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In order to offer or sell a security in the United States, it must be registered with the Securities and Exchange Commission (SEC) or qualify for an exemption from registration.

By utilizing an exemption, a company can avoid the cost and time of registration. Depending on the exemption relied upon, a company may limitations with respect to dollar value of securities offered, number of investors, investor types, and advertising methods.

Regulation D: Hallmarks of Rule 504 and Rule 506

Pursuant to Rules 504, 505, and 506 of Regulation D of the Securities Act of 1933, companies, hedge funds, and other private funds are permitted to sell securities in an unregistered offering. Under Regulation D, Rules 504 and 506 are the most commonly used securities exemptions in capital raising activities in the U.S.

Rule 504

Rule 504 of Regulation D provides an exemption from registration under the Securities Act of 1933 for the offer and sale of up to $10,000,000 of securities in a 12-month period.

Rule 506(b)

As a general overview, Rule 506(b) allows a company to raise an unlimited amount of money, from an unlimited number of accredited investors. An issuer relying on Rule 506(b) may also sell to up to 35 non-accredited, sophisticated investors, provided that certain additional disclosure requirements are met. In order to verify an investor’s accredited status, companies are permitted to rely on the investors' representations, often times via a questionnaire.

Rule 506(c)

Similar to Rule 506(b), Rule 506(c) allows a company to raise an unlimited amount of money. However, an issuer may sell only to accredited investors. Companies relying on this exemption must take reasonable steps to verify accredited investor status of its investors. The major benefit of a Rule 506(c) offering is in the company's ability to generally solicit the offering to the public. As digital marketing is now mainstream, offering securities for sale, online, is now permissible under this framework.

Our Firm Provides Guidance at Every Stage of Your Private Placement Offering

While there are risks associated with raising capital under any exemption, our Firm understands and has experience handling these concerns. We help our clients through every stage of your financing plan including:

  • Guidance on offering structure, including security type and terms
  • Drafting a comprehensive private placement memorandum, investor questionnaires and other offering documents
  • Assisting clients in conducting AML/KYC checks and investor verification.
  • Advice on testing the waters and general marketing activities
  • Advice and consultation regarding compliance with Regulation D during your pre-offering period, in your offering materials, during your financing round, and after fundraising ends
  • Regulatory Filings:
    • Drafting and filing your compliant Form D with the SEC.
    • Preparing and filing State Blue Sky Notice Filings in the applicable states.
  • Working with you to choose service providers best suited for your company and goals, including:
    • Accountant selection and access to a network of eligible and experienced CPA’s
    • Marketing support from a network of reputable marketers with strong Reg D track records
    • Cap Table management
    • Transfer Agent Services
    • Blockchain Services - tokenizing your cap table
    • Secondary Exchange Listing

Navigation Guide

  • Regulation D: Hallmarks of Rule 504 and Rule 506
  • Our Firm Provides Guidance at Every Stage of Your Private Placement Offering

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