What it is
Regulation D is a set of SEC rules that provides exemptions from the usual requirement to register a securities offering. Issuers, including many private funds, often rely on it to raise capital from a limited group of investors. The two exemptions people hear about most are Rule 506(b) and Rule 506(c).
Under Rule 506(b), the issuer may not use general solicitation, meaning it cannot publicly advertise the offering. Offerings under this rule generally involve people with whom the issuer already has a relationship, and they may include accredited investors and, in limited cases, a small number of non-accredited investors who meet other requirements. Under Rule 506(c), general solicitation is allowed, but every purchaser must be an accredited investor and the issuer must take reasonable steps to verify that status.
Accredited investor status is defined in SEC Rule 501(a). It includes individuals with income over $200,000 (or $300,000 jointly with a spouse or spousal equivalent) in each of the prior two years with the expectation of the same this year, or a net worth over $1 million excluding the primary residence. Since the August 2020 amendments, it also includes holders in good standing of the Series 7, Series 65 or Series 82 licenses, and knowledgeable employees of a private fund. Entities and family offices with over $5 million in investments or assets can qualify, as can registered investment advisers and exempt reporting advisers, among other categories.
How it’s traditionally been approached
Traditionally, companies and funds using Regulation D have raised money through personal networks, existing relationships and introductions from advisers. Because 506(b) restricts public advertising, relationships and pre-existing connections have historically played a central role. Since 506(c) became available, some issuers have chosen to market more openly while verifying each purchaser.
Investors have typically reviewed an offering through its own documents, such as a private placement memorandum, subscription agreement and the fund's governing agreement. Many people work with their own attorney, accountant or licensed financial adviser to read those documents and consider how an opportunity fits their situation.
Verification of accredited status has been handled in different ways, including reviewing financial records or obtaining a letter from a licensed professional. Participants in these offerings may also receive a Schedule K-1 for tax reporting, and some company investments may involve questions about Section 1202 (QSBS). Tax treatment depends on individual circumstances, so these are topics for a qualified tax professional.
How the right fund manager may help
The right independent fund manager may help you understand how a Regulation D offering is structured, which exemption it relies on and what that means for who can take part. A good conversation may clarify the difference between 506(b) and 506(c), what verification would involve and how the manager communicates with investors over time.
A first conversation is generally informational. You might expect questions about your accredited investor status, your goals and your comfort with risk, and you can ask your own questions in return. Useful ones include: Which exemption does the offering use? What are the fees and how are they described in the documents? How long may capital be committed? What are the main risks? How are conflicts of interest handled?
It can also help to ask how the manager approaches due diligence, reporting and communication, and to read every offering document yourself. Any offering is made only by the issuer through its own offering documents. The Hastings Fund is an independent directory, not a broker-dealer, funding portal or investment adviser, and does not recommend, endorse or rank investments.
The bigger picture
Decisions about private offerings can touch more than a portfolio. Questions about locking up money, understanding complex documents or feeling pressure to move quickly can affect sleep, relationships and peace of mind. Taking time, asking plain questions and involving people you trust may help the decision feel steadier.
Wellbeing often includes financial clarity and a sense of control. Some people find it helpful to consider how an illiquid commitment fits alongside their everyday needs, family responsibilities and long-term plans. If stress around a financial decision is weighing on you, Providers.plus may help you find supportive professionals for the whole-person side of the picture.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results, and no outcome is promised or implied.
- Nothing here is an offer to sell or a solicitation of an offer to buy any security; any offering is made only by the issuer through its own offering documents.
- Consult your own licensed attorney, tax professional and financial adviser before making decisions, since legal and tax treatment depends on individual circumstances.
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Create an investor account →Frequently asked questions
What is a Regulation D offering?
A Regulation D offering is a securities offering that is exempt from SEC registration because it meets conditions set out in Regulation D. Companies and private funds often use it to raise capital from a limited group of investors. The most common exemptions are Rule 506(b) and Rule 506(c).
What is the difference between Rule 506(b) and Rule 506(c)?
Rule 506(b) does not allow general solicitation, while Rule 506(c) does. Under 506(c), all purchasers must be accredited investors and the issuer must take reasonable steps to verify their status. Under 506(b), the issuer generally relies on existing relationships and may include a limited number of non-accredited purchasers who meet other requirements.
Who qualifies as an accredited investor under Regulation D?
Accredited investor categories are defined in SEC Rule 501(a). They include individuals with income over $200,000 ($300,000 with a spouse or spousal equivalent) or net worth over $1 million excluding the primary residence. Since August 2020, holders of Series 7, 65 or 82 licenses, knowledgeable employees of a private fund, and entities or family offices with over $5 million in investments or assets can also qualify, as can registered investment advisers and exempt reporting advisers.
Is a Regulation D offering registered with the SEC?
No, the securities themselves are not registered, but issuers generally must still file a notice with the SEC, known as Form D, and follow anti-fraud rules. Exempt does not mean unregulated or risk-free. Reading the offering documents and consulting your own advisers is important.
Are Regulation D private fund investments risky?
Yes, private fund investments are speculative and illiquid and can lose all of their value. They often come with limits on when and how you can access your money. Past performance does not guarantee future results.
What should I ask before considering a Regulation D offering?
Start by asking which exemption is being used, what the fees and risks are, how long money may be committed and how conflicts of interest are handled. Ask how accredited status is verified and what reporting you can expect, including tax forms such as a K-1. Review the issuer's own offering documents with your attorney, tax professional and financial adviser.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.