What Is The Difference Between Syndication 506b And 506c

By - February 15, 2024 - Uncategorized

Syndication can provide a great opportunity for someone who wants to raise capital for a real estate investment. However, there’s a lot to know before getting started in real estate syndication, including how Regulation D Rule 506(b) and Rule 506(c) impact the process of raising capital from investors. Let’s take a look at the differences between 506(b) and 506(c) in real estate investing.

How Regulation D Affects Securities Offerings in Real Estate Syndication

Regulation D of the Securities Act of 1933 provides exemptions that allow companies to raise capital without having to register their fully securities offering with the U.S. Securities and Exchange Commission (SEC). Rule 506(b) and Rule 506(c) are two common exemptions under Regulation D. These impact securities offerings by dictating investor eligibility, solicitation practices, investor verification procedures, and disclosure requirements. The exemption you choose to follow depends on your fundraising goals, target investors, and preferences regarding solicitation and advertising.

What are Accredited Investor?

Rules 506(b) and 506(c) have different requirements regarding investors. In 506(b), investors can be accredited or non-accredited. In 506(c), investors must be accredited. But what does that mean? An accredited investor is an individual or entity that meets specific financial criteria, such as a minimum income or net worth. For an individual investor, this typically means an annual income greater than $200,000 for the last two years, or a net worth greater than $1 million (plus some other requirements, most notably not including the value of your primary residence in such calculation). This qualifies the investor to participate in specific types of securities offerings, including higher-risk investment opportunities.


Rule 506(b) is a regulatory exemption under Regulation D of the Securities Act of 1933. It allows for private securities offerings without the need for full SEC registration. Under 506(b), raising capital from accredited investors and non-accredited investors is permitted. This flexibility in accommodating a diverse investor base is just one of the factors that makes it appealing. 506(b) also has rules regarding general solicitation and advertising, verification of the accreditation status of an investor, the disclosure of information, and filing requirements.

Accredited and Non-accredited Investors

Under Rule 506(b), issuers are allowed to sell securities to an unlimited number of accredited investors (individuals and/or entities). They can also sell securities to up to 35 non-accredited investors, although these investors must have sufficient experience and knowledge in financial and business matters to evaluate the investment or offering.

General Solicitation is Prohibited

General solicitation or advertising to attract investors is prohibited under 506(b). By restricting public marketing efforts, this rule aims to keep a private investment environment. To qualify for this exemption, an issuer must establish pre-existing relationships with investors or employ other means to ensure that potential investors are not solicited through public advertising channels. Pre-existing relationships can take different forms, such as existing business connections, networking within social or professional circles, or a history of substantive financial dealings. Prohibiting general solicitation helps ensure that the securities offering is presented to people who are already somewhat familiar with the issuer, which may reduce the risk of an investor making uninformed investment decisions.

Verification of Investor Status not Required

While issuers are not obligated to actively verify the accredited investor status of participants under Rule 506(b), they are required to have a reasonable belief that investors meet the accredited criteria. Issuers can rely on self-certification from investors regarding their accredited status, but they must also take steps to ensure that the investors are qualified. There are a range of methods the issuer can use to assess the financial sophistication or net worth of an investor, ensuring they’re qualified without imposing a rigid verification process.

Disclosure Requirements

Even though an issuer is not required to provide specific information to accredited investors, they must provide non-accredited investors with certain information similar to what would be included in a registered offering. This encourages transparency in private offerings and helps ensure that investors can make informed decisions. Accredited investors should receive similar information, but they have more flexibility in negotiating the terms of the investment. By providing non-accredited investors with essential details, issuers help ensure that information is accessible, which encourages an environment where all investors can make well-informed decisions regarding their participation in the securities offering.

Filing Requirements

Under Rule 506(b), an issuer doesn’t have to fully register their offering with the SEC. However, they are required to submit Form D to the SEC within 15 days after the first sale of securities. Form D is a notice of the offering that includes essential information such as the issuer’s identity, details about the securities being offered, the structure of the offering, and certain background information on the issuer and its management. Following this filing requirement is necessary to stay compliant with securities regulations.


Many real estate syndications are structured under Rule 506(b) because it allows for the inclusion of a limited number of non-accredited investors in addition to accredited investors. This can be beneficial when targeting a broader pool of potential investors, including those who may not meet accredited investor criteria.


Rule 506(c) is a regulatory exemption within Regulation D of the Securities Act that offers a pathway for private securities offerings without SEC registration. There are several differences between 506(b) and 506(c). Unlike 506(b), 506(c) is exclusive to accredited investors and requires issuers to rigorously verify the accredited status of all investors. This requirement aims to protect investors. Rule 506(c) also allows issuers to publicly promote their investment opportunities when raising capital, creating more transparent fundraising and greater marketing flexibility.

Investor Accreditation Status

Under Rule 506(c), issuers are only allowed to sell securities to accredited investors. Unlike Rule 506(b), which allows for a limited number of non-accredited investors, Rule 506(c) imposes a more restrictive framework by excluding any non-accredited investors. By limiting the pool to accredited investors, Rule 506(c) aims to streamline the offering process and potentially simplify the verification process for the issuer, ensuring that each investor meets a certain level of financial sophistication or net worth.

General Solicitations are Permitted

An issuer can openly advertise and promote their securities offering under Rule 506(c). This is a main difference between 506(c) and 506(b), with the latter prohibiting general solicitation. Under Rule 506(c), issuers are allowed to use a variety of channels to promote their offering and reach a broader audience, including social media, the internet, and traditional advertising. However, all investors who participate in the offering must be verified as accredited investors. Rule 506(c) allows issuers to raise money in a more public and transparent manner while still protecting investors.

Verification of Investor Status is Required

Rule 506(c) requires the issuer to take “reasonable steps” to verify that each investor is an accredited investor. Although the rule doesn’t require a specific method, the issuer must perform a high level of due diligence. Typically, this involves a comprehensive review of financial statements and tax returns from each investor, or obtaining written confirmation from a third party, such as a certified public accountant or a financial advisor. The verification requirement aims to protect investors and maintain the integrity of the offering.

Disclosure Requirements

The issuer is not required to provide specific information to accredited investors under Rule 506(c). While 506(b) requires the same information be shared to non-accredited investors as to accredited investors, this requirement is less relevant here because general solicitation to non-accredited investors is prohibited under 506(c).

Filing Requirements

The filing requirements for 506(c) are similar to those for 506(b). Although the issuer is not required to fully register the offering with the SEC, they must submit Form D within 15 days of the first sale of securities. This form serves as a notice of the offering and includes essential details about the issuer, the securities being offered, and additional information related to the use of general solicitation.


Some real estate syndications may opt for Rule 506(c) if they prefer to use general solicitation and advertising to attract investors when raising capital. However, this choice limits the investor pool to accredited investors only, and the syndicator must adhere to the stricter verification requirements.

Mistakes to Avoid

When navigating the complex landscape of securities offerings under Regulation D, it’s important to be aware of potential compliance pitfalls. In both a 506(b) offering and a 506(c) offering, common mistakes can lead to severe consequences. One notable pitfall is insufficient due diligence during the verification process, especially in 506(c), where a rigorous examination of accredited investor status is mandatory. Another risk lies in the area of general solicitation; while 506(c) permits broader marketing strategies, issuers must tread carefully to ensure they don’t unintentionally cross boundaries set by the SEC.

Importance of Seeking Legal Counsel

Working with a lawyer can make it easier to navigate the intricacies and potential pitfalls of an offering under Regulation D. Legal counsel can provide guidance on regulatory compliance, disclosure requirements, your overall strategy, and more. A lawyer can also make sure that all necessary documentation is accurately prepared. If you want to protect the success and compliance of your syndication efforts under Regulation D, working with a lawyer is a smart decision.

Contact Stevens Law

If you’re looking for legal guidance for your real estate syndication offering, Stevens Law can help. Our lawyers are familiar with Regulation D, including 506(b) and 506(c), and can help ensure you are compliant with the law while raising capital. Call us today at (614) 826-3100 or fill out our online contact form

latest thinking at stevens law firm

See All News >>