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Vent: reg D 506(b) compliance question is ruining my life

Started by daveP_22 · May 26, 2025 · 1,051 views · 4 replies
For informational purposes only. This is not legal advice. Laws vary by jurisdiction. Consult a qualified attorney for advice specific to your situation.
DA
daveP_22 OP

I'm dealing with a situation and need some guidance.

Reg D 506(b) compliance question. I've been dealing with this for about 4 weeks now and the situation isn't improving.

I have already done some research online but got conflicting advice.

Do I have a strong case? What should my next steps be?

TH
throwaway92847_29

I work in this industry and unfortunately this is very common. The good news is that when people actually push back with legal representation, companies usually settle.

CA
coffee_and_contracts_28

Just want to point out — the statute of limitations might be a factor here. In some states it's as short as 1-2 years. Don't sit on this too long ngl.

AT
another_throwaway_15

Fwiw been there. Here's what I learned.

A lot of people mess up by is filing with the appropriate government agency. I'd recommend gathering evidence first instead.

AI
am_i_screwed_12 Attorney

Securities attorney here -- I see a lot of confusion about Reg D 506(b) vs 506(c) in these threads, so let me lay out the practical differences that matter for founders.

506(b) -- the "quiet" offering:

  • You CANNOT do general solicitation or advertising. This means no posting on social media, no public pitch events, no AngelList syndicate listings that are publicly visible.
  • You can raise from an unlimited number of accredited investors PLUS up to 35 non-accredited "sophisticated" investors
  • You must have a pre-existing, substantive relationship with every investor BEFORE offering securities
  • Non-accredited investors must receive detailed disclosure documents similar to what you would file in a registered offering

506(c) -- the "advertise freely" offering:

  • You CAN do general solicitation -- post on LinkedIn, run ads, pitch at public demo days
  • BUT every single investor must be verified as accredited through reasonable steps (tax returns, bank statements, CPA letter, or a third-party verification service like Verify Investor or Parallel Markets)
  • No non-accredited investors allowed, period

The biggest compliance trap I see with 506(b): founders who attend a public startup event, pitch their company, and then accept investment from someone they met at the event. That is general solicitation followed by a sale, which violates 506(b). You either need to have the relationship before the pitch, or switch to 506(c) and verify accreditation.

For most early-stage founders raising from friends, family, and angel investors they already know, 506(b) is simpler and cheaper. If you want to cast a wider net and do not mind the verification costs (usually 50-200 dollars per investor through a third-party service), 506(c) gives you more flexibility. Either way, file a Form D with the SEC within 15 days of the first sale of securities.