506(b) or 506(c) After the March 2025 No-Action Letter

Since March 2025, SEC staff have said a $200,000 minimum, with two written representations, can count as reasonable steps to verify an individual investor. That one change makes 506(c) a practical choice for sponsors who raise from individuals.

Rule 506(c) has let sponsors advertise a private offering since the SEC adopted it in July 2013 ^[1]. For most of that time the market passed, and the obstacle was verification.

Every buyer in a 506(c) offering must be accredited, and the sponsor must take reasonable steps to confirm it ^[6]. In practice, that meant asking an investor for two years of IRS income forms, recent asset statements with a credit report, or a letter from their broker-dealer, registered adviser, attorney or CPA ^[5].

Dechert called the process "cumbersome for issuers and invasive for investors" ^[5]. Most sponsors stayed in 506(b).

On March 12, 2025, SEC staff changed the math for part of the investor base. Answering a request from the law firm Latham & Watkins, they agreed that a high minimum investment can count as reasonable steps to verify ^[1]. It has to come with written representations, meaning signed statements from the investor, and the sponsor must have no actual knowledge that they are false. It is staff opinion with no legal force.

For a sponsor raising $2M to $10M+ from individuals, the choice between the two rules now turns on where its checks land.

What is the trade-off between 506(b) and 506(c)?

506(b) makes subscribing easy and limits the raise to investors the sponsor can reach without advertising. 506(c) allows public marketing and asks for proof from every buyer in return.

A 506(b) offering cannot advertise. It may take up to 35 non-accredited investors in any 90-day period, if they are financially sophisticated and receive disclosure documents ^[3]. Accredited buyers have typically certified their own status ^[4].

So the paperwork is light, and the ceiling is the sponsor's existing reach.

506(c) flips that. Any accredited investor the sponsor can reach is a potential buyer. By our estimate, that is roughly 19 million people.

The price is a verification step on every subscription. For a sponsor whose network can fill the raise, that step buys little. For one that needs investors beyond it, the audience is the reason to pay it.

What did the March 2025 no-action letter change?

It gave 506(c) sponsors a route for large checks that needs no tax returns, statements or third-party letters. A no-action letter is the SEC staff's written view of how a rule applies to a set of facts. Latham proposed three conditions, and the staff accepted them ^[1][2]:

• A minimum investment of at least $200,000 for natural persons and at least $1,000,000 for legal entities.
• Written representations from the buyer that it is accredited, and that its minimum investment is not financed in whole or in part by a third party for the specific purpose of this investment.
• No actual knowledge on the sponsor's part of facts suggesting either representation is untrue.

None of this is new thinking. The SEC's 2013 release adopting the rule already said a high minimum could, in certain cases, mean no further steps beyond confirming the cash is not borrowed from a third party ^[1]. The letter turned that sentence into numbers a subscription agreement can carry.

Which details in the letter matter most?

The fine print in Latham's request matters more in practice than the headline thresholds ^[2].

The representations can sit inside the subscription agreement. They can also arrive as a clear written reply sent electronically.

The minimum can be a binding commitment, paid in installments as capital is called.

The promise that the money is not borrowed covers only the minimum. Dollars above $200,000 are outside it.

An investor drawing on a credit line that serves other purposes can still make the promise. So can one using financing arranged before the offering began.

An entity accredited only through its owners, whose equity owners are all individuals, fewer than five, each committing $200,000, can qualify at $200,000 per owner.

Two limits apply. The letter reflects staff views and, in its own words, "has no legal force or effect" ^[1]. And the sponsor still files Form D, marked as relying on 506(c) ^[4].

What happens when an investor writes less than $200,000?

The letter does not cover that check. It is verified the way it was before March 2025.

The staff's view rests on buyers who agree to the minimum ^[1]. Foley notes the letter says nothing about minimums that are waived ^[4].

Below the threshold, the sponsor goes back to the methods the rule lists ^[5]:

• IRS income forms.
• Asset statements with a credit report.
• A letter from a qualified third party.
• Re-verification of an earlier investor.

It can also make its own judgment on the facts of each investor ^[5].

That leaves a question the letter does not answer. A sponsor can set its minimum at $200,000 and give every buyer the lighter path. That shuts out every check between $50,000 and $199,999.

Or it can keep a lower minimum and run two processes, with paperwork for smaller checks and the minimum method for larger ones. Whether one offering can carry both, and how the documents should read if it does, is a question for counsel before they go out.

How does this play out across a typical individual raise?

Offerings on Altinvest can be publicly solicited, which for a Regulation D raise means 506(c). Across the 3,600+ investor meetings Altinvest has facilitated over six years, the average check in Q2 2026 was $225,000. The range runs from $50,000 to over $1 million. How check size comes up on a first call is covered in our first-call article.

The average clears the letter's threshold. Part of the range, from $50,000 to $199,999, sits below it, and whether one offering can run both verification paths is an open question for counsel.

An illustrative case shows why it matters. Take a $5 million raise at a $225,000 average, which works out to roughly 22 subscriptions.

Some might be $500,000 and $1 million commitments. Those could verify on the minimum and two written representations, if the sponsor knows of nothing that contradicts them. Others might be $75,000 and $100,000 checks that still need an income form, a set of statements or a CPA letter.

How should a sponsor set the minimum?

The minimum is now a sizing decision.

Raising it to $200,000 shortens diligence at subscription. It also narrows the field of investors who can take part.

Holding it at $50,000 or $100,000 keeps the full range in the offering. It also keeps verification in the process for the lower part of that range.

Neither is wrong. The right setting depends on how much of the raise the sponsor expects from checks above the line.

Which rule fits a $2M to $10M raise from individuals?

506(b) remains the lighter structure for a sponsor whose existing network can fill the raise. A sponsor that needs accredited investors it does not yet know is better served by 506(c). Since March 2025, the verification cost there falls mostly on checks under $200,000.

Dechert points to two more benefits of keeping 506(c) available ^[5]. A sponsor relying on it can discuss a live offering in public, on a podcast, at a conference or on its own site. And a 506(b) sponsor that makes a public statement by mistake may be able to rely on 506(c) instead, provided every purchaser is accredited and verified.

Both matter to a sponsor whose principals are visible in their sector.

The reverse move is harder. Under 506(c), a sponsor may advertise the offering and speak about it openly ^[6]. An investor first reached that way cannot simply be moved into a later 506(b) raise. SEC staff say that works only if the sponsor built a substantive relationship with that investor before the 506(b) offering began, and a short accreditation questionnaire or the passage of time does not create one ^[7].

None of this is legal advice. A two-track subscription in particular deserves an hour with securities counsel before an offering opens.

Sponsors with a 506(c) offering raising $2M to $10M+ can apply to list it on Altinvest.