How do you choose between doing a Regulation D rule 506b offer
versus a Regulation D rule 506. C offer? Let's explore the
differences and why you choose one over the other?
Probably the question I hear more than any other is how do I
choose between a Regulation D rule 506b offer and doing a
Regulation D rule 506c offer? Those two are different? How do
I do it? And so let's talk about the differences. Regulation D
rule 506b says you can raise an unlimited amount of money from
an unlimited amount of accredited investors, just like
Regulation D rule 506c, unlimited amount of money,
unlimited amount of accredited investors, there's one
difference between the two of them. And it comes in two
different choices. You've got to choose either from taking
accredited non accredited investors. So you may have up to
35 in any 90 day period, non accredited investors under Rule
506b, you don't get that choice at all, under Rule 506c, you
cannot have any non accredited investors in rule 506.c. So why
wouldn't you just choose a rule 506c? Well, it's simple. Because
under Rule 506c, you can advertise, see, under Rule 506b,
you need to have a significant relationship with everybody that
you wouldn't have as an investor. Because if you didn't
advertise to them, how did you get the money? Right? That's the
question that has to be answered. And it's answered kind
of in the negative, right? Because you don't know. Well, if
if you didn't advertise? How could How could you get the
money? So that's why you have to have a relationship, otherwise,
there's no way you would have ever found them to invest. So
the choice between there? So the real question, when I get asked,
well, how do I choose? Which one? The answer is simple? Where
do you think your investors are coming from? Do you know a lot
of people who can invest in your property, and you've talked with
them and kind of gotten a gauge of that, oh, there's no problem,
I can raise $5 million from this group of people. Now, it's not
just friends and family, like friends, like your best friends
that you'd go drinking with. It's really that you ever relate
a substantive relationship, such that your investors feel like
they can pick up the phone and ask you a question. And you feel
like you have a general understanding of the their level
of sophistication. So that's the definition of knowledge. But so
you've got a pretty big sphere, if you think about all the
people that you know, you may have a pretty big fear, and it
may be possible for you to raise all that 5 million. And if it is
rule 506b is probably the best choice, because you don't have
to go through an additional step that is under Rule 506c. And
that's verification that they are in fact accredited. You see,
when you choose rule 506c, you get all the benefits of getting
to advertise. But you can't make the mistake of assuming that
somebody is coming into the investment, just because you
think they might be an accredited investor. And they
said that they're an accredited investor, you actually need a
third party to raise their hand and said, I know this person.
And yes, they are indeed an accredited investor, I put my
license on the line to say that's true. So those people are
the accredited investors under Rule 506c, they have to be
verified. That's why what I say it's just easier to do a 506b if
you actually already have that relationship, because they're,
whether they're whether they're an accredited investor or not.
It's really up to their self selection. You just need to have
a good faith belief that they are in fact probably a good an
accredited investor. If they say they are. So 506b five succeed,
look at your network and decide well, where are these people
coming from? Are they coming from there? Or am I really going
to need to advertise to meet have people invest with me who I
just don't know yet. And those people eventually then you will
know and you can include them as part of a 506b. So I hope that
helps. My name is Tilden Moschetti. I am a syndication
attorney with this Moschetti syndication Law Group. We focus
exclusively on Regulation D rule 506b and 506c offerings.