships rather than advertising: Rule 506(b) is the simplest path, as long as you keep the round genuinely private.
- Marketing the round publicly, online or from a stage, and willing to take only accredited money: Rule 506(c), with the verification work that comes with it.
- Raising small amounts from a broad community, including non-accredited investors: Regulation CF, through a registered portal and within the cap.
Whichever you choose, the exemption has to be in place at the first sale. There is no fixing it retroactively once a check has cleared, which is why the structure is a decision to make before the raise opens, not during it.
Frequently asked questions
What is the difference between Rule 506(b) and Rule 506(c)?
Both are Regulation D exemptions with no dollar cap, and the difference is general solicitation. Rule 506(b) bars advertising and lets investors self-certify that they are accredited, allowing up to 35 sophisticated non-accredited investors alongside accredited ones. Rule 506(c) permits public marketing but requires that every investor be accredited and that the company verify it.
Can I advertise a Rule 506(b) offering?
No. Rule 506(b) prohibits general solicitation, so advertising the round, posting it online, or pitching it publicly can break the exemption. If you want to market the raise openly, you need Rule 506(c), which permits solicitation but requires verifying that every investor is accredited.
What is Regulation CF, and how is it different?
Regulation Crowdfunding lets a company raise from any investor, not just accredited ones, through a registered online funding portal. It is capped per twelve months (currently five million dollars), limits how much each investor can contribute, and requires public disclosure on a Form C. It suits a broad, small-dollar raise rather than a few large checks.
Does a private offering have to be registered with the SEC?
No, as long as it fits an exemption such as Rule 506(b), 506(c), or Regulation CF. A Regulation D offering still requires a Form D notice filing within fifteen days of the first sale, and the antifraud rules apply regardless. “Exempt from registration” does not mean exempt from securities law.
What happens if an offering loses its exemption?
Every investor gets a rescission right under Securities Act section 12(a)(1): the ability to demand their investment back, with interest. That liability usually surfaces later, in a financing or a sale, when the company can least afford to return the capital, which is why structuring the exemption correctly at the outset matters so much.
Raising a round is a securities transaction first and a financing second. Our securities attorneys in Bellevue and Seattle structure private offerings so the exemption holds and the round closes clean. Talk to us before you take the first check, while the exemption is still yours to get right.
