Regulation D: Rules 504, 506(b), and 506(c) Exemptions

Regulation D exemptions are three federal safe harbors—Rule 504, Rule 506(b), and Rule 506(c)—that let a company sell securities in a private placement without registering the offering with the SEC. Each exemption sets its own ceiling on how much you can raise, who is allowed to invest, and whether you can advertise. Picking the right one before you accept a dollar is the whole game, because a misstep can void the exemption for the entire offering and hand every investor a rescission claim.

Why the Exemption Matters

Section 5 of the Securities Act of 1933 requires every offer or sale of a security in the United States to be registered with the SEC unless a specific exemption applies.¹ Full registration means detailed financial disclosures, legal review, and audit costs that routinely run into hundreds of thousands of dollars.

Selling without a valid exemption is not just an SEC enforcement problem. Under Section 12(a)(1) of the Securities Act, any investor who bought unregistered securities can sue to get their money back with interest, simply by tendering the shares. The investor does not need to prove fraud or a loss. The illegal sale alone creates the right to rescission.² On top of that, the SEC can pursue injunctions, civil penalties, and officer-and-director bars.

Regulation D solves this by giving issuers objective rules to follow. Section 4(a)(2) of the Securities Act exempts “transactions by an issuer not involving any public offering,” but the phrase is vague, and one purchaser who fails the necessary conditions can sink the whole exemption.³ Meet a Regulation D rule’s specific standards, and you have a safe harbor the SEC will respect.

Rule 504: Offerings Up to $10 Million

Rule 504 covers offerings up to $10 million in any 12-month period.⁴ The cap includes any amounts already raised through other Rule 504 offerings in the preceding 12 months, and exceeding it invalidates the exemption for the entire offering, not just the excess.

Not every company can use it. Rule 504 excludes companies that already file reports with the SEC under the Exchange Act, and it bars development-stage companies with no specific business plan whose only purpose is to merge with or acquire an unidentified target.⁴

Rule 504 offerings generally prohibit public advertising and general solicitation. You cannot post about the investment on social media, run ads, or pitch it at a public event. Exceptions apply when the offering is registered at the state level or when state law requires delivery of a substantive disclosure document before the sale.

One structural drawback: Rule 504 securities are not “covered securities” under federal law, so they remain subject to state registration and qualification in every state where investors reside.⁵ That adds cost and complexity compared to Rule 506.

Rule 506(b): Unlimited Raise, No Advertising

Rule 506(b) is the workhorse of private capital markets. There is no cap on the dollar amount raised, and no limit on the number of accredited investors who can participate. The rule also allows up to 35 non-accredited purchasers per offering, but each non-accredited buyer must have enough financial knowledge and experience to evaluate the investment’s risks.⁶

A non-accredited investor who lacks that sophistication can still participate through a “purchaser representative.” The representative cannot be an affiliate, director, officer, or employee of the issuer (narrow family-relationship exceptions aside), must have the expertise to evaluate the deal, and must disclose any material relationship with the issuer in writing before the sale.⁷ The purchaser must also acknowledge the representative’s role in writing for that specific investment.

The trade-off is a hard prohibition on general solicitation. Most issuers limit outreach to people with whom the company or its broker-dealer already has a pre-existing, substantive relationship. The SEC considers a relationship “substantive” when the issuer has enough information to evaluate whether the potential investor qualifies as accredited.⁸ The more people contacted through impersonal, non-selective channels, the more likely the SEC is to treat the outreach as general solicitation.

Because 506(b) does not permit advertising, verifying accredited status is simpler. The issuer can generally rely on the investor’s own representations about their financial qualifications, without independently reviewing tax returns or bank statements.

Rule 506(c): Unlimited Raise, Public Advertising Allowed

The JOBS Act created Rule 506(c) to let companies advertise their offerings publicly through websites, social media, and traditional media. The catch: every actual purchaser must be an accredited investor, and the issuer must take reasonable steps to verify that status independently.⁹ Self-certification is not enough.

The SEC has established non-exclusive safe harbor methods for verification:

Reviewing IRS forms that report income (W-2s, 1099s, Schedule K-1s, tax returns) for the two most recent years, plus a written representation that the investor expects to meet the threshold in the current year.¹⁰
Reviewing bank statements, brokerage statements, certificates of deposit, tax assessments, and a credit report from at least one nationwide consumer reporting agency, all dated within the prior three months, plus a written representation from the investor.
Obtaining written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant who has independently verified the investor’s status.
For investors who previously invested in the same issuer’s Rule 506(b) offering as accredited investors, an abbreviated re-certification.

These methods are safe harbors, not the only paths. Deviating from them means the issuer carries the burden of proving its verification steps were adequate if a challenge arises, so records of every verification effort matter.

Who Counts as an Accredited Investor

Rule 501 sets the gatekeeping standards. For individuals, two financial tests apply:⁷

Individual or joint net worth (with a spouse or spousal equivalent) exceeding $1 million, excluding the value of a primary residence. Assets do not need to be held jointly to count.
Individual income exceeding $200,000 in each of the two most recent years, or joint income exceeding $300,000 in each of those years, with a reasonable expectation of reaching the same level in the current year.

These thresholds have not been adjusted since the Dodd-Frank Act set them in 2010. “Spousal equivalent” means a cohabitant in a relationship generally equivalent to that of a spouse, which lets unmarried partners pool their qualifications.¹¹

Certain professional credentials also qualify an individual regardless of income or net worth. Holders of Series 7, Series 65, or Series 82 licenses in good standing are accredited. So are “knowledgeable employees” of certain private funds (funds that would be investment companies but for the Section 3(c)(1) or 3(c)(7) exclusions).⁷

Entities can qualify too. Trusts with assets exceeding $5 million that were not formed specifically to invest in the offering are accredited. Any entity where every equity owner individually qualifies as accredited automatically meets the standard.

Bad Actor Disqualification

Even if a company meets every other Regulation D requirement, a single “covered person” with a disqualifying event in their background can knock out a Rule 506 offering. Rule 506(d) bars companies from using either 506(b) or 506(c) if certain people connected to the deal have serious regulatory or criminal histories.¹²

Covered persons include the issuer itself, its directors, general partners, managing members, executive officers, any officer with more than minor involvement in the offering, beneficial owners of 20% or more of the company’s voting equity, promoters, compensated solicitors, and the principals of any investment manager for pooled fund issuers.

Disqualifying events include:

Criminal convictions related to securities transactions, false SEC filings, or the business of a broker-dealer or investment adviser, within 10 years of the proposed sale (5 years for the issuer and its affiliates).
Court injunctions or restraining orders related to securities activity, if entered within the preceding 5 years and still in effect.
Final orders from state or federal financial regulators based on fraudulent or deceptive conduct, issued within 10 years.
SEC cease-and-desist orders for anti-fraud violations issued within 5 years and still in effect.
Suspension or expulsion from a self-regulatory organization like FINRA.
SEC stop orders or refusal orders on registration statements within the last 5 years.

Only events occurring on or after September 23, 2013 trigger automatic disqualification. Events before that date do not disqualify the offering, but they must be disclosed to investors. Run thorough background checks on every covered person before launching.

Disclosures When Non-Accredited Investors Participate

When a Rule 506(b) offering includes non-accredited investors, the issuer must give those buyers detailed written disclosures a reasonable time before the sale. This requirement does not apply to accredited investors or to Rule 504 offerings.¹³

Required disclosures include both non-financial information (similar in scope to what would appear in a Regulation A offering statement) and financial statements prepared under U.S. GAAP. The level of financial statement assurance depends on the offering size, with tiered thresholds: offerings up to $20 million follow one set of requirements, and offerings above $20 million follow a more rigorous standard.

In practice, companies prepare a Private Placement Memorandum covering the business, risks, planned use of proceeds, and financial condition. A PPM is not technically required by Regulation D when every investor is accredited, but most issuers prepare one anyway because federal anti-fraud rules apply to every Regulation D offering. Under Section 12(a)(2) of the Securities Act, investors can sue for rescission if the offering materials contain material misstatements or omissions, whether or not the offering was registered.²

Filing Form D With the SEC

Every company that sells securities under Regulation D must file a Form D notice with the SEC through the EDGAR system. The deadline is 15 calendar days after the first sale, defined as the date the first investor is irrevocably contractually committed to invest.¹⁴

Form D collects identifying information about the issuer, the names and addresses of executive officers and directors, the specific Regulation D rule being relied upon, and the total offering amount.¹⁵ Filing requires an EDGAR account with a Central Index Key (CIK) and a CIK Confirmation Code, both of which must be obtained from the SEC before the deadline.¹⁶ Apply for credentials well before the 15-day clock starts.

Amendments

Filing Form D is not a one-time obligation. An issuer must amend to correct material mistakes of fact as soon as practicable, to reflect changes in the offering’s terms, and annually on or before the first anniversary of the most recent filing if the offering is still ongoing.¹⁷

Not every change triggers an immediate amendment. Small shifts in issuer revenues, total offering amount (if it hasn’t increased by more than 10%), the number of investors, or the amount already sold can wait until the annual update. Changes in the type of exemption claimed, the addition of new executive officers or directors, or any decrease of more than 10% in the minimum investment must be reported promptly. When you do file an amendment, you must provide current information for every item on the form, not just the one that triggered it.

State Blue Sky Filings

Most states require their own notice filing, often called a blue sky filing, wherever investors reside. Rule 506 offerings enjoy federal preemption over state securities registration, but states can still require notice and collect a fee. Based on the NASAA fee schedule effective January 2026, fees range from as little as $50 in a few states to $600 in others, with most between $100 and $300.¹⁸ Rule 504 offerings, as noted, are not covered securities and face full state registration in many places, not just notice.

Integration of Multiple Offerings

If you run more than one fundraising effort over time, the SEC may treat separate offerings as a single integrated offering. That matters because combining offerings could push the total above Rule 504’s $10 million cap, mix investor categories in ways that violate 506(c), or create a general solicitation problem for a 506(b) deal.

Rule 152 provides safe harbors against integration. The simplest: if the first offering terminates or completes at least 30 days before the second begins, the two are generally treated as separate. If the first offering used general solicitation (as in 506(c)), the 30-day gap still applies, but the company must also reasonably believe it did not solicit any investor in the second offering through the earlier general solicitation, or that it established a substantive relationship with each such investor before the second offering began.¹⁹ Additional safe harbors cover offshore Regulation S transactions and Rule 701 employee benefit plans.

Resale Restrictions on What Investors Buy

Securities sold under Regulation D are “restricted securities.” Investors cannot resell them freely on the open market. Offering documents and stock certificates must carry a prominent legend stating that the securities are unregistered and that transfer restrictions apply.²⁰ Missing legends are a red flag for fraud.

Rule 144 provides the primary resale path after a mandatory holding period:

For securities of reporting companies (those filing under the Exchange Act): the investor must hold for at least six months. After six months, sales are permitted as long as current public information about the issuer is available. After one year, a non-affiliate can sell freely.²¹
For securities of non-reporting companies (most Regulation D issuers): the investor must hold for at least one year. After one year, a non-affiliate can sell without further conditions.

Affiliates of the issuer (directors, officers, and large shareholders) face additional volume and manner-of-sale restrictions even after the holding period expires. In practice, Regulation D investments are illiquid: capital is locked up for at least a year, and often longer, because many private companies have no active trading market even after the holding period ends. The accredited investor standards exist in part for exactly this reason.

1
Legal Information Institute. Section 5
2
Office of the Law Revision Counsel. 15 USC 77l – Civil Liabilities Arising in Connection With Prospectuses and Communications
3
U.S. Securities and Exchange Commission. Private Placements – Rule 506(b)
4
eCFR. 17 CFR 230.504 – Exemption for Limited Offerings and Sales of Securities Not Exceeding $10,000,000
5
U.S. Securities and Exchange Commission. Regulation D Offerings
6
eCFR. 17 CFR 230.506 – Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering
7
eCFR. 17 CFR 230.501 – Definitions and Terms Used in Regulation D
8
U.S. Securities and Exchange Commission. General Solicitation
9
U.S. Securities and Exchange Commission. Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings
10
U.S. Securities and Exchange Commission. Assessing Accredited Investors Under Regulation D
11
U.S. Securities and Exchange Commission. Final Rule – Amending the Accredited Investor Definition
12
U.S. Securities and Exchange Commission. Disqualification of Felons and Other Bad Actors From Rule 506 Offerings and Related Disclosure Requirements
13
eCFR. 17 CFR 230.502 – General Conditions to Be Met
14
U.S. Securities and Exchange Commission. Filing a Form D Notice
15
U.S. Securities and Exchange Commission. Form D – Notice of Exempt Offering of Securities
16
U.S. Securities and Exchange Commission. Understand and Utilize EDGAR CIK and CIK Confirmation Code (CCC)
17
eCFR. 17 CFR 239.500 – Form D, Notice of Sales of Securities Under Regulation D and Section 4(a)(5) of the Securities Act of 1933
18
North American Securities Administrators Association. EFD – Form D Fee Schedule
19
U.S. Securities and Exchange Commission. Integration
20
Investor.gov. Private Placements Under Regulation D – Updated Investor Bulletin
21
U.S. Securities and Exchange Commission. Rule 144 – Selling Restricted and Control Securities