What is the Difference Between a 506(b) and 506(c) Deal?

As an entrepreneur or investor, you may have heard about the different types of Regulation D exemptions for private placements. Two of the most common exemptions are 506(b) and 506(c), but it can be confusing to understand the differences between the two.

506(b) is a commonly used exemption that allows companies to sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors. Accredited investors are individuals or entities that meet specific criteria, such as having a net worth of over $1 million or an annual income of over $200,000. Non-accredited investors are individuals or entities that do not meet these criteria.

One of the main differences between 506(b) and 506(c) is the type of advertising and marketing that is allowed. 506(b) does not allow for any general solicitation or advertising, meaning that companies cannot publicly advertise the offering or reach out to potential investors through means such as social media or email campaigns. Instead, companies must rely on personal connections or intermediaries to find potential investors.

506(c), on the other hand, allows for general solicitation and advertising. This means that companies can publicly advertise the offering and reach out to potential investors through any means. However, there is a catch – only accredited investors are allowed to participate in a 506(c) offering.

Another difference between the two exemptions is the level of information that must be provided to investors. 506(b) does not require companies to provide as much information to investors as 506(c) does. Companies must only provide certain basic information, such as the offering terms and the company's financial statements. 506(c) requires companies to provide more detailed information, such as a business plan and a description of the use of proceeds.

So, which exemption is right for your company? It really depends on your goals and the type of investors you are targeting. If you are looking to reach a wider pool of potential investors and are willing to provide more information to them, 506(c) may be the way to go. However, if you prefer to keep your offering private and are only interested in attracting accredited investors, 506(b) may be the better option. It's important to carefully consider your options and seek legal advice before making a decision.

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