Private Offering Advertisements: Rule 506(c) Explained

Rule 506(c) — General Solicitation, Accredited Investor Verification, and the Public-Facing Private Placement

By Asher Ang, Partner | Kelley Clarke, PC

I. Introduction: Private Offerings Go Public-Facing

For most of U.S. securities law history, ‘private placement’ meant exactly that – private. An issuer could sell securities without SEC registration, but only in exchange for strict silence: no advertising, no cold calls, no public announcements. The Jumpstart Our Business Startups Act (JOBS Act) of 2012 changed that calculus. Section 201(a) of the JOBS Act directed the SEC to remove the prohibition on general solicitation for offerings made under Rule 506 to accredited investors, giving birth to Rule 506(c).

Rule 506(c) allows issuers to advertise their securities offerings to the general public on websites, social media, billboards, invoices, even a colorful sign with puppies, provided that all actual purchasers are accredited investors and the issuer takes reasonable steps to verify their accredited status. 

II. The Legal Foundation: JOBS Act and Rule 506(c)

Rule 506(c), codified at 17 C.F.R. § 230.506(c), was adopted by the SEC in July 2013 pursuant to Section 201(a) of the JOBS Act. It permits issuers to engage in general solicitation and general advertising in connection with a securities offering, provided three conditions are satisfied:

• (1) All purchasers of securities sold in the offering are accredited investors;
• (2) The issuer takes reasonable steps to verify that all purchasers are accredited investors; and
• (3) All terms and conditions of Rules 501 and 502(a) and (d) of Regulation D are satisfied.

Key Statute: Securities Act of 1933, Sec. 4(a)(2); 17 C.F.R. § 230.506(c); JOBS Act of 2012, Sec. 201(a); SEC Release No. 33-9415 (July 10, 2013).

III. General Solicitation: What Is Permitted

Under Rule 506(c), the following solicitation activities, each of which would defeat a Rule 506(b) exemption are fully permitted:

• Online advertising: websites, social media posts, email campaigns, banner ads;
• Print advertising: newspaper and magazine ads, flyers, posters, signage in the issuer’s place of business;
• Broadcast advertising: television and radio advertisements;
• Unsolicited (and solicited) outreach to potential investors who have no pre-existing relationship with the issuer;
• Promotional materials — including invoices, packaging, and receipts that reference the investment opportunity.

CAUTION: Advertising under Rule 506(c) must still comply with the antifraud provisions of the federal securities laws. Every material representation in an advertisement must be accurate, complete, and not misleading. Statements about projected returns, past performance, or the issuer’s financial condition must be made carefully and with appropriate risk disclosures.

IV. The Verification Requirement: Reasonable Steps

The most important, and most operationally burdensome condition of Rule 506(c) is the requirement that the issuer take ‘reasonable steps to verify’ that each purchaser is an accredited investor. Unlike Rule 506(b), where self-certification by the investor may suffice, Rule 506(c) requires the issuer to conduct an independent verification.

The SEC has provided a non-exclusive list of verification methods that constitute ‘reasonable steps’:

A. Income-Based Verification

To verify income, the issuer may review IRS Form W-2s, Form 1099s, Schedule K-1s, or Form 1040s for the two most recent years, plus a written representation from the investor that they have a reasonable expectation of reaching the same income threshold in the current year.

B. Net Worth-Based Verification

To verify net worth, the issuer may review bank statements, brokerage account statements, or other third-party documentation of assets dated within the prior three months, plus a consumer credit report from a nationally recognized consumer reporting agency dated within the prior three months (to identify liabilities), together with a written representation from the investor that all liabilities are disclosed.

C. Third-Party Verification Letters

The issuer may obtain written confirmation from a registered broker-dealer, a registered investment adviser, a licensed attorney, or a certified public accountant (CPA) that such person has taken reasonable steps to verify the investor’s accredited status within the prior three months and that the investor is accredited.

D. Prior Accredited Investor Verification

If the investor previously invested in a Rule 506(b) offering of the same issuer as an accredited investor, and the issuer has no information suggesting the investor’s accredited status has changed, the issuer may rely on a written certification from the investor confirming continued accredited status.

CAUTION: Self-certification alone (i.e., the investor simply checking a box on a subscription agreement) does not satisfy the verification requirement under Rule 506(c). Issuers who rely solely on investor self-certification risk losing the exemption and facing rescission liability. 

V. Restricted Securities and Resale Limitations

Like Rule 506(b), securities sold under Rule 506(c) are ‘restricted securities’ subject to Rule 144’s resale limitations. Non-affiliate investors must hold for at least six months (reporting issuers) or one year (non-reporting issuers) before resale. The issuer may also impose additional contractual lockup periods in the subscription agreement.

VI. Form D, State Notice Filings, and Bad Actor Rules

The procedural requirements for Rule 506(c) are identical to those for Rule 506(b):

• Form D: Must be filed electronically with the SEC via EDGAR within 15 days of the first sale. For 506(c) offerings, the issuer must check the ‘Rule 506(c)’ box on Form D, signaling to the SEC that general solicitation was used.
• State Notice Filings: Most states require a Blue Sky notice filing and fee within a specified period after the first sale in that state.
• Bad Actor Disqualification: Rule 506(d) applies equally to 506(c) offerings. The issuer must conduct bad actor diligence on all covered persons.

VII. Rule 506(b) vs. Rule 506(c): Side-by-Side Comparison

The following table provides a comprehensive side-by-side comparison of the two principal Regulation D safe harbors. The choice between them is one of the most consequential decisions an issuer makes at the outset of a private offering — and it cannot be changed mid-offering.

Feature	Rule 506(b)	Rule 506(c)
Statutory Basis	Securities Act Sec. 4(a)(2); 17 C.F.R. § 230.506(b)	Securities Act Sec. 4(a)(2); 17 C.F.R. § 230.506(c); JOBS Act Sec. 201(a)
General Solicitation / Advertising	PROHIBITED. No advertising of any kind. Offering must be confined to investors with whom the issuer has a pre-existing substantive relationship.	PERMITTED. Issuer may advertise on websites, social media, print, broadcast, and any other medium.
Who May Purchase	Accredited investors (unlimited number) PLUS up to 35 non-accredited sophisticated investors.	Accredited investors ONLY. Non-accredited investors — even sophisticated ones — may not participate.
Verification of Accredited Status	Reasonable belief standard. Self-certification by investor (e.g., checking a box on the subscription agreement) is generally sufficient.	Affirmative “reasonable steps” required. Self-certification alone is NOT sufficient. Must use income/tax docs, net worth docs, third-party verification letter, or prior-investor reliance.
Offering Size Cap	None.	None.
Disclosure Requirements (Accredited Investors Only)	No mandatory form or content specified. Antifraud rules apply. Best practice: comprehensive PPM.	No mandatory form or content specified. Antifraud rules apply. Best practice: comprehensive PPM with risk disclosures appropriate for broadly solicited audience.
Disclosure Requirements (Non-Accredited Investors)	Required: GAAP/IFRS financial statements (unaudited if <$20M; audited if >$20M). Written description of all material info given to accredited investors.	N/A — non-accredited investors may not participate.
Restricted Securities / Resale	Yes — Rule 144 applies. 6-month hold (reporting issuers); 1-year hold (non-reporting issuers).	Yes — Rule 144 applies. Same holding periods.
Form D Filing	Required within 15 days of first sale. Check box: Rule 506(b).	Required within 15 days of first sale. Check box: Rule 506(c). Signals to SEC that general solicitation was used.
State Blue Sky	Notice filing + fee in each state where sales occur. Federal exemption preempts state registration.	Notice filing + fee in each state where sales occur. Federal exemption preempts state registration.
Bad Actor Disqualification (Rule 506(d))	Yes — applies to all covered persons (officers, directors, 20%+ holders, promoters, compensated solicitors).	Yes — same scope of covered persons.
Integration with Other Offerings	Testing-the-waters under Rule 241 may cause integration issues if TTW communications constituted general solicitation.	No integration risk from prior general solicitation; subsequent 506(b) offering from same issuer allowed subject to Rule 152 safe harbor.
Ideal Use Case	Issuers with established investor networks; funds raising from existing LP relationships; real estate syndicators with known investor base; situations where non-accredited sophisticated investors will participate.	Issuers seeking broad public awareness; tech startups using online platforms; real estate sponsors with large retail following; any issuer willing to limit participation to accredited investors in exchange for unrestricted marketing.
Primary Risk / Trap	Any act of general solicitation — even one email to an unknown list — destroys the exemption for the entire offering retroactively.	Self-certification alone does not satisfy verification. Accepting a non-accredited investor, even by mistake, destroys the exemption.

Key Principle: Once an issuer engages in general solicitation in connection with an offering, it cannot retroactively switch to Rule 506(b) for that same offering. The election between 506(b) and 506(c) must be made before any offering activity — including testing-the-waters communications — commences.

VIII. Conclusion

Rule 506(c) opened the private capital markets to a new era of public-facing fundraising. For issuers with the ability to advertise on signage, invoices, and social media creates a capital-raising channel that simply did not exist before the JOBS Act. 

The choice between Rule 506(b) and Rule 506(c) is a legal election that determines the entire compliance architecture of the offering, from investor eligibility to verification procedures to the risk of retroactive exemption failure. Understanding both rules and the precise conditions that govern each is essential for any issuer entering the private capital markets.

At Kelley Clarke, PC, we guide issuers through the design and implementation of Rule 506(c) offerings, from advertising review and investor verification protocols to Form D filings and state Blue Sky compliance.

This article was authored by Asher Ang, Partner, Kelley Clarke, PC. It is intended for general educational purposes only and does not constitute legal advice. Please consult a qualified attorney before relying on any content herein.