General solicitation is any public communication intended to attract potential investors. Common examples include:
- Advertisements (print, online, or broadcast)
- Social media posts about the fund or offering
- Conference presentations or panel discussions
- Mass emails or website postings
- Cold outreach to people you do not have a prior relationship with
Under 506(b), general solicitation is prohibited. You can only raise capital from investors with whom you have a pre-existing, substantive relationship.
Under 506(c), general solicitation is permitted, but every investor must then be verified accredited through independent documentation. You can advertise your fund publicly, but you cannot accept a single dollar from an unverified investor.
Inadvertent general solicitation under a 506(b) offering can invalidate the entire exemption, not just the sale to the specific investor. This risk is why many managers who plan to do any public outreach choose 506(c) from the start, even though the verification requirements are more burdensome.
When in doubt about whether a specific communication constitutes general solicitation, treat it as if it does and use 506(c) verification for that investor.
See Rule 506(b) vs. 506(c) for a detailed comparison of the two exemptions.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation. Capital Company is not a law firm and does not provide legal advice.