Windward Navigator · Guide
Rule 506(c) lets a company or fund advertise its raise to accredited investors. What verification means, what goes in the PPM, Form D and Texas notice filings, timing, and the mistakes that cost the exemption.
Rule 506(c) of Regulation D is the exemption that lets a Texas company or fund say out loud that it is raising money — on its website, on LinkedIn, at a conference — so long as every purchaser is an accredited investor and the issuer takes reasonable steps to verify that. This guide walks through a 506(c) round from decision to closing, in the order the work actually happens.
Both rules let an issuer raise an unlimited amount from accredited investors without registering the offering. The difference is advertising. Under 506(b) you may not generally solicit, you may admit up to 35 sophisticated non-accredited investors, and investors self-certify their status. Under 506(c) you may advertise freely, every purchaser must be accredited, and you must take reasonable steps to verify it. Issuers with a warm investor list often stay in 506(b); issuers who need to find investors — a first-time sponsor, a non-op drilling program marketed to the industry, a growth company with a public story — choose 506(c).
For individuals: income above $200,000 (or $300,000 with a spouse or spousal equivalent) in each of the last two years with a reasonable expectation of the same this year; or net worth above $1 million excluding the primary residence; or certain professional licenses (Series 7, 65 or 82). For entities: more than $5 million in assets, or all equity owners accredited, among other categories. Knowledgeable employees of a private fund qualify for that fund.
The rule is principles-based, with non-exclusive safe harbors: reviewing tax forms for the income test; reviewing bank and brokerage statements and a credit report for the net-worth test; or obtaining a written confirmation from a licensed broker-dealer, registered investment adviser, attorney or CPA that verified status within the last three months. In March 2025 the SEC staff also confirmed that an issuer may rely on a high minimum investment — at least $200,000 for an individual or $1 million for an entity — combined with written representations that the investor is accredited and is not financing the purchase, provided the issuer has no contrary knowledge. Most issuers use a third-party verification service and keep the report in the investor file; the issuer's records, not the investor's say-so, are what an examiner looks at.
A 506(c) offering to accredited investors does not legally require a private placement memorandum, but the antifraud rules apply to every statement made in the raise, and investors' counsel will ask for one. The usual set is a PPM (business, use of proceeds, risk factors written for the actual asset, conflicts, management, terms), a subscription agreement with investor representations, an investor questionnaire, the governing document being sold into (operating agreement, LP agreement or charter and investor-rights documents), and for a fund the management agreement and any side-letter form. Everything the issuer posts publicly — the deck, the website page, the LinkedIn post — must be consistent with the PPM.
Rule 506(d) disqualifies an offering if the issuer or certain covered persons — officers, directors, 20% owners, promoters, placement agents — has a disqualifying event such as a securities-related conviction or order. The issuer must ask, in writing, before the first sale and keep the questionnaires. A disclosure obligation applies to events that predate September 2013.
A Form D is filed electronically with the SEC within 15 days after the first sale. Texas requires a notice filing with the State Securities Board for Rule 506 offerings sold to Texas residents, with a fee, and most other states require their own notice within the same window. These are notices, not approvals, but missing them creates a compliance history that follows the issuer into the next raise. Amendments are due annually for continuing offerings and when material information changes.
Paying anyone transaction-based compensation to bring in investors generally requires that person to be a registered broker-dealer. Unregistered "finders" paid a percentage of the raise are the most common way a clean offering acquires a rescission risk. Compensate marketing help with a flat fee for services, or use a registered placement agent.
From a decision to a document set ready for investors is typically three to five weeks for an operating company and four to eight for a first fund, most of it spent on the business description and risk factors rather than the legal boilerplate. Verification runs in parallel with subscriptions. Closing can be rolling; each closing produces an updated cap table or investor ledger, which is the record the next financing will rely on.
Yes, under Rule 506(c): general solicitation is permitted if every purchaser is accredited and the issuer takes reasonable steps to verify that status. Under Rule 506(b) you may not advertise. The choice should be made before the first public statement about the raise.
Not as a matter of rule, but the antifraud provisions apply to everything said in the raise, and investors' counsel expect a private placement memorandum. In practice every 506(c) offering of any size uses one.
Review income or net-worth documentation, obtain a written confirmation from a broker-dealer, adviser, attorney or CPA, or rely on a high minimum investment with written representations under the SEC staff's 2025 guidance. Keep the verification in the investor file.
Within 15 days after the first sale of securities in the offering, filed electronically on EDGAR, with state notice filings — including Texas — due in the same window.
It depends on whether it is an operating-company raise or a fund and on how much of the governing-document set already exists. Fixed-fee starting prices for both are on this site's pricing estimator; state notice fees and verification-service fees are separate.
Windward Navigator guides are general information about Texas and federal law, not legal advice about your company or project. Laws and thresholds change; confirm the current figures and talk to counsel before acting. Attorney advertising.