What it is
Rule 506(b) and Rule 506(c) are two exemptions under Regulation D, a set of U.S. securities rules. Companies have traditionally used them to raise money privately without going through a full public registration process.
Under Rule 506(b), a company may not use general solicitation, meaning it generally cannot publicly advertise the offering. It is typically built around relationships that already exist, and it can include accredited investors and, in limited cases, a small number of non-accredited ones who meet additional requirements.
Under Rule 506(c), general solicitation is allowed, so a company may talk about the offering publicly. In exchange, all purchasers must be accredited investors, and the company must take reasonable steps to verify that status rather than simply accepting a self-certification.
How it’s traditionally been approached
Many founders have approached 506(b) when they already have a network of people who know them. Because public advertising is off the table, the focus tends to be on building real relationships over time and documenting how each investor was introduced.
Others have looked at 506(c) when they want to reach people beyond their personal circle, such as through public events, websites or social media. This broader reach comes with extra steps around verifying that each purchaser is accredited, which may involve reviewing documents or relying on third-party confirmation.
Neither path is better in every situation. The choice usually depends on the company's network, its comfort with verification, its timeline and its communication plans, and it is typically made with the help of securities counsel before any outreach begins.
How the right investor may help
The right investor may help you think through how you approach raising capital before you begin. Some independent investors have seen different offering styles and may share what they have noticed about how founders communicate, organize materials and respect the rules, without recommending any specific approach.
A first conversation is usually exploratory. In a soft circle, people share non-binding indications of interest, which means they signal curiosity rather than commit. It is a way to gauge interest and gather feedback, and it does not obligate anyone.
Helpful questions to ask include: How do you prefer to be introduced to an opportunity? What does your own accreditation review look like? How do you think about public versus private outreach? And always ask whether your plan has been reviewed by securities counsel, since timing and wording of early conversations can matter.
The bigger picture
Raising money can feel heavy. Uncertainty about rules, worries about doing it correctly and the pressure of timelines can affect sleep, focus and relationships. Learning the basics of 506(b) and 506(c) can replace some of that fog with clarity, and working with qualified counsel can add a measure of peace of mind.
Take care of the whole person behind the company, too. Build in rest, lean on trusted friends or mentors, and give yourself room to make decisions without rushing. If stress becomes hard to manage, Providers.plus can help you find supportive wellness resources, and the 988 Lifeline is available in a crisis.
Keep in mind
- SoftCircle.ai is an independent directory and educational resource, not a broker-dealer, funding portal or investment adviser, and it does not recommend or endorse any investment.
- Nothing here is an offer to sell or a solicitation of an offer to buy any security, and soft circle indications of interest are non-binding.
- Rules around general solicitation and verification are detailed, so consult securities counsel before speaking publicly or privately about any raise.
- This page is not investment, legal or tax advice, and every situation is different.
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Frequently asked questions
What is the main difference between Rule 506(b) and 506(c)?
The main difference is general solicitation and verification. Rule 506(b) does not allow general solicitation, while Rule 506(c) does. Under 506(c), all purchasers must be accredited investors, and the company must take reasonable steps to verify that status.
Can you advertise under Rule 506(b)?
No, Rule 506(b) generally prohibits general solicitation, so public advertising of the offering is not allowed. Companies typically rely on relationships that already exist. Securities counsel can explain what counts as general solicitation in a specific situation.
Does Rule 506(c) require verifying accredited investors?
Yes. Under Rule 506(c), all purchasers must be accredited, and the company must take reasonable steps to verify it. Simply asking an investor to check a box is generally not enough, and counsel can explain acceptable approaches.
Can non-accredited investors participate in 506(b) or 506(c)?
Rule 506(c) requires every purchaser to be accredited. Rule 506(b) can, in limited cases, include a small number of non-accredited purchasers who meet extra requirements, including disclosure obligations. Because this adds complexity, many companies discuss it carefully with securities counsel.
Which is better, Rule 506(b) or 506(c)?
Neither is better for everyone. The right fit depends on a company's network, its need for public outreach and its readiness to verify investors. Securities counsel is the best source for deciding which path suits a particular situation.
How does soft circling relate to Rule 506(b) vs 506(c)?
Soft circling means gathering non-binding indications of interest, and it is not a commitment or a sale. How and when a company talks with potential investors can be affected by whether it relies on 506(b) or 506(c). Consult securities counsel before beginning any outreach.
Educational resource. SoftCircle shares general information and connects people with independent investors. It is not professional advice. Talk with a qualified professional about your own situation.