Understanding the Difference Between 506(c) and 506(b) Offerings

Distinguishing Between 506(c) and 506(b) Offerings

The main difference between Rule 506(b) and Rule 506(c) of Regulation D under the Securities Act of 1933 relates to how issuers can advertise their offerings and the requirements for verifying investor accreditation.

Rule 506(b) does not allow general solicitation or advertising to the public but permits sales to an unlimited number of accredited investors and up to 35 non-accredited, sophisticated investors without requiring verification of accredited status.

In contrast, Rule 506(c) allows issuers to broadly solicit and advertise their offerings to the public, but they are required to take reasonable steps to verify that all investors in the offering are accredited, and sales to non-accredited investors are not permitted.

This means that for 506(c) offerings, issuers must actively confirm an investor's accredited status, usually through review of financial documentation. It does not necessarily mean that 506(c) offerings are more complex or expensive to set up, as stated in option D, but the verification process can add additional steps to the fundraising process.