506(b) and 506(c) Offerings

Most often, if you're investing in a syndication, it will be a Regulation D (Reg D) offering. Reg D is a regulation that allows sponsors to sell securities without registering with the Securities and Exchange Commission. Within Reg D, there are two types of offerings; 506(b) and 506(c).

506(b) Offering:
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• Accredited and Non-accredited Investors: Sponsors can accept investments from both accredited investors (individuals with a certain level of wealth or income) and up to 35 non-accredited investors. All must have a pre-existing relationship with the sponsor.
• No General Solicitation: One critical requirement of the 506(b) exemption is that the company cannot engage in general solicitation or advertising to attract investors. Instead, the offering is typically conducted through personal connections and private networks.
• Limited Financial Disclosure: Sponsors choosing the 506(b) route are not required to obtain extensive financial disclosures from investors. They are generally able to self verify their accreditation status.

506(c) Offering:

• Accredited Investors Only: Unlike the 506(b) exemption, the 506(c) offering is limited to accredited investors only. There is no provision for accepting investments from non-accredited investors, even if they have a pre-existing relationship with the sponsor.
• General Solicitation Allowed: The significant advantage of the 506(c) exemption is that sponsors can engage in general solicitation and advertise the offering through various channels such as websites, social media, and public events.
• Enhanced Investor Verification: To ensure that all investors meet the accredited status, companies conducting a 506(c) capital raise must implement rigorous verification procedures. This often involves obtaining financial documents and other supporting evidence from potential investors.

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