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506(b)
Existing relationships, no general solicitation, up to 35 non-accredited investors. Self-certification is enough — verification is not required.
How Covercy handles 506(b)FUNDRAISING / ACCREDITATION & COMPLIANCE
Run compliant raises without slowing them down.
A plain-English read on 506(b) vs 506(c), how Covercy handles each, and where your counsel still owns the work. Built so a GP can decide which exemption fits — and so the platform handles the parts it should.
Self-Accreditation & NDA
Step 2 of 2 — Entity & accreditation
Individual
SSN
123-45-6789
Are you an accredited investor? *
Accreditation Type *
Net assets
$1M or more in net assets, not including primary residence
Income
$200k ($300k jointly with spouse) of annual income for the last 2 years
License
Series 7, 65, or 82 license holder (active and in good standing)
Other
Other SEC-recognized qualification method
Instant
self-accreditation
6 min
median LP 506(c) third-party verification time
Zero
chase emails for paperwork — audit trail built in
Compliance should not be the bottleneck
Most platforms either bury Reg D in a footnote or treat it as a 40-page handout. GPs need enough depth to choose an exemption confidently — and enough automation that the choice does not slow the raise down.
Which raise are you running?
Pick the exemption that fits the go-to-market — the platform handles the rest.
506(c)
Public marketing allowed, accredited investors only, third-party verification required. Covercy triggers verification automatically after the investor signs.
How Covercy handles 506(c)The four things that actually differ
506(b) vs 506(c) — what changes between exemptions, in plain English.
| 506(b) | 506(c) | |
|---|---|---|
How you reach investors | Pre-existing, substantive relationships only. No public marketing. The raise stays among LPs you already know. | Public marketing allowed. Open a public landing page, share the link, run paid campaigns, post on social. |
Who can invest | Accredited investors plus up to 35 non-accredited but sophisticated investors per offering. | Accredited investors only. Non-accredited investors are blocked at the configuration level. |
How you confirm they are accredited | Reasonable belief, typically via investor self-certification with appropriate questionnaires. | Reasonable steps to verify, typically via documentary review or a qualified third party. Covercy triggers verification automatically after the investor signs, before the commitment is approved. |
What you owe non-accredited investors | Specified disclosure obligations to non-accredited investors before the sale — financial statements and offering-document content prescribed by the rule. | Not applicable — non-accredited investors cannot participate. |
How you reach investors
- 506(b)
- Pre-existing, substantive relationships only. No public marketing. The raise stays among LPs you already know.
- 506(c)
- Public marketing allowed. Open a public landing page, share the link, run paid campaigns, post on social.
Who can invest
- 506(b)
- Accredited investors plus up to 35 non-accredited but sophisticated investors per offering.
- 506(c)
- Accredited investors only. Non-accredited investors are blocked at the configuration level.
How you confirm they are accredited
- 506(b)
- Reasonable belief, typically via investor self-certification with appropriate questionnaires.
- 506(c)
- Reasonable steps to verify, typically via documentary review or a qualified third party. Covercy triggers verification automatically after the investor signs, before the commitment is approved.
What you owe non-accredited investors
- 506(b)
- Specified disclosure obligations to non-accredited investors before the sale — financial statements and offering-document content prescribed by the rule.
- 506(c)
- Not applicable — non-accredited investors cannot participate.
Required either way — table stakes for any Reg D raise
Independent of which exemption you pick, every Reg D raise carries three baseline obligations.
File Form D with the SEC
Within 15 days of the first sale of securities in the offering.
Pass the "bad actor" test
No covered person — officers, directors, 20%+ owners, placement agents — can have a disqualifying event.
File state notice filings ("Blue Sky")
A Form D copy plus the state fee in every state where an investor resides. States retain notice-filing fee authority under NSMIA.
How Covercy handles 506(b)
SEC requirement → Covercy mechanism. Four mappings.
- No general solicitation
- Public audience mode is disabled when the raise is configured as 506(b). The deal page is only reachable by invited or pre-known LPs.
- 35 non-accredited investor cap, all of whom must be sophisticated
- A built-in non-accredited counter tracks the cap in real time. New non-accredited investors enter a GP approval queue so sophistication review is explicit, not retroactive.
- Reasonable belief of accredited status
- A guided self-certification wizard collects the investor’s basis (income, net worth, professional credential) and stores it in an auditable trail.
- Disclosure obligations to non-accredited investors
- Subscription and disclosure documents are hosted on the deal page and gated by flow stage, so non-accredited investors receive prescribed disclosures before sale.
How Covercy handles 506(c)
SEC requirement → Covercy mechanism. Four mappings.
- General solicitation allowed
- "Anyone with a link" audience mode is unlocked. Embed the deal page on your site, run paid campaigns, share on social — all consistent with publicly solicited offerings.
- All investors must be accredited
- Non-accredited investors are blocked at the configuration level. The flow refuses to admit them on a 506(c) raise.
- Take reasonable steps to verify accredited status
- Verification is auto-triggered after the investor signs, before the commitment is approved. Covercy routes the investor through one of the four safe-harbor methods: income test, net-worth test, a written confirmation from a qualified professional, or prior-verification reliance within the SEC reliance window.
- Verification must be substantive — not a checkbox
- A qualified third party performs the verification. The result lands in the investor record with the basis used and an audit trail of supporting evidence.
“A 506(c) raise should not cost you investors at the accreditation step. We verify after they sign, when they have reason to cooperate — completion rates change accordingly.”
Why post-sign verification is the platform default
A fundraise is either 506(b) or 506(c) — never both
You pick one exemption per fundraise. Running one 506(b) raise and one 506(c) raise in parallel on the same Covercy account is supported — each raise sets its own gate independently. What you cannot do is mix the two within a single fundraise.
What stays in your court
Matter-of-fact: the platform is honest about scope.
Form D filing
Covercy surfaces the data you need (first-sale date, exemption claimed, offering details). You or your counsel file with the SEC.
State Blue Sky notice filings
Per-state notice filings and fees in every state of investor residence. You or your counsel manage the matrix.
Bad-actor diligence on covered persons
Confirming officers, directors, 20%+ owners, and placement agents have no disqualifying events. You or your counsel run the diligence.
PPM drafting
Covercy stores and delivers the offering documents — your counsel drafts them.
Frequently asked questions
- Can a fundraise switch from 506(b) to 506(c) mid-flight?
- Mid-raise switches are not advisable as a normal practice — once non-accredited investors are admitted under 506(b) or once general solicitation has occurred, the exemption posture is set. If the strategy genuinely needs to change, that is a counsel conversation about restructuring rather than a configuration toggle. Most GPs run a new fundraise on the same account when their go-to-market changes.
- Who performs the 506(c) third-party verification, and how is its cost handled?
- A qualified third party performs the verification — typically a CPA, an attorney, a registered broker-dealer, or a registered investment advisor providing a written confirmation, or an integrated verification provider routed through documentary review. Cost handling is set per fundraise: the GP can cover it, the LP can cover it, or it can be offered as part of the deal.
- How long is a 506(c) verification good for?
- The SEC permits issuers to rely on a prior verification for up to five years, provided the investor reaffirms their accredited status at the time of the new investment. Covercy stores the verification on the investor record and prompts for reaffirmation on subsequent deals so the reliance period is used correctly.
- Does Covercy support 506(b) raises that take only accredited investors?
- Yes. A 506(b) raise can be run accredited-only — the non-accredited counter simply stays at zero. You get the 506(b) framework (no general solicitation, pre-existing relationships) without admitting any non-accredited investors.
This page is informational. It is not legal advice. Securities laws are fact-specific and change over time. GPs should consult qualified securities counsel before relying on this material for any specific raise.