Businesses raising private capital often rely on Regulation D, especially Rule 506(b) or Rule 506(c). Both exemptions allow issuers to raise an unlimited amount of money without registering the securities offering with the Securities and Exchange Commission (SEC), but they work very differently.
For Florida companies, the choice between Rule 506(b) and Rule 506(c) often comes down to one practical question: will the business raise money through private investor relationships, or does it need to publicly market the offering?
Key Takeaways
- Rule 506(b) generally allows private offerings to accredited investors and up to 35 sophisticated non-accredited investors, but it prohibits general solicitation.
- Rule 506(c) allows public advertising, but all purchasers must be accredited investors and the issuer must take reasonable steps to verify that status.
- Both Rule 506(b) and Rule 506(c) offerings require a Form D filing with the SEC within 15 days after the first sale.
- Florida does not currently require Rule 506 issuers to file a state Form D notice or pay a Florida notice filing fee, unlike many other states.
- Issuers selling to investors outside Florida may still need to evaluate notice filing obligations in those other states.
- Both exemptions remain subject to federal anti-fraud rules, bad actor disqualification, and other securities law requirements.
- The right exemption depends on factors such as investor relationships, marketing plans, investor eligibility, timing, and compliance tolerance.
What Is Regulation D?
Regulation D is a set of federal securities rules that provides exemptions from SEC registration for certain private offerings. Instead of completing a full public registration process, eligible issuers may raise capital by satisfying the requirements of a Reg D exemption.
Reg D does not mean securities laws no longer apply. The eCFR states that Regulation D offerings are exempt from certain registration requirements, but they are not exempt from anti-fraud, civil liability, or other federal securities law provisions.
For many startups, real estate sponsors, private funds, and closely held businesses, Rule 506(b) and Rule 506(c) are the most commonly considered exemptions.
What Is Rule 506(b)?
Rule 506(b) is often used when a company is raising capital through private investor relationships.
Under SEC guidance, Rule 506(b) permits companies to raise an unlimited amount of money and sell securities to an unlimited number of accredited investors. It also permits sales to no more than 35 non-accredited investors, provided those non-accredited investors meet the legal sophistication standard.
The biggest limitation is marketing. Rule 506(b) offerings generally cannot use general solicitation or advertising to market the securities.
That means a company should be careful with communications such as:
- Public social media posts
- Website announcements
- Podcast investment discussions
- Public webinars
- Email blasts to unknown investors
- Conference presentations promoting the offering
Rule 506(b) is usually more compatible with private fundraising based on existing relationships. It may be less suitable when the issuer wants to publicly promote the investment opportunity.
What Is Rule 506(c)?
Rule 506(c) allows issuers to generally solicit and advertise an offering, which is the main reason businesses consider it.
The SEC explains that Rule 506(c) permits broad solicitation and general advertising if all purchasers are accredited investors, the issuer takes reasonable steps to verify accredited investor status, and the other Regulation D conditions are satisfied.
This can make Rule 506(c) attractive for issuers that want to market through:
- Websites
- Social media
- Public events
- Online ads
- Email campaigns
- Investor platforms
However, the tradeoff is verification. In a Rule 506(c) offering, the issuer cannot simply rely on an investor checking a box saying they are accredited. The issuer must take reasonable steps to verify accredited investor status.
SEC rules identify verification methods that may include written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or CPA who has taken reasonable steps to verify the purchaser’s accredited investor status within the prior three months.
Accredited Investor Requirements Matter
Accredited investor status is central to both Rule 506(b) and Rule 506(c).
The SEC states that many private offering exemptions either limit participation to accredited investors or restrict participation by non-accredited investors. Individuals may qualify based on financial criteria, including net worth over $1 million excluding the primary residence, or income over $200,000 individually, or $300,000 with a spouse or partner, in each of the prior two years with a reasonable expectation of the same income in the current year.
Entities may also qualify in several ways, including certain entities with assets over $5 million or entities whose equity owners are all accredited investors.
In practical terms, Rule 506(c) requires more discipline around investor verification. Rule 506(b) may involve less formal verification when selling only to accredited investors, but issuers still need a reasonable basis for their compliance position.
Florida Rule 506 Filing Considerations
Florida has an important state-specific point for Rule 506 offerings.
The Florida Office of Financial Regulation states that securities offerings under Rule 506(b) and Rule 506(c) are not subject to state registration or qualification. Florida also states that, unlike most states, it does not require issuers offering or selling securities in Florida under Rule 506 to file a notice, including Form D, with the Office or pay a Florida notice filing fee.
That Florida treatment can reduce state filing burden for offerings limited to Florida investors. However, issuers should not assume that Florida’s approach applies elsewhere. The SEC notes that although Rule 506 offerings receive federal preemption from state registration and qualification, states still have authority to require notice filings and collect fees.
If a Florida company accepts investors from other states, those other states may have separate filing requirements. And as always, securities offerings should be evaluated based on the specific facts, documents, investors, communications, and jurisdictions involved.
Form D Still Applies at the Federal Level
Even if Florida does not require a state Rule 506 notice filing, the federal Form D requirement still matters.
The SEC states that Form D is used to file notice of an exempt offering with the SEC, including offerings under Rule 506. The filing is generally due within 15 days after the first sale of securities.
The SEC’s Form D FAQs also state that Form D must be filed online through EDGAR and that paper filings are not accepted.
Rule 506(b) vs. Rule 506(c): Practical Comparison
Rule 506(b) may be considered when:
- The issuer already has established investor relationships
- The offering will not be publicly advertised
- The company may want flexibility to include up to 35 sophisticated non-accredited investors
- The issuer wants to avoid the added verification burden of Rule 506(c)
- Marketing will remain private and controlled
Rule 506(c) may be considered when:
- The issuer wants to publicly advertise the offering
- The offering will be limited to accredited investors
- The issuer is prepared to verify accredited investor status
- The business plans to use online marketing, social media, or public investor outreach
- The compliance team can document verification procedures carefully
Neither exemption is automatically better. The issue is whether the exemption matches how the issuer intends to communicate with investors and who the issuer expects to accept as purchasers.
Common Mistakes Florida Issuers Should Avoid
One recurring issue in private offerings is that businesses begin discussing investment opportunities publicly before deciding whether they are relying on Rule 506(b) or Rule 506(c). A social media post, podcast mention, email campaign, or public presentation can create problems if the issuer later tries to treat the raise as a private Rule 506(b) offering.
Other common mistakes include:
- Treating investor interest as separate from securities compliance
- Using Rule 506(b) after publicly advertising the opportunity
- Choosing Rule 506(c) without a verification process
- Missing the federal Form D deadline
- Forgetting to evaluate other states when investors are outside Florida
- Making overly optimistic financial claims
- Failing to screen for bad actor disqualification
Rule 506 offerings are also subject to bad actor disqualification provisions. The SEC explains that offerings may be disqualified from relying on Rule 506(b) or Rule 506(c) if the issuer or another covered person has certain criminal convictions, regulatory orders, court orders, or other disqualifying events.
Frequently Asked Questions
What is the main difference between Rule 506(b) and Rule 506(c)?
Rule 506(b) generally prohibits general solicitation, while Rule 506(c) permits general solicitation if all purchasers are accredited investors and the issuer takes reasonable steps to verify accredited investor status.
Can a Florida company advertise a Rule 506(b) offering?
Generally, no. Rule 506(b) offerings cannot use general solicitation or advertising to market the securities. Public advertising is usually associated with Rule 506(c), subject to its requirements.
Does Florida require a Form D notice filing for Rule 506 offerings?
Florida currently states that it does not require issuers selling securities in Florida under Rule 506 to file a state notice or pay a Florida notice filing fee. The federal Form D filing with the SEC still generally applies.
Do Rule 506 offerings avoid all securities law requirements?
No. Regulation D provides an exemption from certain registration requirements, but anti-fraud rules, civil liability provisions, bad actor rules, and other compliance obligations still apply.
Can non-accredited investors participate in Rule 506 offerings?
Rule 506(b) may allow up to 35 sophisticated non-accredited investors, subject to specific requirements. Rule 506(c) requires all purchasers to be accredited investors.
Bottom Line
For Florida issuers, Rule 506(b) and Rule 506(c) both offer powerful paths for raising private capital without a full SEC registration. The better fit depends on the offering’s facts.
Rule 506(b) is typically associated with private fundraising through existing relationships. Rule 506(c) is typically associated with public marketing, but it requires accredited investor verification.
Before launching a capital raise, businesses should evaluate investor eligibility, marketing plans, offering documents, Form D timing, bad actor issues, and state law considerations. The exemption should match the actual fundraising strategy, not just the desired outcome. For specific, professional legal guidance about which exemption to use, contact us today.
