Rule 506(b) is a Regulation D exemption that allows a fund to raise unlimited capital from accredited investors and up to 35 sophisticated non-accredited investors, without general solicitation or advertising.
Why It Matters
Rule 506(b) is the most widely used private fund exemption. It allows you to raise capital from your existing network without the burden of formally verifying each investor's accredited status. The trade-off is that you cannot publicly advertise or solicit new investors. For most emerging and established managers, this exemption provides the right balance of flexibility and regulatory simplicity.
Key Details
- No general solicitation or advertising is permitted. You must have a pre-existing substantive relationship with each investor before offering securities.
- Accredited investors self-certify their status. The fund has no affirmative duty to verify.
- Up to 35 non-accredited investors are allowed, but each must be "sophisticated" (able to evaluate the merits and risks of the investment).
- Federal preemption of state securities registration applies, so you do not need to register the offering in each state.
- Form D must be filed with the SEC within 15 days of the first sale.
- Most private funds in the United States rely on this exemption.
For more, see Rule 506(b) vs. Rule 506(c).
Capital Company handles offering documentation and investor onboarding compliance as part of fund administration.
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.