506(b) vs 506(c): Complete Guide for Fund Managers

Rule 506(b) and Rule 506(c) are the two most-used SEC exemptions under Regulation D. Both allow fund managers and GPs to raise unlimited capital without registering the offering with the SEC — but they come with meaningfully different rules around who you can solicit and how you verify investors. Choosing the wrong one creates compliance exposure. Choosing the right one and executing it correctly is what separates a professional raise from a liability.

What Is Rule 506(b)?

Rule 506(b) allows issuers to raise capital from an unlimited number of accredited investors plus up to 35 non-accredited investors — but prohibits general solicitation or advertising. You cannot post the offering on social media, run ads, or present at public events. Investors must have a pre-existing, substantive relationship with the fund manager before the raise begins.

Under 506(b), accredited investors self-certify their status. They check a box or sign a representation that they meet the income or net worth threshold. The fund manager is not required to independently verify — they just need to have no reason to doubt the representation.

Accredited investor thresholds (2026)

• Individual net worth over $1M (excluding primary residence)
• Individual income over $200,000 in each of the last two years ($300,000 joint)
• Series 7, 65, or 82 license holder in good standing
• Knowledgeable employee of a private fund
• Entity with total assets over $5M not formed solely to make the investment

What Is Rule 506(c)?

Rule 506(c) was introduced under the JOBS Act in 2012 and took effect in 2013. It allows general solicitation — public advertising, social media promotion, public pitch events — with one critical condition: the fund manager must take reasonable steps to independently verify that every investor is accredited. Self-certification is not enough.

This single requirement — independent verification — is what most fund managers underestimate. The SEC's safe harbor methods include reviewing tax returns, W-2s, bank and brokerage statements, or obtaining a written confirmation from a licensed CPA, attorney, broker-dealer, or registered investment adviser.

What counts as 'reasonable steps' under 506(c)?

• IRS Form 1040 showing income for the last two years plus investor representation of current-year expectation
• Bank, brokerage, or other financial account statements from the last three months
• Credit report from a consumer reporting agency, plus investor net worth representation
• Written confirmation from a CPA, attorney, registered investment adviser, or broker-dealer that they have verified the investor's accredited status within the last 90 days

506(b) vs 506(c): Key Differences at a Glance

• General solicitation: Prohibited under 506(b), permitted under 506(c)
• Non-accredited investors: Up to 35 allowed under 506(b), zero allowed under 506(c)
• Investor verification: Self-certification under 506(b), independent verification required under 506(c)
• Documentation burden: Low under 506(b), moderate-to-high under 506(c)
• Form D filing: Required within 15 days of first sale under both

When Should You Use 506(c)?

506(c) is the right choice if you need to reach investors you do not already have a relationship with — particularly if you plan to promote your raise publicly. Real estate syndicators posting on LinkedIn, GPs presenting at investor conferences, and fund managers running paid acquisition campaigns all require 506(c).

The verification burden is real but manageable with the right platform. The industry average for manual 506(c) verification is three to six weeks per investor. With an automated platform like Fassport, verification runs in under 24 hours — the investor receives a secure link, uploads their documents, and the platform returns an audit-ready verification record.

How Fassport Handles 506(b) and 506(c) Verification

Fassport is purpose-built for both exemption types. For 506(b) raises, the platform manages investor onboarding, self-certification workflows, subscription documents, and the complete post-close fund management stack. For 506(c) raises, Fassport adds the independent verification layer — secure document collection, automated review, and audit-ready records — completing the process in under 24 hours for most investors.