Accredited Crowdfunding With Rule 506(c) – Going Public Attorneys

Accredited Crowdfunding Attorney

Private placement offerings under Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (“Securities Act”) are a cost-effective and relatively quick way for private companies to raise capital before, during, and after a going public transaction. The JOBS Act created Rule 506(c) which has become known as the “Accredited Crowdfunding” exemption.

Accredited Crowdfunding under Rule 506(c) fundamentally changed the way unregistered offerings are conducted. While the Accredited Crowdfunding rules impose stringent requirements, these requirements are manageable for issuers putting effective compliance strategies into place. Accredited Crowdfunding under Rule 506 offerings are frequently used to raise capital in connection with going public transactions that involve filing a registration statement on Form S-1. Accredited Crowdfunding under Rule 506(c) has become a popular means of obtaining seed shareholders in going public transactions.

This Securities Lawyer Q & A addresses the recent questions we have received about Rule 506(c) and Accredited Crowdfunding.

Q. How did the JOBS Act change Rule 506 offerings?

A. The JOBS Act eliminated the prior prohibition against general solicitation and advertising in Rule 506(c) securities offerings, provided that the securities offerings are sold only to accredited investors; however, the Issuer is required to take “reasonable steps” to verify that all investors are accredited. Rule 506 offerings made without general solicitation are conducted pursuant to Rule 506(b).

Q. What are the maximum amounts that can be raised in a securities offering conducted in an Accredited Crowdfunding Offering made pursuant to Rule 506(c)?

A. Rule 506(c) does not limit the amount that can be raised.

Q. Can a Company advertise an offering made using the Accredited Crowdfunding exemption?

A. Yes, if you comply with the requirements of Rule 506(c) including accredited investor verification.

Q. Does my Company have to file a Form D before it advertises its offering under Rule 506(c)?

A.  As of now, issuers do not have to file a Form D prior to engaging in general solicitation or advertising.

Q. Does my company have to file its general solicitation and advertising materials with the SEC before generally soliciting?

A.  As of now, companies are not required to file their general solicitation and advertising materials with the SEC before engaging in solicitations and/or advertising.

Q. Can my Company sell up to 35 non-accredited investors if it engages in general solicitation and advertising?

A.  No.  A company cannot engage in general solicitation and advertising if it accepts funds from even a single investor that if failed to verify as an accredited investor.

Q. Is there a limit on the number of purchasers who can invest in an Accredited Crowdfunded Offering Conducted under Rule 506 (c)?

A. Rule 506(c) will allow issuers to sell securities to an unlimited number of accredited investors if general solicitation and advertising is used. Rule 506(b) permits issuers to sell securities to up to 35 non-accredited investors and an unlimited number of accredited investors if general solicitation and advertising is not used.

Q. Can I rely on an investor certification or declaration from an investor certifying that he or she is accredited?

A.  No. Issuers must take reasonable steps to verify the accredited investor status of all investors if it engages in general solicitation and/or advertising under Rule 506(c).

Q. What are the requirements that apply to “bad actors” in Rule 506(c) offerings?

A. The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes the “bad actor” ban provisions that apply in Rule 506 offerings.  The rules prohibit issuers as well as underwriters, placement agents, directors, executive officers, and certain shareholders from participating in Rule 506 offerings, if they have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws.

Q. In connection with a Rule 506 offering, is the issuer required to undertake investor verification if it relies on a third party verification service?

A. When general solicitation is used the issuer must take steps to verify accredited investor status. The issuer must demonstrate a reasonable belief that the investors in the offering are accredited investors. As a result, the issuer must conduct some diligence even if it relies upon a third-party verification service. For offerings made in reliance upon Rule 506(b), issuers are not required to confirm accredited investor status.

Q. Are the securities sold in offerings made under Rule 506(b) and (c) restricted securities?

A. Yes, securities sold in Rule 506(b) and Rule 506(c) offerings are restricted securities. The changes to Rule 506(c) would not affect tradability or resale, because Rule 506 is available only to issuers.

Q. Do companies have to file a Form D with the SEC if they conduct a securities offering  using Accredited Crowdfunding pursuant to Rule 506(c) of Regulation D?

A. While companies relying upon the Rule 506 exemption do not have to register their securities, they must file a Form D with the SEC.  This includes issuers conducting offerings under Rule 506(c).  In these offerings, Form D requirements have been expanded to include, among other things, disclosure of whether general solicitation and/or advertising is used in the offering.

For further information about this securities law Q & A, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855