Rule 506 of Regulation D

Rule 506 of Regulation D allows for the raising of an unlimited amount of capital. In Rule 506 there is no limit in the number of Accredited Investors allowed to purchase the company’s securities, but does limit the number of non-Accredited Investors.

Selling Securities: Various Rules for Reg D 506

• The company cannot use general solicitation or advertising to market the securities (again, no public advertising);

• The company may sell its securities to an unlimited number of Accredited Investors;

• 35 non-Accredited Investors may invest;

• All non-Accredited Investors must be “sophisticated”, meaning they must have sufficient knowledge and experience in business and financial matters;

• The company must supply information to Accredited Investors and not violate the antifraud prohibitions of the federal securities laws.

• Additionally the company must provide non-Accredited Investors disclosure documents. These disclosure documents are typically similar if not the same as those used in registered offerings.

• If the company provides information relevant to the Offering proposal to accredited investors, it must supply this information to non-Accredited Investors as well;

• The company must be available to answer questions by prospective purchasers (investors);

• Financial statement requirements are the same as for Rule 505 of Regulation D; and

• Purchasers (investors) receive “Restrictive Securities”. This means that, like Rule 505 of Regulation D, the securities cannot be sold for at least one year without registering them.

Similar to Rule 505 Regulation D and 504 of Regulation D, companies offering the sale of its securities under Rule 506 of Regulation D must file a “Form D”.  PPMemo.com can assist you in writing and filing the Form D.

Rule 506: Exemption for Limited Offers and Sales without Regard to Dollar Amount of Offering

According to the Securities and Exchange Commission (SEC), Rule 506 of Regulation D permits a company to sell its securities (stocks, bonds etc.) that are not restricted, if one of the following criteria  is realized:

• The company  selling its securities registers the offering exclusively in one state, or multiple states, that do require a publicly filed registration statement as well as the delivery of a detailed document full of company disclosures that would go to investors;

• The company registers and sells the offering (preferably in the form of an Offering Memorandum) in a state that requires registration as well as disclosure delivery.

• Additionally, if the company sells in a state (or multiple states) without those requirements, as long as the company delivers the disclosure documents required by the state where the company registered the offering to all purchasers (i.e. investors, including those in the state that has no such requirements) they may be able to transfer the securities; or

• The company sells exclusively according to state law exemptions. These state laws must also permit general solicitation and advertising (not in the public sense of the word), so long as the company sells only to Accredited Investors, as defined in the Registration Act.

A company seeking to sell its securities or stock should provide sufficient, detailed information to prospective investors in order to avoid violating the antifraud provisions of the securities laws. In failing to adhere to the antifraud provisions of the security laws, the SEC can impose fines or other forms of punishment.

All information provided to prospective investors must be not including false or misleading statements. Additionally, a company should not exclude any relevant information from their offering, as this too can be construed as criminal.

Links to current versions of SEC Rules, Regulations, and Schedules can now be found on the following web pages with the Securities and Exchange Commission (SEC), which direct users to the Electronic Code of Federal Regulations.

• Division of Corporation Finance: Rules, Regulations and Schedules under the Securities Act, Exchange Act and Trust Indenture Act



• Rules and Regulations for the Securities and Exchange Commission and Major Securities Laws: Securities and Exchange Commission Rules and Regulations

Rule 504, 505, 506 encompass the specifics of raising money under Reg D.

• Rule 504 is generally relevant to securities sales up to $1 million. Rule 504 is maintained to be the most beneficial to the entrepreneur.


• Rule 505 applies to securities offerings from $1 million to $5 million.


• Rule 506 is for securities offerings exceeding $5 million.

The Securities Lawyer's Deskbook, published by the University of Cincinatti College of Law, Rule 506 of Regulation D: General Rules and Regulations promulgated under the Securities Act of 1933.

Rule 506 of Regulation D – The Unlimited Path
For virtually all entrepreneurs, the most efficient mechanism to procure equity financing under an exemption is through the use of Regulation D (Reg D), which is a limited offer and sale of their company's stock, or securities, without registration under the Federal Securities Act of 1933. A positive outcome by complying with Regulation D is that it provides the company’s officers and directors an insurance policy of sorts regarding disclosure. See U.S. Securities and Exchange Commission: Rule 506 of Regulation D

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