TME 13 | Reg D 506(b) 506(c): Which One Will Make You More Money?

Title: Reg D 506(b) vs 506(c) – Which One Makes You More Money? 

Summary:

In this informative video, securities attorney and real estate investor Seth Bradley discusses the key differences between Regulation D’s 506(b) and 506© exemptions and their implications for capital raising in real estate. He emphasizes the importance of understanding these distinctions to maximize fundraising opportunities while remaining compliant with SEC regulations. Bradley explains that both exemptions allow for raising funds without registering as public securities but come with different rules regarding investor eligibility and solicitation. The 506(b) exemption relies on pre-existing relationships and allows for non-accredited investors, but does not permit advertising or solicitation. In contrast, 506© offers full advertising capabilities but limits participation to accredited investors only. Bradley concludes by stressing that selecting the incorrect exemption can lead to potential legal issues and missed financial opportunities, encouraging viewers to carefully analyze their business model before choosing an exemption.

Links to Watch and Subscribe:

https://www.youtube.com/watch?v=EnGLVOCBfqE&list=PLSfheWyV7beFqERLX4ebBUJ4SmzmF6z8e&index=1

Bullet Point Highlights:

• Regulation D Overview: Both 506(b) and 506© are part of the SEC’s Regulation D, allowing capital raising without public registration.
• 506(b) Details: This exemption permits up to 35 non-accredited investors, but prohibits advertising and requires pre-existing relationships.
• Advertising Freedom with 506©: Enables widespread advertising and solicitation, but limits participants to accredited investors only.
• Investor Credibility: Verification of accredited investor status is mandatory in 506© to ensure compliance with SEC regulations.
• Financial Implications: Understanding each exemption is crucial for maximizing fundraising and minimizing legal risks.
• Legal Compliance: Choosing the wrong exemption can result in SEC violations and significantly limit fundraising capabilities.
• Strategic Decision-Making: Investors should align their exemption choice with their business model to ensure optimal capital raising.

Transcript:

(Seth Bradley)

regggd 506b versus 506 C. Which one makes you more money? You're about to raise capital for your next real estate deal and someone tells you just file under regggd 506b or 506. But hold up, is that actually the best way to maximize your raise or are you leaving money on the table? Today, I'm breaking down the real difference between 506b and 506 C. And more importantly, which one will put the most money in your pocket as a capital raiser, while I'm keeping you, of course, out of trouble with the SEC. Real quick, if you don't

 

know me, I'm Seth Bradley, securities attorney, real estate investor, capital raiser. I'm here to show you how to scale your business while staying compliant and out of the SEC's purview. Let's get it. All right. First, the basics of regggd. what you need to know. All right, let's keep this simple. Both 506b and 506 C fall under what's called regulation D, which is an SEC exemption that allows you to raise money for private investors without registering it as a public security. This is why syndicators, fund managers, capital

 

raisers, we all love it. It's faster, it's cheaper, and doesn't require SEC approval before you start raising capital. But here's where most people get confused. These two exemptions are not the same, and picking the wrong one can limit your ability to raise capital or even get you into legal trouble. So, let's figure this thing out together. Next, let's go through 506b first. It's the old school relationshipbased method. So, 506b, it's the old school country club method of raising capital. It allows you to bring in up to 35

 

nonacredited investors. That's significant. But here's the catch. You cannot advertise. you cannot solicit. So that means no Facebook ads, Instagram posts, no blasting your deal to strangers, no talking at a networking event about your deal. The SEC says you must have a pre-existing substantive relationship with your investors before they invest. So what does that mean? Well, if you just met a person at a networking event last week and now you're pitching him your deal, you could already be violating securities laws.

 

The SEC has cracked down on this and if they think you're using 506b as an excuse to backdoor advertise, they will come knocking. That said, 506b has its place. If you have a strong investor network, you don't need to publicly advertise. This exemption gives you more flexibility with investor qualifications because you can bring in nonacredited investors, not just accredited investors. All right. Next, 506 C. The modern kind of a more scalable approach. the exemption that lets you go big. With 506C, you can advertise freely. You can

 

talk freely. You can post your deals on social media. You can run paid ads. You can do webinars. You can shout it from the rooftops if you want. You're no longer limited to people that you already know. You can talk to strangers about it. But here's the trade-off. As noted before, every investor must be accredited. No exceptions. That means each investor needs to prove that they have either $1 million in net worth excluding their primary home or an income of 200k per year if you're married 300k combined. And you as a

 

syndicator must verify this. Self-certification is not enough. Typically, you'll have investors submit CPA letters or a letter from their attorney, broker statements, or a third party verification company such as Parallel Markets. This means fewer investors can participate, but the ones that can have deeper pockets. And if you structure your deal right, you can raise money way faster, scale way bigger, and you're going to have less headaches because these people are going to have more money. So, they're not giving you

 

their last $50,000. All right, so we've talked about highlevel 506b, 506 C, but which one makes you more money? That's the question. Which one actually makes you more money? So, well, it depends on your business model. If you already have a strong investor network and you don't need to solicit, you don't need to advertise, 506b might be the best bet because you can take both accredited and nonacredited or what we call sophisticated investors. This is great if you have repeat investors who trust

 

you or you already have that built-in network that you already know. But if you want to scale, attract institutional money and market openly, then 506c is the clear winner and it's really the only option. you get bigger checks, fewer investor headaches, and the ability to automate and market your fund. The biggest syndicators I know, they're all using 506 C because they want the ability to raise capital at scale. The old school guys who like keeping it private, they stick with 506b. You have to decide what fits best

 

for your model. Okay, let's structure your deal the right way. Bottom line, choosing the wrong exemption could cost you millions. If you mess this up, you can get stuck with fewer investors, slower raises, or if you don't follow the rules, even SEC violations. We definitely don't want that. So, at Raise Law, we structure bulletproof syndications that protect your business, maximize your ability to raise capital, and keep you legally compliant. So, before you launch your next fund, let's make sure you're using the right

 

exemption for your goals. Hit the link below, schedule a call, and let's build your deal the right way.

Links from the Show and Guest Info and Links:

https://www.youtube.com/watch?v=EnGLVOCBfqE&list=PLSfheWyV7beFqERLX4ebBUJ4SmzmF6z8e&index=1

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