Rule 506(b) vs. 506(c): which Reg D exemption is being used?

The headline difference

Both Rule 506(b) and Rule 506(c) let issuers raise unlimited capital from accredited investors. The practical split:

• 506(b): no public advertising; up to 35 non-accredited investors allowed; issuer can rely on investor self-certification of accredited status.
• 506(c): public advertising is allowed; accredited investors only; issuer must take reasonable steps to verify accredited status (tax returns, W-2s, broker-dealer letter, etc.).

In short: 506(b) is quiet; 506(c) is loud but has a stricter door.

Why it shows up on Form D

Form D lists the exemption(s) claimed under "Federal Exemption(s) and Exclusion(s)". You'll see codes like:

• 06b → Rule 506(b)
• 06c → Rule 506(c)
• 04 → Rule 504 (smaller, $10M cap)
• 3(c)(1), 3(c)(7) → exemptions under the Investment Company Act for the fund itself (not the securities sale) — common on pooled-fund filings

A single filing can claim multiple. A venture fund raising under 506(b) that's structured as a 3(c)(1) fund will show both.

What "general solicitation" means in practice

Under 506(b), the issuer must have a pre-existing, substantive relationship with every prospect. In practice this means:

• A VC firm emailing its LP list: fine.
• A founder posting "we're raising a seed round" on LinkedIn with specific terms: not fine under 506(b) — that's general solicitation and pushes the deal to 506(c).

Many Rule 506(b) issuers inadvertently violate this rule; the SEC occasionally enforces.

What "reasonable verification" means under 506(c)

The SEC doesn't prescribe a single method, but they list non-exclusive safe harbors:

• Two most recent tax-return years showing income ≥ $200k individual / $300k joint
• A net-worth calculation based on bank/brokerage statements and a credit report
• A written confirmation from a licensed broker-dealer, investment adviser, attorney, or CPA

Most issuers outsource this step to third parties like VerifyInvestor, Parallel Markets, or EarlyIQ.

Reading it on a Form D

When you see 06b alone with a high number of investors and "minimum investment $250,000", it's almost certainly a traditional private fund. When you see 06c with marketing-funnel-style round numbers and a low minimum, you're probably looking at a syndicate or a crowdfunding-style raise that wanted to advertise publicly.

Looking up filings by exemption

Form D Explorer indexes the offering_type field (which stores the claimed exemptions). Browse pooled investment fund filings to see 506(b) + 3(c)(1)/(7) stacks, or search for specific issuers on the homepage.