Rule 506(b)

Rule 506(b) is part of Section 4(a)(2) in the Securities Act of 1933, which outlines rules companies or investors must follow to sell securities in a private offering. 506(b)'s defining feature: A GP can raise an unlimited amount of money as long as they do not publicly advertise or solicit investments for the fund.

What is the difference between 506 B and 506 C?

In a Rule 506(b) offering, the issuer may take the investor's word that he, she, or it is accredited, unless the issuer has reason to believe the investor is lying. In a Rule 506(c) offering, the issuer must take reasonable steps to verify that every investor is accredited.

What is regulation 506?

Rule 506 bans general solicitation of the securities. That is, issuers may not advertise their offering to a broad audience. Investors in a Rule 506 offering receive restricted securities, which means investors cannot freely resell their securities.

Which of the following is an advantage of a 506 B offering?

Under a 506(b) offering, startups do not have to implement a costly and time-consuming process to verify the accredited investor status for each prospective investor. This removes a significant burden from the fundraising process.

Can you change from 506b to 506c?

In the release, the Commission specifically observed that this means an issuer conducting a Rule 506(b) offering can switch to Rule 506(c) so long as any sales made after the switch are only to accredited investors whose status the issuer has taken reasonable steps to verify.