Regulation D provides exemptions that let an eligible company sell securities without SEC registration. For a startup, the main choices are Rule 504, Rule 506(b) and Rule 506(c). Each has its own purchaser, offering and compliance conditions. Filing Form D does not make an otherwise defective offering exempt.
Stock, SAFEs and convertible notes can all be securities. Choosing a different financing instrument does not eliminate the exemption analysis.
Start with the offering, not the filing
Before making offers, identify the security, issuer, intended purchasers, offering amount, marketing plan and states involved. Then choose an exemption whose conditions the company can satisfy throughout the offering. Exempt transactions remain subject to antifraud rules.
The three principal Regulation D routes
| Feature | Rule 504 | Rule 506(b) | Rule 506(c) |
|---|---|---|---|
| Offering ceiling | $10 million under the rule’s rolling calculation | No dollar ceiling | No dollar ceiling |
| Non-accredited purchasers | Permitted federally, subject to applicable conditions and state law | Up to 35 in any 90-calendar-day period, applying counting, sophistication and disclosure rules | Not permitted |
| General solicitation | Generally prohibited, with specified state-law-based exceptions | Prohibited | Permitted |
| Accreditation verification | Depends on the route and relevant conditions | Qualification or reasonable belief; no separate 506(c) verification requirement | Reasonable verification steps required |
| State registration preemption | No comparable blanket Rule 506 preemption | Yes, for qualifying Rule 506 securities; notices, fees and antifraud authority remain | Same |
Rule 504: check both the federal ceiling and state law
Rule 504 is unavailable to specified issuers, including Exchange Act reporting companies, investment companies and certain blank-check companies. Bad-actor provisions also apply.
The $10 million ceiling takes account of the securities sold under Rule 504, and the specified sales in violation of Securities Act Section 5(a), during the rule’s preceding-12-month and offering period. Dividing a financing into differently named rounds does not reset that calculation.
Example: an issuer sells $6 million under Rule 504 and attempts another $6 million within the relevant 12-month period. Rule 504 cannot cover the entire second sale if it exceeds the remaining capacity. Under the instruction to Rule 504(b)(2), a transaction that exceeds the ceiling does not automatically destroy the exemption for earlier compliant transactions.
General solicitation and resale restrictions ordinarily apply, but Rule 504(b)(1) provides specific exceptions involving state registration, disclosure or qualifying state exemptions. Evaluate the actual exception and all relevant state requirements before advertising. Rule 504 is not simply Rule 506 with a smaller dollar limit.
Rule 506(b): no general solicitation
Rule 506(b) permits unlimited accredited purchasers and up to 35 counted non-accredited purchasers in any 90-calendar-day period. Apply Rule 501(e)’s counting rules and the offering/integration framework.
Each non-accredited purchaser must have the required sophistication, alone or with a purchaser representative, or the issuer must reasonably believe that immediately before sale. Provide the information required by Rule 502(b) a reasonable time before the sale. The applicable financial-statement requirements depend on the issuer and offering; neither “no disclosure needed” nor “every offering needs the same audit” is a sound general rule.
A pre-existing substantive relationship is one means of demonstrating the absence of general solicitation, not an independent requirement for every purchaser in every Rule 506(b) offering. A casual acquaintance or referral does not automatically establish such a relationship. SEC staff Questions 256.26–256.33 explain the factual analysis.
The issuer does not need to use Rule 506(c)’s verification methods, but it still needs actual accredited status or a reasonable belief at sale. Follow up on contradictory facts instead of treating a signed checkbox as conclusive.
Rule 506(c): advertising with accredited purchasers
Rule 506(c) permits general solicitation, but all purchasers must be accredited and the issuer must take reasonable steps to verify their status. The rule’s methods for natural persons are nonexclusive and nonmandatory. They include income records and representations, recent net-worth records and liability representations, specified professional confirmations, and two narrow methods for grandfathered or previously verified investors.
High minimum investments can support a fact-specific verification approach under SEC staff guidance, subject to the specified qualification, financing, representation and knowledge conditions. A large check alone does not make an investor accredited. Tax returns are not required in every case.
An online platform can help administer an offering, but its brand does not establish the exemption or remove issuer responsibility. Review the actual offering documents, investor process and intermediary role. For the detailed comparison, see Rule 506(b) versus Rule 506(c).
Who is an accredited investor?
An individual may qualify with income exceeding $200,000 in each of the two most recent years, or joint income exceeding $300,000 with a spouse or spousal equivalent, plus a reasonable expectation of the applicable level in the current year. Joint tax filing is not required. A new salary cannot replace a deficient historical year.
Other routes include net worth exceeding $1 million after the primary-residence and debt adjustments; specified licenses in good standing; certain issuer roles; and knowledgeable-employee status for the relevant private fund. Entities, trusts and family offices have their own categories and conditions. The family-office threshold is more than $5 million in assets under management, not merely $5 million.
Use the full accredited-investor guide to identify the correct Rule 501(a) category and distinguish qualification from verification.
Form D: required notice, not SEC approval
Rule 503 requires the initial Form D within 15 days after the first sale. The first sale occurs when an investor is irrevocably contractually committed; it may precede the transfer of cash. If the filing deadline falls on a Saturday, Sunday or holiday, it moves to the next business day.
Form D is not a registration statement or SEC approval. Timely filing is a legal obligation, but it is not itself a condition of the Rule 504 or 506 exemption. A missing notice does not automatically establish an unregistered-sale violation, and a filed notice does not cure a failure to satisfy the exemption. Address a missed filing promptly and assess the consequences.
Rule 503 also requires amendments for specified errors and changes and annually for an offering continuing beyond a year. Exceptions apply to particular changes; maintain a filing calendar instead of treating every update alike.
State notices, fees and antifraud rules remain relevant
Qualifying Rule 506 securities are exempt from state registration or qualification requirements. States can still require notices and fees and enforce antifraud law. Rule 504 generally requires a separate state registration or exemption analysis.
Review the jurisdictions of offers and sales and their actual rules; do not rely only on a mailing address or a generic fee estimate. Also examine whether a person paid to find investors must register as a broker or satisfy an applicable exemption.
Integration: apply Rule 152 in the correct direction
Rule 152 supplies a general principle and four nonexclusive safe harbors. Outside a safe harbor, the issuer must establish that each offering independently satisfies registration or an exemption, with the purchaser and communication conditions in Rule 152(a).
- More than 30 calendar days: the spacing safe harbor has an additional condition when a private offering follows a general-solicitation offering. The issuer must reasonably believe each private-offering purchaser was not solicited through general solicitation or had a substantive relationship established before that private offering began.
- Compensatory and offshore offerings: Rule 152(b)(2) covers offers and sales complying with Rule 701, pursuant to an employee benefit plan, or complying with Regulation S.
- Subsequent registered offerings: Rule 152(b)(3) provides the specified routes based on the preceding offering’s solicitation and purchaser conditions or the applicable gap.
- Subsequent offerings permitting general solicitation: Rule 152(b)(4) applies after any terminated or completed offering; it does not itself require a 30-day wait.
For example, a properly completed 506(b) offering followed by a 506(c) offering can use paragraph (b)(4). Reversing that sequence requires a different analysis. Define commencement and completion under Rule 152(c)–(d); naming two rounds differently does not decide the result. Integration analysis also does not erase Rule 504’s separate rolling dollar ceiling.
A practical compliance checklist
- Identify the issuer, security, purchasers and exemption before making offers.
- Control solicitation consistently with the selected exemption.
- Document qualification, sophistication, counting and verification where applicable.
- Deliver required disclosure before sale and avoid misleading statements or omissions.
- Check covered persons under the bad-actor rules, including lookback periods, exceptions and any required historical disclosures.
- Document related offerings and the applicable Rule 152 analysis.
- Complete corporate approvals, subscriptions, Form D, state notices and the amendment calendar.
Do not promise that a late document, a small extra investment or a later change in an investor’s wealth cures an earlier defect. Rule 508 treats specified solicitation, offering-limit and purchaser-count deviations as significant. An actual problem requires analysis of the facts, the rule, possible alternative exemptions and available remedies.
Frequently asked questions
What if I include a 36th non-accredited purchaser?
First apply Rule 501(e) counting, the 90-calendar-day period and Rule 506(b)’s reasonable-belief language. If the offering actually violates the purchaser limit, do not assume the extra check is insignificant: Rule 508 treats that deviation as significant. Later accreditation is not an automatic retroactive cure. Obtain a transaction-specific exemption and remedy analysis.
Does late Form D automatically destroy the exemption?
No. The filing obligation is separate from the substantive exemption conditions. File promptly, assess the consequences and check state requirements; neither a late nor a timely Form D proves the offering otherwise complied.
Can I use both Rule 506(b) and Rule 506(c)?
A company can conduct separate offerings if each satisfies its exemption and Rule 152. It cannot use a 506(b) label to accept non-accredited purchasers into a generally solicited offering without a valid legal basis for treating the transactions separately.
Can I raise from international investors?
Potentially. Regulation D can cover qualifying transactions involving non-U.S. investors. Regulation S is a separate route with offshore-transaction, directed-selling-effort and other conditions; foreign citizenship alone does not establish it. Analyze relevant foreign law too.
Related reading and next steps
Rule 506(b) versus Rule 506(c) · Accredited-investor requirements · Rule 701 for compensatory equity
For help with the exemption, investor process and filings before opening a round, book a 20-minute call.
This article provides general information, not legal advice.
