Difference between Reg D 506b and 506c rules

Rule 506b of Regulation D is considered as a 'safe harbor under section 4(a)2. Companies conducting an offering can raise unlimited amount of money and can sell securities to an unlimited number of accredited investors. An offering under rule 506b is subjected to following requirements:

No general and internet solicitation is allowed. Marketing is limited, only to known investors.

Securities cannot be sold to more than 35 non-accredited investors. There is no limitation on accredited investors.

Private placement memorandum is not required but it is typically used if all investors are accredited. To non-accredited investors must be provided with disclosure that generally contain the same information as provided in registered offering.

Financial statements are required for non-accredited investors. It may differ depending on the offering which are placed in three categories: offerings up to, $2 million, $7.5 million and offering above $7.5 million.

Issuer should be available to answer questions from perspective purchasers who are not accredited investors.

Offering cannot be made if Bad Actor is involved; issuer must take reasonable care to exclude Bad Actors and may use questionnaires for that purpose.

Rule 506(c) doesn't impose limitations on solicitation. It can be marketed over television, internet, advertisements and social media if certain requirements are met:

Only accredited investor may buy the securities.

Issuer must take reasonable steps to verify accredited status. According to SEC rules accredited investor must have $1 million in assets or $200,000 in net annual personal income. Institutions must hold $5 million in assets.

Proposals by SEC would require earlier filing of form D and additional amendment after closing.

Offering cannot be made if Bad Actor is involved.

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