Definition
Regulation D
SEC regulation providing exemptions from securities registration requirements for private placement offerings. Primary rules include Rule 506(b) allowing unlimited accredited investors plus up to 35 sophisticated investors without general solicitation, and Rule 506(c) allowing unlimited accredited investors with general solicitation permitted. Rule 504 permits offerings up to $10 million in a 12-month period with fewer restrictions.
A hedge fund raises $50 million through a Regulation D Rule 506(b) offering from 80 accredited investors and 20 sophisticated investors without advertising, filing a Form D with the SEC within 15 days of the first sale.
Accredited investors (based on income/net worth) can invest in any Reg D offering, while sophisticated investors (based on knowledge) can participate in Rule 506(b) offerings, which bar general solicitation, but not in Rule 506(c) offerings (Rule 504 sets no investor qualification at all). Rule 506(c) requires all investors to be accredited if general solicitation is used.
How is Regulation D tested on the exam?
- Distinguishing between Rule 506(b) offerings (no general solicitation, up to 35 sophisticated investors) and Rule 506(c) offerings (general solicitation allowed, only accredited investors)
- Identifying the maximum offering amount under Rule 504 ($10 million in 12 months)
- Understanding that Regulation D offerings are exempt from federal registration but require Form D filing
- Recognizing the difference between accredited investors (financial thresholds) and sophisticated investors (knowledge/experience)
- Determining when general solicitation and advertising are permitted in private placements
Regulatory limits
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| Rule 506(b): maximum non-accredited purchasers | 35 non-accredited purchasers, each sophisticated alone or with a purchaser representative | Unlimited accredited investors permitted; no general solicitation allowed (a pre-existing relationship with offerees is one common way to show this) |
| Rule 506(c): investor requirements | Only accredited investors (unlimited number) | General solicitation and advertising permitted; must verify accredited investor status |
| Rule 504: maximum offering amount | $10 million in 12-month period | Fewer investor restrictions; state registration may still apply; general solicitation allowed in some cases |
| Form D filing deadline | 15 calendar days after first sale | Required for all Regulation D offerings; filed electronically with SEC |
| Holding period for Reg D securities | 6 months (reporting issuer) or 1 year (non-reporting issuer) under Rule 144 | Most Regulation D securities are restricted (certain Rule 504 sales excepted); resale needs registration or an exemption such as Rule 144 |
Remember "B = Before, C = Cold Calling": Rule 506(b) bars general solicitation, which a pre-existing relationship with offerees is one way to show (no ads, up to 35 sophisticated investors), while Rule 506(c) allows advertising to anyone but sells only to verified accredited investors. Rule 504 caps at $10 million in 12 months with fewer restrictions.
Practice questions
Test your understanding with the questions below. Pick an answer to reveal the explanation.
Marcus operates a private equity fund and wants to raise $75 million from investors. He plans to market the offering through social media and online advertising to attract new investors he has not previously worked with. All potential investors will be required to provide documentation proving they meet accredited investor income or net worth thresholds. Which Regulation D exemption is most appropriate for this offering?
C is correct. Rule 506(c) specifically permits general solicitation and advertising (including social media) for private placements, provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify their accredited status. This matches Marcus's plan to advertise publicly and require accredited investor documentation.
A is incorrect because Rule 504 has a maximum offering limit of $10 million in a 12-month period, which is far below the $75 million Marcus wants to raise. B is incorrect because Rule 506(b) prohibits general solicitation and advertising; Marcus cannot use social media marketing under 506(b). D is incorrect because Regulation D Rule 506(c) was specifically created to allow general solicitation in private placements when properly structured with verified accredited investors.
The Series 65 exam tests your ability to distinguish between Rule 506(b) and Rule 506(c) offerings based on whether general solicitation is used. Understanding that 506(c) permits advertising to the public (unlike 506(b)) but requires all investors to be verified as accredited is critical for advising clients on private placement compliance and determining which offerings are suitable for different investor types.
What is the maximum number of non-accredited investors that can participate in a Regulation D Rule 506(b) private placement offering?
B is correct. Rule 506(b) permits up to 35 non-accredited investors to participate in a private placement, provided these investors are "sophisticated", meaning each, alone or with a purchaser representative, has sufficient knowledge and experience in financial matters to evaluate the risks and merits of the investment. The offering can also include an unlimited number of accredited investors.
A is incorrect because this describes Rule 506(c), which requires all investors to be accredited when general solicitation is used. C is incorrect because the limit is specifically 35 non-accredited investors, not 100. D is incorrect because it confuses Rule 504 (which has a $10 million limit) with Rule 506(b) (which has no dollar limit but restricts non-accredited investors to 35 sophisticated investors).
The Series 65 exam frequently tests the specific 35-investor threshold for Rule 506(b) offerings, as this is a key distinction from Rule 506(c) and affects how investment advisers qualify clients for private placement opportunities. Confusing the investor limits between different Regulation D rules is a common mistake that exam questions target.
A startup company completes a Regulation D Rule 504 offering, raising $8 million on March 15, 2026. The company's management now wants to conduct another Rule 504 offering. What is the maximum additional amount the company can raise under Rule 504 before March 15, 2027?
A is correct. Rule 504 limits offerings to $10 million in any 12-month period. Calculate: $10 million (maximum) - $8 million (already raised) = $2 million remaining capacity. The 12-month period starts from the first sale in the March 15, 2026 offering, so until March 15, 2027, the company can only raise an additional $2 million under Rule 504.
B ($8 million) incorrectly assumes the company can raise the same amount again without considering the 12-month aggregate limit. C ($10 million) incorrectly suggests the company gets a fresh $10 million limit for each new offering, but the limit is cumulative over the 12-month period. D ($18 million) incorrectly adds the amounts together rather than recognizing the $10 million ceiling applies to all Rule 504 offerings combined in a 12-month period.
The Series 65 exam tests understanding of Rule 504's rolling 12-month aggregate limit. This calculation is important for investment advisers working with small companies seeking multiple rounds of funding, as raising more than the $10 million limit means relying on another exemption, such as Rule 506, or registering the securities with the SEC.
All of the following statements about Regulation D private placements are accurate except
D is correct (the exception). This statement is false. Rule 506(b) offerings specifically prohibit general solicitation and advertising, regardless of whether sales are limited to accredited investors. If an issuer wants to use general solicitation, they must use Rule 506(c), which permits advertising but requires all purchasers (not just a majority) to be verified accredited investors.
A is accurate: Rule 506 securities are restricted securities with resale limitations (Regulation D excepts only certain Rule 504 sales from its resale limits), requiring a 6-month (reporting issuer) or 1-year (non-reporting issuer) holding period under Rule 144, with volume limits applying to affiliates. B is accurate: Form D must be filed electronically with the SEC within 15 days after the first sale of securities in the offering. C is accurate: While Regulation D provides a federal exemption, issuers may still need to register with states or rely on state exemptions; Rule 506(b) and 506(c) securities are federal covered securities, exempt from state registration, although states may require a notice filing.
The Series 65 exam tests your ability to distinguish between Rule 506(b) (no general solicitation) and Rule 506(c) (general solicitation permitted). This is a frequently tested distinction because many candidates incorrectly believe that accredited investor participation alone permits advertising, when in fact the rule used determines whether solicitation is allowed.
An investment adviser is evaluating a Regulation D Rule 506(c) private placement offering for potential client suitability. The offering materials indicate that general solicitation was used to market the investment opportunity. Which of the following statements about this offering are accurate?
1. All investors must be accredited investors with verified status
2. The offering is exempt from federal registration requirements
3. Up to 35 sophisticated but non-accredited investors can participate
4. The issuer must file Form D with the SEC
B is correct. Statements 1, 2, and 4 are accurate for Rule 506(c) offerings.
Statement 1 is true: Rule 506(c) requires all purchasers to be accredited investors, and the issuer must take reasonable steps to verify their accredited status (such as reviewing tax returns, W-2s, or third-party verification letters). This is more stringent than Rule 506(b).
Statement 2 is true: Rule 506(c) offerings are exempt from federal securities registration under the Securities Act of 1933, allowing issuers to raise unlimited capital without SEC registration. However, they are still subject to anti-fraud provisions.
Statement 3 is false: This describes Rule 506(b), not Rule 506(c). Because Rule 506(c) permits general solicitation, it compensates by requiring all investors to be accredited; no sophisticated but non-accredited investors are permitted under 506(c).
Statement 4 is true: All Regulation D offerings, including Rule 506(c), require the issuer to file Form D electronically with the SEC within 15 days of the first sale of securities.
The Series 65 exam tests detailed knowledge of the tradeoff between Rule 506(b) and Rule 506(c): 506(b) prohibits general solicitation but allows sophisticated investors, while 506(c) permits advertising but requires all investors to be verified accredited investors. Understanding these structural differences is essential for determining which private placements are suitable for different client types and ensuring compliance with securities laws.
What concepts relate to Regulation D?
This term is part of these clusters :
Where does Regulation D appear on the Series 65 exam?
This term is tested in the following Series 65 exam topics:
Regulation of Securities and Issuers
Practice questions on securities registration, exempt securities, and exempt transactions....
practice questions →Client Profile and Data Gathering
Practice questions on risk tolerance, investment objectives, time horizon, and suitability analysis....
practice questions →Where does Regulation D appear on the Series 6 exam?
This term is tested in the following FINRA Series 6 topic areas:
Studying private offerings? Read the Series 82 private-offerings guide and try the Series 82 practice test.