Regulation D Rule 506b Offerings

The SEC’s Regulation D (Reg D) offers a collection of rules that allow companies to raise capital and offer and sell securities without registering the transactions. Rule 506(b) is one such rule – which falls under Reg D – and is considered a “safe harbor” exemption under the US Securities Act. This rule enables issuers to offer securities to an unlimited number of accredited investors and up to 35 non-accredited “sophisticated” investors without the need for registration.
Rule 506(b) is designed to provide flexibility and ease of raising capital for small businesses and startups. By meeting the conditions outlined in the rule, issuers can conduct private placements and raise capital from private investors without the burden of extensive paperwork and regulatory requirements associated with public offerings.
To legally conduct a Reg D Rule 506(b) exempt offering, certain conditions must be met. These include: no solicitation or public marketing of the securities, limitations on the number of investors, disclosure of all material facts about the company to potential investors, and availability of management to answer any questions they may have.
The key disclosure requirement of Rule 506(b) offering is the creation of a disclosure document, commonly referred to as a Private Placement Memorandum or “PPM”. The PPM provides detailed information about the investment opportunity, including the company’s description, management structure, offering terms, risk factors, use of proceeds, securities descriptions, subscription procedures, and relevant exhibits or appendixes. The PPM serves as a comprehensive guide for investors and protects the issuer by providing a clear record of the information provided.
Since typically a PPM can be prepared by Mangum & Associates in less than 30 days, Rule 506(b) offers a flexible and efficient option for raising capital quickly, allowing issuers, such as small businesses, to reach a broader range of investors while complying with the necessary regulations.
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Understanding the Challenges of Regulation D 506b Offerings
Regulation D Rule 506(b) offerings present unique challenges for issuers looking to raise capital. The US Securities Act and Regulation D set forth strict guidelines that issuers must follow to ensure compliance with securities laws.
One of the main challenges is the restriction on general solicitation or marketing of the securities. Issuers cannot publicly advertise or promote their offerings to the general public. Instead, they must rely on pre-existing relationships with investors or other means of private communication.
Another challenge is the distinction between accredited and non-accredited investors. Accredited investors have a higher net worth or income threshold and are deemed more financially sophisticated. Non-accredited investors, on the other hand, have fewer financial resources and may require additional disclosures and suitability assessments.
Through its Enforcement Division, the U.S. Securities and Exchange Commission (SEC) oversees and regulates Regulation D offerings. Issuers must ensure they meet the SEC’s anti-fraud requirements and comply with all necessary state securities laws. The filing of Form D with the SEC and in states where the 506(b) offering is sold is an important compliance step. Form D provides basic key information about the offering.
Navigating the legal requirements of a 506(b) offering requires a thorough understanding of applicable SEC rules and regulations, as well as careful drafting of the PPM delivered to investors about the offering. Working with a seasoned securities law firm such as Mangum & Associates can help ensure a smooth, compliant, and successful Regulation D 506(b) offering.
Identifying Common Compliance Hurdles of Rule 506b
While Rule 506(b) does not require the verification of accredited investor status, issuers must still exercise reasonable care to ensure that investors are suitable enough to meet the investor criteria set forth in the PPM. This can involve obtaining numerous written representations from investors and at times requiring the assistance of an attorney, CPA, or another licensed professional to assist the investor evaluate the merits and risks of making an investment decision.
Another compliance hurdle is determining whether a “bad actor” (i.e., a disqualified person) exists within the issuer's team. The current Rule 506(b) disqualifies issuers from making an offering if any covered person involved with the offering has a disqualifying event such as certain prior criminal convictions or regulatory sanctions (thus making them a “bad actor”). Conducting thorough due diligence on team members and implementing procedures to identify any potential bad actors is crucial to avoiding violations and protecting the integrity of the offering.
Additionally, issuers must ensure that they meet the specific requirements, including restrictions on general solicitation and limitations on the number of non-accredited investors. A private placement offering must also comply with applicable state securities laws.
By identifying and addressing these compliance hurdles early on, issuers can navigate the offering process more effectively and minimize the risk of non-compliance.
Navigating the Complex Landscape of Accredited vs. Non-Accredited Investors
As a matter of public policy, “accredited” investors are deemed to have a higher level of financial sophistication, and capacity for risk, and to possess the knowledge and resources to “fend for themselves” and conduct their own due diligence in making investment decisions. Accordingly, accredited investors are, therefore, subject to fewer regulatory restrictions. They must meet certain minimum income or net worth thresholds to qualify as an accredited investor. While Rule 506(b) does not require issuers to take reasonable steps to verify the accredited investor status of their investors, issuers must nevertheless exercise reasonable care to collect sufficient information and/or representations from investors that they meet the criteria.
Non-accredited investors, on the other hand, are investors who do not meet the minimum income or net worth thresholds to be considered accredited. Non-accredited investors generally have fewer financial resources at their disposal to conduct proper due diligence. This is why non-accredited investors must represent that they have at least a reasonable level of investment and/or business experience such that they can assess the merits and risks of investing in the investment opportunity (in other words, they must possess a degree of “sophistication” when it comes to such matters) or if they lack this themselves, they will appoint a person who does possess such a level of sophistication in such matters (also known as a “purchaser representative”). When considering accepting non-accredited investors in their offering, issuers must collect additional information to determine whether they are sufficiently “sophisticated” to participate in the offering and invest in the issuer’s securities.
Navigating the complexities of accredited and non-accredited investors requires careful compliance with regulatory requirements and consideration of the specific needs and limitations of each investor type.
How Does Mangum & Associates Simplify the Rule 506b Offering Process?
At Mangum & Associates, we are dedicated to simplifying the 506(b) offering process for issuers. With our deep understanding of securities laws and regulations, our securities law firm provides professional guidance and support throughout the entire private placement offering journey, from launch through completion.
At Mangum & Associates, we help issuers, ranging from startups to well-seasoned companies, navigate the complexities of private placements of their securities by utilizing the “federally-covered” safe harbor provided by Rule 506(b). Our boutique specialized securities law firm assists with the preparation of essential documents, such as the private placement memorandum or “PPM” which provides comprehensive material information about the investment opportunity.

At Mangum & Associates, we ensure that issuers meet the disclosure requirements, including compliance with applicable general solicitation restrictions and suitability assessments for non-accredited investors. Our securities law firm provides guidance on exercising reasonable care in verifying accredited investor status and addressing any potential compliance challenges.
With Mangum & Associates by your side, you can confidently raise capital on your own terms and focus your valuable time on your core business matters while leveraging our firm’s extensive experience in helping companies legally raise capital in the US Private Capital Markets.
Why Choose Mangum & Associates for Your Regulation D Rule 506b Offering?
Mangum & Associates is the ideal choice for issuers seeking comprehensive legal support and guidance for their Reg D 506(b) offering needs.
With our extensive experience – ranging from emerging technologies such as A.I. to energy (solar, wind, oil, gas, renewables) and from cryptocurrencies and blockchain tokens to real estate acquisitions and development – our securities law firm understands the unique requirements and challenges associated with these industries. Whether it’s securing the first lead investor or facilitating the sale of securities to hundreds of crowdfunding investors, at Mangum & Associates, we provide specialized legal advice and assistance throughout the offering process from initial concept to final closing.
Our securities law firm’s commitment to excellence and industry knowledge sets us apart, ensuring that our clients receive top-notch service and support for their Reg 506(b) PPM needs. While working with Mangum & Associates, issuers can navigate the complexities of the offering process with confidence and achieve their fundraising goals.
A Reg D Rule 506(b) offering PPM is a valuable tool for issuers in the private equity and real estate industries enabling them to raise private capital for their companies or ventures quickly. Compliance with regulatory requirements is paramount to avoid potential violations related to the general solicitation and marketing of securities. At Mangum & Associates, we stand out as your trusted partner to guide you every step of the way, helping you understand the SEC regulations and completing and filing the necessary forms like Form D with the SEC and the states under blue sky laws.
Choosing our securities law firm ensures that you have access to comprehensive support tailored to the unique needs of your company. Our extensive experience not only facilitates the process of securing investors but also ensures smooth navigation through the complex regulatory landscape of U.S. and international securities laws. By leveraging our PPM lawyers’ knowledge and experience, issuers can focus on their core business.
A 506(c) offering, a subset of Rule 506 under Regulation D, provides your company with the flexibility to solicit investments from accredited investors through general advertising and public marketing efforts. Unlike the more restrictive 506(b) offering, described above, a 506(c) offering allows issuers to cast a wider net while still targeting qualified investors. However, reasonable verification procedures must be followed to verify the investor’s accreditation status. Unlike Rule 506(b), under Rule 506(c) you can’t simply “take their word for it” that the investor is accredited. Navigating the nuances of a 506(c) offering requires expert legal guidance to ensure compliance with SEC regulations while helping boost and maximize your fundraising potential.
Regulation D offerings – specifically Rule 506(b) and Rule 506(c) of the Securities Act of 1933, as amended – provide different pathways for your company to raise capital while maintaining exemptions from registration. The primary distinction between the two lies in the methods of solicitation and the qualifications of investors. Rule 506(b) allows issuers to raise an unlimited amount of money from accredited investors and from up to 35 non-accredited “sophisticated” investors. However, it prohibits general solicitation and public advertising, cold-calling, using social media, etc. In contrast, Rule 506(c) permits issuers to engage in general solicitation and advertising, including social media, etc., but all investors must be accredited and the issuer must take reasonable steps to verify their accredited status at the time of their investment. These differences allow issuers to choose the best approach based on their target investor pool and marketing strategies. Partnering with securities law firm and PPM specialist Mangum & Associates can help navigate these nuances effectively, ensuring compliance and successful capital access.
Rule 506(b) offerings, a common choice for private companies seeking capital, restricts public solicitation efforts but does allow for up to 35 non-accredited investors. Also, Rule 506(b) places no limit on the number of accredited investors. Issuers must follow specific guidelines to verify investor status and ensure compliance with SEC regulations. While this approach limits outreach opportunities compared to 506(c) offerings, it provides flexibility in investor qualifications. Navigating Rule 506(b) requirements demands meticulous attention to detail and adherence to regulatory standards, underscoring the critical need for experienced and seasoned legal counsel for successful private placements.
Frequently Asked Questions
What Makes Regulation D 506(b) Offering Different?
A Regulation D 506(b) offering is different from other offerings under Regulation D due to its requirements and limitations. Here are some key differences:
- Unlike Rule 506(c), Rule 506(b) allows issuers to include up to 35 non-accredited investors in the offering.
- Rule 506(b) prohibits general solicitation, meaning issuers cannot publicly advertise or market their securities via social media, etc.
- Under Rule 506(c), Issuers must take reasonable steps to verify their investors are accredited. Under Rule 506(b), the Issuer may rely on the investor’s representations in the suitability questionnaire without independent verification (i.e., investors “self-certify”).
Overall, a 506(b) offering presents an attractive option for companies seeking capital investment while maintaining a degree of confidentiality and reaching a wider pool of potential investors.

Contact Mangum & Associates for Guidance in Navigating Regulation D 506(b) Offerings
Understanding the nuances of Regulation D Rule 506(b) offerings is crucial for successfully raising capital. Navigating compliance hurdles, leveraging tailored solutions, and benefiting from legal guidance are key steps in simplifying the offering process. At Mangum & Associates, our proven track record and comprehensive legal support ensure a seamless experience from initial consultation to PPM drafting to successfully raising the capital you need to launch or grow your company. With a focus on client satisfaction and building trust, we pride ourselves on achieving compliance with minimal stress. Contact us today to help you achieve success in your Regulation D Rule 506(b) offerings.