506c guide: what you need to know (2023)

Securities and Exchange Commission (SEC)Regulation D, Rule 506(c) permits unregistered high yield securities to be offered to investors.

Many chartered investors invest their money in alternative investments such as real estate funds and private equity.America's wealthiest families have tied up 50% of their wealth in securities holdings consisting solely of alternative investments.The appeal of these 506(c) investments is becausealternative investments can offer much higher returns than typical SEC-regulated investments.

Alternative investments carry a little more risk and are therefore often only open to authorized investors.

Most of these investments are offered under Rules 506(b) and 506(c) of the Securities Act.

Wealthward Capital primarily engages in 506(c) investments, which means we only accept accredited investors.Although it sounds extremely exclusive, many people are already authorized investors without knowing it!

In this article, we look at the pros and cons of 506c and 506b investments and what the difference is between them.

Quick warning: This is not financial advice and neither Wealthward Capital nor any of its representatives are financial advisors. But usdoearn our moneyworkfor our investors!

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What is Reg D Rule 506?

Regulation D, Rule 506, was an arrangement in the Securities Act of 1933 that allowed companies to sell private equity to investors without having to register those securities with the Securities and Exchange Commission (SEC). Line 506 has now been updated in separate subsections, a, b, c, etc.

The previous version of Rule 506 allowed private companies to sell stock directly to the public, but did not allow for large-scale promotion.These investments were often obtained only through word of mouth, which hindered many startups' ability to obtain the capital they needed to grow.

The SEC introduced Rule 506(c) in 2013 as part of the JOBS Act. The old Rule 506 then became 506(b).

What is the difference between a 506(b) and a 506(c)?

When the JOBS Act was implemented in 2013, the old Rule 506 of Regulation D into the law became the new Rule 506(b). Article 506(c) added.These two rules are similar but have some key differences.

Similarities between Rules 506(b) and 506(c):

Neither rule has an investment limit in dollars.
Both public and private companies can offer both.
Both sell "restricted securities," meaning they are not registered offerings and are sold directly by the company itself or one of its subsidiaries.
Authorized investors can invest an unlimited amount.
Both can sell any type of securities.
No SEC review required.
No ongoing messages are required.
Both receive the same penalties for fraudulent activity.
Intermediaries are not required, but if an intermediary is involved, it must be a registered broker-dealer or an exempt entity.
"Bad Actors" are not allowed in any listing.
None of these need comply with the Blue Sky Law (see below for definition).

Differences under Section 506(b):

Authorized investors can self-certify.
The offering can accept up to 35 non-accredited investors, provided they are "advanced investors".Sophisticated investors are investors who have a deep understanding of investing, but who may not meet the financial requirements to achieve accredited investor status.
If non-accredited investors are involved, 506(b) offerings must include financial statements and make certain mandatory disclosures.
Companies Offering 506(b) Investments May Not Engage in “General Fundraising”", such as advertisements in newspapers, magazines, websites, etc. The Company may advertise directly to relationship investors. Online advertisements are not allowed.
Companies offering 506(b) must file a Form D ("Notice of Exempt Securities Offering") with the SEC no later than 15 days.alreadyfirst sale
A private placement memorandum is required if any of the investors do not have authorized investor status.
Brand advertising is allowed, but a potential investment cannot be presented until the company has established a substantial relationship with the potential investor.

Differences under Section 506(c):

Accredited investors are the only ones allowed to invest in 506(c) offerings.. The company must take reasonable steps to verify investor status against federal guidelines.
There are no mandatory archiving or publishing requirements. Instead, announcements are prompted by potential liability concerns or market demands.
Companies that offer 506(c) investments can openly and freely conduct "general solicitation", internet advertising, social media, print media, etc.
Companies offering 506(c) investments must file Form D within 15 dayspastglobal search begins.
A private placement memorandum is not required.
No filing or publication of financial reports is required.

It is important to understand that other than advertising, 506(b) and 506(c) offerings are otherwise exactly the same, provided thatauthorized investors onlyare included.Once a 506(b) offering accepts a non-accredited investor,there are many more filing and disclosure obligations.

What is a 506c Accredited Investor?

Under Rule 506(c), issuers of securities may widely advertise their offerings on the Internet and in other media, butthese offerssell only to authorized investors.These are potential investors who meet the basic financial requirements and show that they can be exposed to high risks.

Many technical employees are accredited without knowing it.If you earn a salary of $200,000 per year or a joint salary of $300,000 with your spouse's equivalent, you can be accredited.

Federal securities laws require companies offering Rule 506(c) investments to take reasonable steps to verify your accredited status through bank statements, pay stubs, appraisal reports, broker statements or other statements.You can also get certified by means of an official letter from a licensed lawyer or accountant.

What are the Regulation A+ offerings?

Title IV of the Jobs Act of 2013 introduced Regulation A+ offerings.These offerings are open to the general public, not just accredited investors, and allow companies to raise as much as $75 million in 12 months.

The limit was increased from $50 million to $75 million in 2021.

There are two levels of Regulation A+ offerings:

Tier #1 allows companies to raise up to $20 million within 12 months. This route means you don't have to have ongoing SEC filing requirements, but you still need to comply with applicable Blue Sky laws (see below for details on Blue Sky laws).

Another option is Tier #2, which can raise as much as $75 million in one year. This has multiple reporting requirements.

Regulation A+ investments are sometimes referred to as "mini IPOs" because they are a way for a private company to sell shares in a startup to the general public.

Wealthward Capital does not offer Regulation A+ investments as we are not a startup that needs capital to expand.Our offerings are primarily Rule 506(c) Regulation D investments that are professionally managed to provide you withconstant cash returnsevery month or quarter.

What is the "bad actor" in the 506c offering?

The bad actor rule was introduced by the Jobs Act of 2013. This rule is designed to further protect potential investors against fraudelimination of people with "disqualifying events"in its professional history, from offering securities to the public.

Both 506(b) and 506(c) prohibit including a bad actor in an offer.The issuer of the potential investment must take reasonable steps to confirm that there are no bad actors in the business.

Disqualifying events include:

Criminal convictions related to securities
Preliminary or Injunctive Measures with respect to Securities
SEC has withdrawn the registration
Various fraud violations

Wealthward Capital takes the bad actor rule very seriously and conducts extensive background checks on everyone we work with, and before we hire someone, check that his or her file is clean. Feel free to check Wealthward Capital's data and any of our representatives they use BrokerCheck.orgor useSEC-ov tool AdviserInfo. In the rare event that you ever come across something that worries you or that might indicate that someone associated with Wealthward Capital is a bad actor,Please bring it to us immediately and we will give it the urgent due diligence it deserves.

What Are the Blue Sky Laws and Do They Affect 506c Investments?

Blue Sky Laws are state-level securities lawsregulating the registration, qualification and sale of securities products. Each state has its own laws, and they can differ significantly from federal securities laws.

Investments under Regulations 506(c) and 506(b) are referred to as “secured securities”.A covered protection is a protection that is located at the federal levelexemptfrom state rules.This means that 506(c) offers do not have to comply with Blue Sky laws for regulation and qualification of offers.

Nastydoes not workmeans that the issuer of the security is exempt from filing the required forms required at the state level, such as the mandatory Form D ("Notice of Exempt Offering of Securities").

The fact that Section 506(c) offerings are exempt from the Blue Sky Act does not exempt the issuer from issues of fraud and misrepresentation.You have every right to report such financial and business matters to your government regulator.

What is a general search?

"General Solicitation" refers to broad advertising on the Internet, print media or broadcast communications.This includes advertisements on public websites, radio, television, magazines and newspapers.

Rule 506(c) generally allows companies to advertise their offerings to a potential investor through the Internet, social media, websites, TV campaigns, radio ads, etc. This contrasts with Rule 506(b) (which is the same as the old Rule 506 before the workplace law was enacted), which does not allow general searches at all.

The only requirement of 506(c) is that a potential investor must have accredited status in order to purchase an investment. It is up to the issuer of the security to verify the status of the potential investor.

Wealthward Capital offers high-yield Rule 506(c) real estate investments that can provide the investor with as much as 10% return. These investments are only available to authorized investors. We can help you determine whether or not you are an authorized investor.

What is a pre-existing material relationship?

A pre-existing relationship means that the relationship between the potential investor and the issuer existed prior to the investor's participation in the offering. ANDcontentsrelationship means that the entity offering the security has sufficient information to know whether or not the potential investor is qualified.

For 506(b) offerings, the issuer may not offer the offering until a substantial relationship has been established. Generic advertising is allowed in a 506(c) offering so that the issuer can offer an investment opportunity to anyone. However, only investors with accredited status may actually participate in the 506(c) offering.

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