Rule 506(c) lets an issuer market a private offering openly: on its website, on a platform, on social media, or at events open to the public. The conditions are that every purchaser is an accredited investor and that the issuer takes reasonable steps to verify that status. For years, that verification step pushed sponsors toward Rule 506(b) instead. Asking investors for tax returns, account statements, or a letter from their accountant slows a raise down, and some investors won't do it.

In March 2025, the SEC staff addressed one common situation, which is an offering with a high minimum investment. For sponsors whose SPVs or funds have minimums at that level, verification can now be much simpler. For those with lower minimums, nothing changes.

What Rule 506(c) Requires

Rule 506(c)(2)(ii) requires the issuer to take reasonable steps to verify that purchasers are accredited investors. The rule lists non-exclusive methods for natural persons that are deemed to satisfy the requirement:

  • reviewing IRS forms that report income for the two most recent years;
  • reviewing asset and liability documentation dated within the prior three months;
  • obtaining a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a certified public accountant that it verified the purchaser's status within the prior three months; and
  • for a person the issuer verified before, obtaining a new written representation, which works for five years from the earlier verification.

Those methods are optional. When the SEC adopted Rule 506(c) in 2013, it described a principles-based approach. Whether steps are reasonable is an objective determination based on the facts. The factors include the nature of the purchaser, the information the issuer has about the purchaser, and the terms of the offering, including any minimum investment amount. The release said that if an offering requires a high minimum investment and a purchaser can meet it, it may be reasonable to take fewer steps, or in some cases no additional steps beyond confirming that the purchaser's cash investment is not being financed by a third party, as long as nothing suggests the purchaser isn't accredited. What the release didn't say was how high a minimum had to be.

The March 2025 No-Action Letter

On March 12, 2025, the Division of Corporation Finance responded to a request from Latham & Watkins. The request described a specific approach, and the staff agreed that an issuer following it could reasonably conclude that it had taken reasonable steps to verify accredited status under Rule 506(c). The approach has three parts.

A minimum investment. At least $200,000 for natural persons, and at least $1,000,000 for legal entities. A binding commitment to invest the minimum in installments, as and when called by the issuer, counts. That makes the approach usable for funds with capital calls, not only for SPVs funded at closing.

Written representations from the purchaser that:

  • it is an accredited investor under a specified category. For natural persons, that is Rule 501(a)(5) (net worth) or 501(a)(6) (income). For entities, it is Rule 501(a)(3), (7), (8), (9), or (12).
  • its minimum investment amount is not financed in whole or in part by any third party for the specific purpose of making this investment.

The request explains that a purchaser can still make the financing representation if it uses a general-purpose credit facility, financing that predates the offering, or capital it raised in its own offering that met the same conditions.

No actual knowledge to the contrary. The issuer must have no actual knowledge of facts indicating that a purchaser is not accredited, or that the minimum was financed by a third party for this investment.

Entities that are accredited only because all their equity owners are accredited, under Rule 501(a)(8), have an added layer. The purchaser represents that each equity owner has its own minimum investment obligation to the purchaser of $200,000 for natural persons or $1,000,000 for entities, and that none of those amounts is financed for this investment. The purchaser's own minimum is $1,000,000, or $200,000 for each equity owner if the equity owners are fewer than five natural persons.

On the same day, the staff issued two new interpretations, Securities Act Rules Compliance and Disclosure Interpretations 256.35 and 256.36. They confirm that the listed methods are not mandatory and that a high minimum investment, with no contrary facts and confirmation that the investment isn't third-party financed, may be enough.

What the Letter Is and Isn't

A no-action letter reflects the staff's views on the facts presented. The letter itself says it is not a rule or a Commission statement, that it has no legal force or effect, and that different facts might lead to a different conclusion. In practice, issuers that follow its conditions closely have a well-supported position, and issuers that depart from them are back to the general facts-and-circumstances analysis.

A few practical points follow:

  • The minimum has to be real. An investor admitted below the minimum is outside the approach and needs another verification method. If the sponsor routinely waives the minimum, the high-minimum argument weakens.
  • Knowledge counts. If the questionnaire, a conversation, or anything else in the file suggests the investor doesn't meet the test, the issuer cannot ignore it.
  • Draft the representations precisely. The representations can sit in the subscription agreement or questionnaire, but they should track the categories and the financing language the request describes. See The Private Fund Subscription Agreement: What Managers Often Miss.
  • Lower-minimum deals still need verification. Where an SPV's minimum is below $200,000, the usual methods still apply, and a third-party confirmation letter is often the simplest.

Everything Else About 506(c) Still Applies

The letter is about verification only. A 506(c) offering still needs a Form D within 15 calendar days after the first sale, state notice filings where required, and bad actor checks on covered persons under Rule 506(d). The marketing itself is subject to the antifraud provisions, and an adviser to a pooled vehicle is also subject to Rule 206(4)-8. A sponsor that markets openly under 506(c) should also keep in mind that moving those investors into a later Rule 506(b) offering requires a substantive relationship established before that offering begins, as the staff explains in Compliance and Disclosure Interpretation 148.01. For an SPV relying on Section 3(c)(1), using 506(c) does not count as a public offering that would defeat the exclusion. That point is covered in Investment Company Act Limits for SPVs.

The broader choice between the two exemptions is in Rule 506(b) vs. 506(c), and the full set of closing steps is in The SPV Closing Checklist.

If you're considering a 506(c) raise and want to set minimums and subscription documents that fit the staff's approach, we're glad to walk through it with you. More on our SPV work is on the SPV formation page.