Most US private fund offerings rely on Regulation D — a set of SEC rules that exempt certain private offerings from full registration. The two most-used exemptions are 506(b) and 506(c). They look similar from a distance and behave very differently up close, particularly around marketing and accreditation verification.
What both exemptions share
Both 506(b) and 506(c) are part of Regulation D, both allow unlimited fundraising amounts, both rely on filing a Form D within 15 days of the first sale, and both produce the same tax and structural treatment for investors. The choice between them is about who can invest and how the GP can find them.
- Accredited investor
- Defined by the SEC: an individual with $200k income (or $300k joint), $1M net worth excluding primary residence, or who holds certain professional licenses. Entities qualify by asset size or by all owners being accredited individuals. See Accredited Investor vs. Qualified Purchaser for the higher tier.
506(b) — the historical default
506(b) is the older of the two and remains the workhorse exemption for institutional and relationship-driven private funds. Key features:
- No general solicitation. The GP cannot publicly market the offering — no LinkedIn ads, no public website calls-to-action, no investor-day live streams open to anyone. Outreach has to be to people the GP has a "substantive pre-existing relationship" with.
- Up to 35 non-accredited investors are permitted, though almost all institutional funds restrict themselves to accrediteds anyway. Non-accredited investors require additional disclosure under Reg D Rule 502(b).
- Self-certificationof accreditation is acceptable. The investor checks a box; the GP doesn't need to independently verify income or assets.
506(c) — the modern marketing exemption
506(c) was added in 2013 under the JOBS Act. Key features:
- General solicitation is allowed. The GP can publicly market the offering — paid ads, investor pitch decks on the website, Twitter/LinkedIn outreach to strangers, all permitted.
- Only accredited investors may purchase. No exception, even for the relationship-based one-off.
- Verified accreditation is required. The GP must take “reasonable steps” to verify accreditation — typically by reviewing tax returns, bank statements, or by accepting a letter from a CPA, attorney, or registered investment adviser.
Why the choice matters
For most allocators, the choice doesn't directly affect their ability to invest — institutional LPs are accredited by default and can invest in either structure. But the choice of exemption signals something about the fund:
- 506(b) funds are typically marketed relationship-first. The LP base tends to be smaller, more institutional, and more concentrated. Diligence is private.
- 506(c) funds are typically marketed publicly. They lean toward retail-adjacent products — RIA-friendly real estate funds, public-style vehicles for accredited individuals, some venture-style retail products. The marketing materials are slicker and the LP base is broader.
Neither is inherently better. But understanding which exemption a fund is operating under helps explain why the marketing feels the way it does — and what kind of LP base you're being grouped with.
Operational implications
For a 506(c) fund, expect to provide accreditation verification — a letter from your CPA, tax returns, or in some cases bank or brokerage statements. Sophisticated investors can request that the fund accept a letter from their RIA in lieu of personal financial documents. For 506(b), the subscription agreement will usually accept a checkbox attestation.
And if you encounter a fund that's actively soliciting publicly but claims to be a 506(b), that's a meaningful compliance flag. The two exemptions are mutually exclusive on marketing — you can't advertise under 506(b) without breaking the exemption.