Regulation D Under the Securities Act: Rule 504, 506(b) and 506(c) Explained

Every sale of a security in the United States has to be registered with the SEC or fit an exemption. For most private companies, the exemption is Regulation D under the Securities Act of 1933.

Regulation D is not one rule. It is a set of rules, and the one you pick decides who you can sell to, how you can find them, and what you must give them. I spent sixteen years at the SEC, first as an investigator and then as an enforcement attorney. The Reg D offerings that went wrong almost always went wrong in the same few places. This guide covers the rules and those places.

Where Regulation D Fits

Section 4(a)(2) of the Securities Act exempts "transactions by an issuer not involving any public offering." That language is short and vague. Regulation D gives companies a safe harbor: follow its conditions and the SEC treats the offering as exempt.

Regulation D is made up of Rules 500 through 508. Three of them do the work:

• ›Rule 504 — small offerings, up to $10 million in a 12-month period.
• ›Rule 506(b) — unlimited amount, no general solicitation.
• ›Rule 506(c) — unlimited amount, general solicitation allowed, every buyer must be a verified accredited investor.

Rule 504: The Small-Offering Rule

Rule 504 lets a company raise up to $10 million in 12 months. It is not available to SEC-reporting companies, investment companies, or blank-check companies.

The catch is the states. Rule 504 offerings are not "covered securities," so each state where you sell can require its own registration or exemption. For a raise across several states, that cost often wipes out the benefit. Rule 504 tends to work best for a local raise in one or two states that have a matching exemption.

Rule 506(b): The Traditional Private Placement

Rule 506(b) is the most-used exemption in the country. Its terms:

• ›No limit on the amount raised.
• ›Unlimited accredited investors, plus up to 35 non-accredited investors in any 90-day period. Each non-accredited investor must be "sophisticated," alone or with a purchaser representative.
• ›No general solicitation. You cannot advertise the offering or pitch it to people you do not already have a relationship with.
• ›Disclosure. If even one non-accredited investor buys, you must give that investor disclosure close to what a registered offering requires, including financial statements. In practice that means a full private placement memorandum.

The rule that trips companies up is general solicitation. A public post on LinkedIn, a pitch at an open demo day, a mass email to a purchased list — any of these can cost you the 506(b) exemption. The test is whether you had a substantive, pre-existing relationship with the person before the offering began.

Rule 506(c): When You Want to Advertise

Rule 506(c) came out of the JOBS Act. It lets you advertise the offering publicly — websites, social media, events, press — on one condition: every purchaser must be accredited, and you must take reasonable steps to verify it.

"Reasonable steps" means more than a checkbox. The rule lists safe-harbor methods: reviewing tax returns or W-2s for income, reviewing bank and brokerage statements plus a credit report for net worth, or getting a written confirmation from a CPA, attorney, registered broker-dealer, or registered investment adviser. In 2025 the SEC staff also said high minimum investment amounts, with written representations, can support verification in some cases.

506(c) suits companies that will find investors through marketing. It does not suit companies whose investors include friends and family who are not accredited.

Who Is an Accredited Investor?

For individuals, the main tests are:

• ›Income over $200,000 (or $300,000 with a spouse or spousal equivalent) in each of the last two years, with the same expected this year; or
• ›Net worth over $1 million, alone or with a spouse, not counting the primary residence; or
• ›Holding a Series 7, 65 or 82 license in good standing.

Entities qualify in several ways, including entities with more than $5 million in assets that were not formed to make the investment, and entities owned entirely by accredited investors.

Rules That Apply to Every 506 Offering

Form D. File Form D with the SEC within 15 days after the first sale. It is a short notice filing, but it is public, and missing it is a red flag.

State notice filings. Rule 506 securities are "covered securities," so states cannot require registration. They can, and do, require a notice filing and a fee. Most states use the same Form D through NASAA's electronic filing system.

Bad actor disqualification. Rule 506(d) bars the exemption if the company, its directors, officers, 20% owners, promoters, or anyone paid to solicit investors has certain past securities violations or sanctions. Check everyone before the offering opens, not after.

Antifraud rules still apply. An exemption from registration is not an exemption from Rule 10b-5. Every statement to investors — in a PPM, a deck, an email — has to be accurate and complete enough not to mislead.

Restricted securities. Shares sold under Rule 506 are restricted. Buyers generally cannot resell them until a holding period under Rule 144 has passed.

Paying finders. Paying someone a commission to bring in investors, when that person is not a registered broker-dealer, is one of the most common problems I saw. It can give investors a right to rescind and can create liability for the company.

Choosing Between 506(b) and 506(c)

The question I ask every client first: how will you find your investors?

• ›You know your investors already, and some may not be accredited → 506(b).
• ›You need to market broadly, and every buyer will be accredited and verified → 506(c).
• ›You want to sell to the general public, including non-accredited buyers → look at Regulation A instead. See Reg A vs. Reg D.

One warning: once you have generally solicited under 506(c), you cannot quietly switch back to 506(b) for the same offering.

The Five Failure Points I Saw at the SEC

• ›Public promotion of a 506(b) offering.
• ›Unregistered finders paid commissions.
• ›A deck or PPM with projections or claims the company could not support.
• ›No real verification in a 506(c) offering.
• ›Money spent differently from what the PPM said.

Chapter 4 of my book covers general solicitation in detail: Rule 506 and General Solicitation. The enforcement side is in Regulation D Enforcement Triggers.

Related Reading

• ›What Is a PPM and When Do You Need One?
• ›PPM Attorney — Flat Fee
• ›Private Offering Checklist (PDF)

Questions about how this applies to your company? Email me directly at flehrer@securitiesattorney1.com or call (561) 706-7646. No intake form, no screening call.

This post is general information, not legal advice.

About the Author

Frederick M. Lehrer

Former SEC Enforcement Attorney  ·  Former SAUSA, S.D. Florida  ·  25+ Years in Securities Law

Frederick M. Lehrer served as an enforcement attorney in the SEC's Division of Enforcement at the Southeast Regional Office from 1991 through 2000, and concurrently as a Special Assistant United States Attorney in the Southern District of Florida from 1997 through 1999, prosecuting securities-related financial crimes. He has practiced securities and corporate law in private practice for more than twenty-five years, advising issuers worldwide on SEC registration, disclosure obligations, Regulation D private placements, Regulation A offerings, and going public transactions. The firm is based in Florida and serves clients internationally.

Questions about how this applies to your company are answered personally — most within the same business day. Flat-fee arrangements available for most work.