What is the fundamental difference between 506c and 506b offerings?

The correct answer highlights a key distinction between Regulation D Rule 506(b) and Rule 506(c) offerings. Under Rule 506(c), issuers are permitted to engage in general solicitation and advertising to promote their securities offerings. However, this flexibility comes with the requirement that all investors participating in the offering must be accredited investors. Accredited investors are individuals or entities that meet certain financial criteria defined by the SEC, which is intended to ensure that those participating have the financial sophistication and capacity to bear the risks associated with such investments.

In contrast, Rule 506(b) does not allow for general solicitation or advertising, but it does permit a limited number of non-accredited investors to participate alongside accredited ones, making it accessible to a broader range of investors while still complying with regulatory requirements. This creates a fundamental difference in how the two types of offerings operate and the target investor populations they can engage.

Understanding these distinctions is crucial for issuers looking to raise capital, as the choice between the two can significantly impact the strategy for securing investment and the profile of their investor base.