The common ground
Rule 506 is part of Regulation D, which lets companies raise money without registering the offering with the SEC. Both 506(b) and 506(c) allow a sponsor to raise an unlimited amount of capital, both preempt state registration requirements, though states can still require notice filings and fees, and both result in restricted securities that cannot be freely resold. The sponsor files a notice on Form D with the SEC, generally within 15 days after the first sale.
Being exempt from registration does not mean the SEC has reviewed or approved the offering. Anti-fraud rules still apply fully, so sponsors remain liable for material misstatements or omissions, but no regulator checks the documents before you invest. That is why your own diligence matters.
Rule 506(b): the private route
Under 506(b), the sponsor may not use general solicitation or general advertising to offer the securities. In practice, that means no public promotion of a specific offering through websites, social media, mass email or events open to the public. Sponsors typically offer 506(b) deals only to people with whom they have a pre-existing, substantive relationship, meaning the sponsor has enough information about the investor’s finances and sophistication to judge whether they are eligible, and that relationship was formed before the offering. SEC staff have indicated that simply waiting a set period of time does not by itself create such a relationship.
A 506(b) offering can include an unlimited number of accredited investors and up to 35 non-accredited investors, provided each non-accredited investor, alone or with a purchaser representative, has enough knowledge and experience in financial matters to evaluate the investment. If any non-accredited investor participates, the sponsor must provide disclosure similar to what a registered offering would include, including financial statements, which is why many sponsors limit 506(b) deals to accredited investors anyway. Accredited status is generally established by the investor’s own written representation.
Rule 506(c): the public route
Rule 506(c), added after the JOBS Act, allows general solicitation. A sponsor can describe an offering publicly, on a website, in articles or at events, to people it has never met. The trade-off is stricter eligibility: every purchaser must be an accredited investor, and the sponsor must take reasonable steps to verify that status rather than relying on a checkbox.
Verification commonly involves reviewing tax documents or account statements, obtaining a letter from the investor’s CPA, attorney, registered investment adviser or broker-dealer, or using a third-party verification service. SEC staff guidance issued in 2025 also recognized that high minimum investment amounts, combined with written representations, can support verification in certain circumstances.
Side-by-side differences
The distinctions most relevant to investors can be summarized briefly.
- Advertising: prohibited in 506(b); permitted in 506(c).
- Who can invest: 506(b) allows accredited investors plus up to 35 sophisticated non-accredited investors; 506(c) allows accredited investors only.
- Verification: 506(b) typically relies on investor representations; 506(c) requires the sponsor to take reasonable steps to verify.
- Relationship: 506(b) sponsors generally need a pre-existing, substantive relationship with investors; 506(c) sponsors do not.
- Disclosure: 506(b) triggers specific disclosure obligations if non-accredited investors participate; 506(c) has no such mandated package, though sponsors usually provide a memorandum.
- Filing: both require a Form D notice filing.
Other rules both exemptions share
Both exemptions disqualify offerings that involve certain bad actors. If the sponsor, its principals or certain other participants have specified securities-related convictions, regulatory orders or similar events, the sponsor generally cannot rely on Rule 506, subject to limited exceptions and disclosure requirements for older events. Sponsors typically make representations about this in the offering documents.
State securities regulators also retain a role. Although they cannot require registration of a Rule 506 offering, they generally receive notice filings and fees and can bring enforcement actions for fraud. Investors who want to understand a sponsor’s regulatory history can search public databases maintained by the SEC and FINRA and ask the sponsor directly about any past issues.
What the difference means for you
If you learned about an offering from a public source, it is most likely a 506(c) offering, and you should expect to document your accredited status. If you hear about an offering only after the sponsor already knows you, it may be a 506(b) offering, and you will generally complete a questionnaire instead. Sponsors like Skyline that use both exemptions choose one for each offering, and they cannot switch freely once an offering has begun, because public advertising is not compatible with 506(b).
Neither exemption makes an investment safer or riskier on its own. The property, the business plan, the debt and the sponsor determine the risk. The exemption mainly shapes how you are approached, what paperwork you complete and who else can invest alongside you.