What is a 506(b) Fund?

Regulation D Rule 506(b) is a provision under the U.S. Securities and Exchange Commission (SEC) that allows companies to raise an unlimited amount of capital without registering the securities offering with the SEC. Key features include:

• Unlimited Capital Raising: Issuers can raise an unlimited amount of capital under Rule 506(b).

• Accredited Investors: Managers or deal sponsors can sell securities to 99 or 250 accredited investors and up to 35 non-accredited investors who meet certain sophistication standards. Purchasers can self-verify their accreditation status; GPs aren’t responsible for verifying accreditation.

• Information Requirements: Companies must provide non-accredited investors with disclosure documents that generally contain the same type of information as provided in registered offerings.

• No General Solicitation or Advertising: Issuers are not allowed to use general solicitation or advertising to market the securities. The company must have a pre-existing relationship with the investors.

• Restricted Securities: Securities sold under Rule 506(b) are considered restricted, meaning they cannot be freely traded in the secondary market after the offering.

• Filing Requirements: Companies must file a Form D with the SEC within 15 days after the first sale of securities in the offering.

• State Securities Laws: While Rule 506(b) offerings are exempt from federal registration, they are still subject to state securities laws, which vary from state to state.