Rule 506(b) vs Rule 506(c) (506b vs 506c)

The two paragraphs of Rule 506 trade advertising for verified, all-accredited buyers.

Rule 506(b) keeps the Rule 502(c) ban on general solicitation and allows no more than 35 purchasers who are not accredited investors in any 90-calendar-day period. Each of those buyers, alone or with a purchaser representative, must have enough knowledge and experience in financial and business matters to evaluate the investment, and under Rule 502(b) they must receive specified disclosure.

Rule 506(c) lifts the solicitation ban on two conditions: all purchasers are accredited investors, and the issuer takes reasonable steps to verify that they are. The SEC's summary adds that 506(c) purchasers receive restricted securities, the issuer files Form D within 15 days of the first sale, and bad actor disqualification applies, as it does under the 506(b) summary.

In a hypothetical 506(c) subscription, verification means paperwork beyond your own signature.

Hypothetical: you subscribe $500,000 of exchange proceeds to a DST offered under Rule 506(c) and qualify on income. Rule 506(c)(2)(ii) lists non-exclusive methods the issuer may use: review IRS forms reporting your income for the two most recent years, such as Form W-2, Form 1099, Schedule K-1 or Form 1040, plus your written statement that you expect the same income this year.

If you qualify on net worth instead, the issuer may review asset statements and a consumer report dated within the prior three months, with your written statement that all liabilities are disclosed. Or it may rely on a written confirmation, dated within three months, from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a CPA that they verified your status.

In Question 256.36, issued March 12, 2025, SEC staff said a high minimum investment paid in cash may let an issuer take fewer steps, provided it confirms the investment is not financed by a third party and has no contrary facts.

It bites on how you find offerings, which is why many DSTs never appear on a public website.

Under 506(b), the ban on general solicitation covers advertisements, articles and broadcasts and seminars whose attendees were invited by general solicitation, so the offering cannot be posted for the public. A filed 10-K of one REIT that runs a DST program says its DST interests are sold under Rule 506(b). The practical result is covered at why DST offerings are not listed online.

Neither paragraph says anything about quality or risk; they govern marketing and buyer qualification only. Read the PPM the same way under either one, and check the accredited thresholds at DST accredited investor rules.