506(b) vs 506(c): Which Should I Use If I Don't Run a Tech Startup?

Use Rule 506(b) if most of your money will come from people you already know and you want the option of including a few non-accredited investors; you cannot advertise. Use Rule 506(c) if you need to reach accredited investors you don't know yet through advertising, social media, email or events; every investor must be accredited and you must take reasonable steps to verify it. Both allow unlimited amounts, both need a Form D and state notice filings, and neither requires SEC review. For a restaurant group, services firm or other operating business, the deciding question is simply whether your existing network can fund the round.

By Joel Arberman, founder of Prepared to Raise · 17 companies taken public, 30+ private placements prepared · Reviewed October 21, 2026

The difference in one table of facts

  • Who you can approach. 506(b): only people you have a pre-existing, substantive relationship with. 506(c): anyone, including through public advertising.
  • Who can invest. 506(b): unlimited accredited investors plus up to 35 non-accredited investors who are financially sophisticated. 506(c): accredited investors only.
  • Proving accreditation. 506(b): investors can certify their own status on a questionnaire. 506(c): you must take reasonable steps to verify it.
  • Disclosure. 506(b): if any investor is non-accredited, you must give full written disclosure, usually a private placement memorandum. 506(c): no specific disclosure document is required, though anti-fraud rules still apply and most companies provide one.
  • Amount, filings, SEC review. Both: no limit on the amount, a Form D within 15 days of the first sale, state notice filings, and no SEC review of your documents.

How to choose for an operating business

Most advice on this question is written for venture-backed tech startups, which almost always use 506(b) because their investors come through introductions. An operating business with real revenue faces a different question: can the people who already know you fund this round?

  • If yes, use 506(b). It is quieter, investors can self-certify, and if you need to include a trusted non-accredited investor or two you can, with proper disclosure.
  • If no, because your network is tapped out, too small, or not wealthy enough for the amount, use 506(c) and go find accredited investors through content, advertising, events and introductions.
  • If you are not sure yet, start with 506(b). You can switch to 506(c) mid-raise by amending your Form D. You cannot go the other way once you have advertised.

What verification under 506(c) actually involves

For each investor, "reasonable steps" usually means one of these:

  • Reviewing tax documents (W-2, 1099, returns) showing qualifying income for the last two years.
  • Reviewing bank, brokerage and similar statements plus a credit report, dated within the last three months, showing qualifying net worth.
  • A written confirmation from the investor's CPA, attorney, registered investment adviser or broker-dealer, dated within the last three months.
  • A third-party verification service, which typically costs the issuer a modest per-investor fee and takes a day or two.

A March 2025 SEC staff letter allows a simpler route when the minimum investment is high: at least $200,000 for an individual or $1 million for an entity, with written representations that the investor is accredited and the money is not financed by a third party. For most raises with $25,000 to $50,000 minimums, that shortcut does not apply.

Verification is the main friction in 506(c). Some investors are uncomfortable sending financial records, so budget time for it and make it as easy as possible.

What advertising looks like in practice

Under 506(c) you can post about the offering, run ads, send email, speak publicly and use a landing page. The ad platforms are a separate question: Meta, Google and LinkedIn restrict ads for financial offerings, so many companies advertise the business and its story, and gate the offering itself behind an accreditation questionnaire. Everything you publish must be accurate and consistent with your offering documents, because the anti-fraud rules apply to every word.

Related questions

Can I take money from non-accredited friends under 506(c)?

No. Every purchaser in a 506(c) offering must be accredited. If you need non-accredited investors, use 506(b) or Regulation Crowdfunding.

Is 506(c) more expensive?

Slightly, because of verification and the marketing it is designed for. The legal documents are similar. The bigger cost is the time and money to reach investors you do not know.

Can I run 506(b) and 506(c) at the same time?

Not in the same offering. Companies sometimes run separate offerings with separate terms, but the integration rules are technical; do it only with counsel.

Does my business type change the answer?

Not the legal answer. It changes the story: investors in a cash-flow business want to know how they get paid back, through dividends, a preferred return, a buyback or a sale, rather than how big the company might get.

Where to start

If your network can fund the round, read how to raise from people who know you. If it cannot, our Growth Capital package prepares a raise of up to $10 million, and the 506(c) extension adds the verification and solicitation materials. A Readiness Assessment ($1,500, credited within 60 days) confirms which fits.

Prepared to Raise is a service of Meraki Partners, LLC. This article is general information, not legal, tax or investment advice, and not an offer to sell or a solicitation to buy any security. Meraki Partners is not a broker-dealer, funding portal, investment adviser or law firm. Figures are as of the review date above.