506(b) vs 506(c) in plain English

Rule 506 of Regulation D is the exemption nearly every American startup round rides on, and it comes in exactly two flavors. The entire difference fits in one sentence: 506(b) is quiet but easy; 506(c) is loud but verified. Which letter a company claims changes what the founder may say in public and what paperwork every investor must produce — which is why the exemption field on a Form D is worth reading before anything else.

506(b): the quiet default

Under 506(b), a company may raise unlimited amounts from unlimited accredited investors (plus up to 35 sophisticated non-accredited ones, which startup rounds almost never actually use). Two conditions carry the weight:

No general solicitation. The round cannot be publicly advertised — no “we’re raising!” posts, no demo-day open mics, no cold mass email. Investors are supposed to arrive through substantive pre-existing relationships or private introductions.

Self-certification suffices. Investors confirm their accredited status by representation — the questionnaire and signature. The company must reasonably believe them, but no documentary proof is required.

The trade: an easy process for investors and counsel, purchased with silence. For a founder, the silence is the sharp edge — one enthusiastic public post about an open round is general solicitation, and it doesn’t un-happen.

506(c): the loud alternative

506(c), created by the JOBS Act, removes the gag: general solicitation is allowed. Advertise the round, announce it on stage, post it anywhere. The price is verification: the company must take reasonable steps to verify that every purchaser is accredited — tax returns, brokerage statements, or a professional’s letter (CPA, attorney, broker-dealer, registered adviser). The checkbox that sufficed under (b) is explicitly not enough under (c).

The trade inverts: publicity for process. Some investors balk at handing over tax documents; verification services exist precisely to soften that friction.

Why the letter matters to each side

Founders: the choice is really about how you’ll find investors. Filling the round from your network → (b), and guard your public mouth until it closes. Need to solicit beyond your network → (c), and budget for verification friction. The expensive failure mode is drift: starting a quiet (b) round, then “just one post” — counsel now gets to have an unpleasant conversation about whether the exemption survived.

Angels: the letter on the Form D tells you the round’s texture before anyone pitches you. A (c) filing means the company may be soliciting broadly and will ask you for real accreditation evidence. A (b) filing means you were reached privately — and if you weren’t, if a (b)-claiming company is somehow advertising at you, that mismatch is itself diligence information.

The platform note

This distinction shapes how any honest startup-investor platform must behave — it’s why consent-gated, non-promotional architecture matters, and why a company’s raise never gets broadcast without its exemption posture in mind. Neutral republication of public filings is one thing; amplifying an open 506(b) round is quite another. The letter isn’t trivia; it’s the traffic law of the entire road.