506(c) vs 506(b): what's the difference, and which one should you use for your raise?

By Zach Schleien

506(c) lets you advertise your raise, but every investor must be accredited and verified. 506(b) bans advertising but allows up to 35 non-accredited investors. Here's how to pick.

The difference between 506(b) and 506(c) comes down to whether you can advertise your offering. Under Rule 506(c) you can market your raise publicly, but every investor has to be accredited and you have to take reasonable steps to verify it. Under Rule 506(b) you can't advertise, but you can take up to 35 non-accredited investors, and accredited investors can confirm their own status.

I'm a marketer, not a lawyer. I built the investor marketing for a real estate sponsor raising under Rule 506(c), so this guide covers the rules every sponsor should know and what changes in your marketing once you can advertise. Check your own offering with securities counsel before you act on any of it.

Raising capital under Rule 506(c)? I build the investor funnel: ads, an accreditation page, an investor webinar and a setter team. Qualified investor leads ran $35 to $58 for one sponsor. Book a call about your raise.

Key takeaways

• Both are exemptions under Rule 506 of Regulation D. Neither has a cap on how much you can raise, and both let you take an unlimited number of accredited investors.
• 506(b) bans general solicitation. You raise from people you already have a relationship with.
• 506(c) allows general solicitation, so you can run ads, host public webinars and talk about the deal on podcasts. Every investor must be accredited, and you must take reasonable steps to verify it.
• You can switch an offering from 506(b) to 506(c) if every sale in it meets the 506(c) rules, which is easiest before you take any money. You can't go back to 506(b) once you've advertised.
• If your network is running out of investors, 506(c) is usually the reason to change, because it lets you reach people who have never heard of you.

What Rule 506 of Regulation D is

Regulation D is a set of SEC rules that let a company raise money without registering the offering with the SEC. Rule 506 is the part most real estate sponsors use, and it has two versions: 506(b) and 506(c).

Some rules are the same for both:

• There's no limit on how much you can raise.
• You can sell to an unlimited number of accredited investors.
• You file a Form D with the SEC within 15 days after the first sale.
• States can't make you register the offering, but they can require a notice filing and a fee.
• Investors get restricted securities, so they can't freely resell them.
• "Bad actor" rules apply. Certain past violations by the people involved can disqualify the offering.

The two versions split on one question: can you go out and find investors you don't know?

506(b) vs 506(c) side by side

How a 506(b) raise works

A 506(b) raise runs on relationships. You can't post the deal on social media, run ads for it or invite the public to a webinar about it. Sponsors usually raise from people they already know: past investors, friends, family and their professional network. Securities lawyers usually describe this as needing a pre-existing, substantive relationship with the people you offer the deal to.

The upside is flexibility. You can take up to 35 non-accredited investors in any 90-day period, as long as each one is financially sophisticated (alone or with a purchaser representative) and gets disclosure documents similar to what a Regulation A offering would provide. If you give information to accredited investors, the non-accredited investors have to get it too. Accredited investors can confirm their own status, so there's less paperwork at the finish line.

The limit is your network. When the people who already know you have invested, a 506(b) raise has nowhere new to go.

How a 506(c) raise works

A 506(c) raise lets you market the deal to anyone. You can run Facebook and Instagram ads, host a public investor webinar, get press, go on podcasts and post about the offering. The tradeoff: every investor has to be accredited, and you have to take reasonable steps to verify it. A checkbox where the investor says "I'm accredited" isn't enough on its own.

The rule lists methods that count as reasonable steps. These are the common ones:

• Income: reviewing IRS forms that show income for the two most recent years, plus a written statement from the investor that they expect to hit the same level this year.
• Net worth: reviewing recent bank, brokerage or similar statements plus a credit report, with a written statement that all liabilities have been disclosed.
• Third-party letter: a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a CPA that they've verified the investor's status.

In March 2025, SEC staff described another path. If an individual commits at least $200,000 (at least $1 million for most entities) and gives written statements that they're accredited and that no third party is financing the investment, the issuer can generally treat that as reasonable steps, as long as it doesn't know anything that says otherwise. If your minimum check is high, this can make verification much simpler. Ask your counsel how it applies to your deal.

As a refresher, an individual is generally accredited with earned income over $200,000 ($300,000 with a spouse or spousal equivalent) in each of the last two years with the same expected this year, or a net worth over $1 million not counting their primary residence. Holders of a Series 7, 65 or 82 license in good standing also qualify.

Which one should you use?

Use 506(b) when:

• your network still has enough investors to fill the raise
• you want to include friends or family who aren't accredited
• you'd rather not ask investors for tax returns or a verification letter

Use 506(c) when:

• your past investors and personal network won't fill the raise
• you want to run ads, host public webinars or use press and podcasts to reach new investors
• your investors are all accredited, or your minimum check is high enough that they will be

For most sponsors, the deciding question is where the next investor will come from. If the answer is "someone who has never heard of me," you need 506(c).

Can you switch from 506(b) to 506(c)?

Yes, in one direction, with a catch. SEC staff guidance says a company that started an offering under 506(b) can switch to 506(c) as long as the 506(c) conditions are met for all sales in the offering, and it amends its Form D if it already filed one. That's easiest before you've taken any money. If you've already sold to non-accredited investors, or to investors whose status you didn't verify, talk to counsel before you advertise.

Going the other way is the problem. A company can only rely on 506(b) if it hasn't used general solicitation. Once you've advertised the offering, you can't go back to 506(b) for it.

What advertising a 506(c) raise looks like in practice

The rule tells you what you're allowed to do. It doesn't tell you how to find accredited investors who don't know you. Here's what that looked like when I built the investor marketing for a real estate sponsor raising for a nine-figure project under Rule 506(c).

The pieces. An investor site with an accreditation page and a quiz that screens for LP, accredited and minimum check. Meta Pixel plus server-side Conversions API, with deduplication and bot filtering, so the ads optimized toward real investors. Founder-led video and press-based static ads on Facebook and Instagram. A deck download for people not ready to talk, with a path back to a call. An investor webinar with a 49-slide deck and a 21-message reminder sequence by email, text and voicemail. And a setter team that booked calls with the founder.

The results, about 10 weeks of live campaigns. Qualified investor leads cost $35 to $58, against a published $150 to $480 for accredited investor leads through paid digital. The accreditation page pass rate went from about 4% to 15 to 18%, roughly 4x. Booked investor calls averaged $403 across the campaigns built to book calls, and as low as $296 in the best ad sets. Most firms pay $1,000 to $1,500 per booked investor call. The account produced 46 investor sales opportunities in about 10 weeks. The full breakdown is in the real estate case study.

What I'd tell any sponsor going 506(c):

• Don't copy the category's ads. Objection-handling reels, the format most firms run, spent $1,600 across 7 ad sets and booked zero calls. A plain founder asking directly booked calls in cold and warm audiences.
• Use your press. Static ads built from the firm's press coverage brought in leads at $18 to $19. The original video ads cost $133 to $186.
• Ask for the call, not the deck. 65% of the people who booked a call never downloaded the deck, and the deck path cost 4 to 5x more per call. So we moved the account to calls first.
• Build compliance into the funnel. We got written approvals on the legal questions before launch, put a disclaimer on every ad, never stated a hard return in any ad, and reviewed creative in batches so sign-off didn't stall the account.

Mistakes that cause problems

• Advertising a 506(b) deal. A public post about a specific offering, an open webinar or a cold email blast can count as general solicitation. If you've done that, talk to counsel before you take money under 506(b).
• Treating a checkbox as verification in a 506(c). The investor's own "yes, I'm accredited" doesn't meet the reasonable steps standard by itself.
• Promising returns in ads. Stick to facts about the sponsor and the strategy, and let the offering documents do the rest.
• Skipping the Form D and state notice filings. Both have deadlines.
• Choosing 506(c) without a plan to find investors. The rule lets you advertise. You still need the ads, the pages and the follow-up that turn strangers into booked calls.

This is general information from a marketer, not legal advice. Every offering is different, so confirm your approach with securities counsel.