Rule 506(b) or 506(c)? Public Promotion Changes the Investor Test

Choose Rule 506(b) when the offering will remain private and outreach can stay targeted. Choose Rule 506(c) when the startup plans to promote the offering publicly. That broader reach changes the investor test: every purchaser in a Rule 506(c) offering must be accredited, and the issuer must take reasonable steps to verify that status.

Make the choice before publishing investment details on an unrestricted website, posting about a live raise, discussing its terms with the press, or inviting an open audience to a pitch. Rule 506(b) prohibits general solicitation; Rule 506(c) permits it subject to its accredited-purchaser and verification conditions.

The first decision is whether to promote the offering publicly

Both exemptions permit an unlimited amount of capital to be raised without SEC registration, but they impose different communication rules. The SEC’s comparison of offering pathways says Rule 506(b) does not allow general solicitation, whereas Rule 506(c) allows companies to solicit broadly.

Paid advertising is not the only concern. A communication that arouses public interest in a security or conditions the market for a capital-raising transaction can be treated as an offer. Its content, audience and relationship to the offering matter more than whether the founder labels it company news, public relations or a social update.

A side-by-side decision map

• General solicitation: Rule 506(b) prohibits it; Rule 506(c) permits it.
• Who may purchase: Rule 506(c) is limited to accredited investors. Rule 506(b) permits accredited investors and no more than 35 non-accredited purchasers in any 90-day period, subject to additional requirements.
• Accredited status: Under Rule 506(b), the issuer needs a reasonable belief that an investor treated as accredited qualifies. Under Rule 506(c), the issuer must take reasonable steps to verify the status of every purchaser.
• Investor relationships: Pre-existing, substantive relationships can support controlled Rule 506(b) outreach. Rule 506(c) does not require such a relationship before an offering is promoted.
• Communication plan: Selected introductions and private outreach point toward Rule 506(b). An unrestricted fundraising page, broad public posts or advertising point toward Rule 506(c).

Rule 506(b) is not simply Rule 506(c) with less paperwork. Its ability to admit some non-accredited purchasers carries separate sophistication and disclosure considerations. The SEC’s exempt-offerings summary also requires a Form D notice for Regulation D offerings within 15 days after the first sale.

Test the communication, not its label

The SEC’s general-solicitation guidance lists newspaper and magazine advertisements, unrestricted public websites, television and radio broadcasts, and seminars other than qualifying demo days as examples. It describes the determination as fact-specific and says impersonal, non-selective communications to people without relevant experience or a prior relationship make general solicitation more likely.

• Unrestricted social post: A public post announcing a live raise and inviting investment should be reviewed before publication. It reaches an unselected audience and directly promotes the offering.
• Public website: A generally accessible page containing offering terms resembles the SEC’s unrestricted-website example. A password offers little comfort if access is distributed indiscriminately.
• Media interview: Discussing the company or a completed financing is not necessarily a securities solicitation. Promoting an open live raise, stating its terms or directing the audience to an investment page presents a different question.
• Open event: A pitch to an unrestricted audience can raise a general-solicitation issue. Qualifying demo days receive different treatment only when conditions governing the sponsor, advertising and offering information are met.
• Private investor email: A selected message to people with whom the issuer or its intermediary has a genuine pre-existing, substantive relationship is more consistent with Rule 506(b) than a blast to a newly acquired list.

What a pre-existing, substantive relationship establishes

A pre-existing relationship is formed before the offering starts or through a broker-dealer or investment adviser before that professional participates in the offering. A substantive relationship exists when the issuer or intermediary has enough information to evaluate, and actually evaluates, the prospective investor’s accredited status.

A social-media connection, newsletter signup, conference badge scan or new email address does not establish that evaluation by itself. The existence of a pre-existing, substantive relationship is a recognized way to show that outreach was not a general solicitation, but it is not the only possible way; the analysis remains dependent on the facts.

Public reach creates a different investor test

Rule 506(c) lets the public hear about the offering but narrows who may buy. All purchasers must be accredited investors, and verification is a separate obligation: a checked self-certification box alone is insufficient.

The SEC’s accredited-investor guidance describes a flexible, facts-and-circumstances approach. Its non-exclusive methods include reviewing specified income or net-worth documents and obtaining recent written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or certified public accountant.

The practical tradeoff is therefore broader permissible promotion in exchange for an accredited-only purchaser pool and a documented verification process. The company should decide who will collect and review evidence, how sensitive records will be handled and what happens when a prospective purchaser cannot be verified.

Pause before publicity, not after it

Before promoting a live raise, pause public communications and have securities counsel review the intended exemption, offering timeline, target audience, draft posts, website copy, press talking points, event access and verification process. The controlling question is not simply whether one post is acceptable, but whether the full fundraising process satisfies the exemption on which the company plans to rely.

If the round can remain within controlled private outreach, Rule 506(b) may preserve the reasonable-belief standard for accredited investors and limited access for qualifying non-accredited purchasers. If public promotion is part of the plan, Rule 506(c) is the relevant starting point, with accredited-only purchases and verification built into the closing process.

Also read:

• Smart Money Is More Than Cash: How Founders Test an Investor’s Real Value
• Why Reach Alone Fails Ogilvy’s Five-Rule Test for Social in 2026
• Using AI Tools for Fundraising and Investor Pitches in 2026