Launching a Regulation D Rule 506(c) offering is an exciting route because it grants you the "superpower" of public advertising (general solicitation). You can post about your raise on social media, pitch at public events, or put it on your website.
However, because you are allowed to advertise to the general public, the SEC sets strict guardrails to protect everyday investors.
To successfully do a 506(c) raise, follow this procedural roadmap:
Phase 1: Pre-Launch Preparation
1
Perform a
Mandatory Safe Harbor
Under Rule 506(d), you must legally verify that no key person in your company (founders, CEOs, 20%+ shareholders, or your broker-dealers) has a history of financial crimes, securities fraud, or regulatory disciplinary actions. A single "bad actor" can instantly disqualify your exemption.
2
Draft the Legal Documents
Work with Securities Counsel
Even though the SEC doesn't pre-approve these, you must prepare a comprehensive Private Placement Memorandum (PPM) detailing your business plan, use of funds, and extensive risk disclosures. You will also need a Subscription Agreement (the actual contract where investors buy the equity) and a corporate operating or partnership agreement.
3
Establish an Accredited Investor Verification System
Crucial for 506(c)
Because 506(c) completely bans non-accredited investors, you must put a strict process in place to check their status before you take their money. You cannot just take their word for it. Decide whether you will handle this manually by collecting their tax returns/bank statements, or if you will outsource it to a digital third-party verification platform (highly recommended for privacy reasons).
4
Set Up Your Marketing Compliance Log
Audit protection
Create a secure, centralized folder to save every single piece of marketing material you use — every pitch deck, public tweet, email blast, and landing page. The SEC strictly regulates what you can say publicly, and your recordkeeping must be bulletproof in case of a future audit.
Phase 2: Active Capital Raise & Compliance
Once your materials are legally vetted, you can turn on the marketing engines. When investors begin expressing interest, you must execute the final regulatory requirements:
The "Reasonable Verification" Process
You must take "reasonable steps" to confirm that every single human or entity who wires you money is accredited. The SEC recognizes four primary safe-harbor verification methods:
- The Income Test: Reviewing the investor’s W-2s, 1099s, or tax returns for the past two years, plus getting a signed statement that they expect to hit the threshold ($200k individual / $300k joint) again this year.
- The Net Worth Test: Reviewing bank statements, brokerage accounts, and credit reports dated within the last 3 months to prove their net worth exceeds $1 million (excluding their primary house).
- The Third-Party Letter (The Easiest Route): Obtaining a formal, written confirmation letter from the investor’s licensed CPA, attorney, registered broker-dealer, or investment advisor stating that they have verified the investor's status within the last 3 months.
- The Minimum Investment Shortcut: Relying on the SEC's principles-based guidance, if an investor commits a very high minimum amount (typically $200,000+ for an individual) entirely out of their own un-financed funds, the sheer size of the investment can be factored into your verification steps.
Phase 3: SEC & State Filings
Do not forget the back-end paperwork once the capital starts moving:
| Action Required | Deadline | Cost |
|---|---|---|
| File Form D with the SEC | Within 15 calendar days of your "first sale" (when an investor signs the agreement and wires funds). | $0 (Filed electronically via the SEC's EDGAR system). |
| State "Blue Sky" Notice Filings | Usually within 15 days of a sale in that specific state. | Varies by state (Typically ranges from $100 to $500+ per state where your investors live). |
A Note on Blue Sky Laws: While a 506(c) offering grants you federal preemption (meaning states cannot change the rules of your raise), they still require you to file a copy of your Form D locally and pay their state filing fee if a resident of their state buys into your deal.
Are you raising capital for a particular industry, like real estate or a tech startup? The specific disclosures you need to draft can change quite a bit depending on what you are building.