Funds & Capital Formation
Raising capital, without losing the exemption
Most people who raise money from a group of investors are selling securities, whether or not they think of it that way. The rules that let you do it privately are workable — but several of them are lost by accident, before anyone thinks to ask a lawyer.
Current as of August 2026
The starting point
If you are pooling money from other people to buy a property, fund a business, or make investments, the interests you give them are generally securities. Selling securities requires either registration or an exemption, and registration is not a realistic option for a private raise.
Nearly everyone uses Regulation D. Within it, nearly everyone uses Rule 506 — and Rule 506 offers two different paths that are not interchangeable.
506(b) or 506(c) — the decision that governs everything else
The two paths trade the same thing against each other: whether you can talk about the deal publicly, and who is allowed to buy.
Rule 506(b)
Quiet, but broader
- No general solicitation or advertising
- Unlimited accredited investors
- Up to 35 other purchasers in any 90-day period, who must be sophisticated
- No affirmative duty to verify accredited status
Rule 506(c)
Public, but narrower
- General solicitation permitted — you may advertise
- Every purchaser must be an accredited investor
- The issuer must take reasonable steps to verify that status
- Self-certification is not enough
On the purchaser limit, the detail that matters is how the count works. Accredited investors are excluded from it entirely:
“For purposes of calculating the number of purchasers under § 230.506(b) only… The following purchasers shall be excluded: …(iv) Any accredited investor.”
So the thirty-five is a ceiling on non-accredited purchasers, not on investors generally — and under 506(b) those purchasers must have “such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.”
What verification actually means under 506(c)
This is the most commonly underestimated obligation in a 506(c) raise. It is not a checkbox on a subscription agreement.
“The issuer shall take reasonable steps to verify that purchasers of securities sold in any offering under paragraph (c) of this section are accredited investors.”
The rule then sets out non-exclusive safe-harbour methods — for an individual qualifying on income, for example, reviewing IRS forms reporting income for the two most recent years together with a written representation about the current year. Those methods are optional, but the obligation to take reasonable steps is not.
An investor ticking a box that says “I am accredited” is sufficient under 506(b). Under 506(c) it is not.
⚠️ The mistake that is usually made before anyone calls a lawyer
Rule 506(b) requires compliance with the limitation on the manner of offering. That limitation is broad, and it catches things people do not think of as advertising:
“…neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following: (1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and (2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising…”
A public post about the deal. A pitch night open to whoever registered. A newsletter to a list you did not build through existing relationships. Any of these can foreclose 506(b) for that offering — and by the time it happens, the choice has been made for you.
It is a solvable problem if it is considered at the start. It is a considerably harder one once investors have signed.
Form D, and the filings people forget
“An issuer offering or selling securities in reliance on § 230.504 or § 230.506 must file with the Commission a notice of sales containing the information required by Form D… no later than 15 calendar days after the first sale of securities in the offering…”
Separately, states have their own notice filings and fees. A Florida fund with investors in four states may have filings in each of them. These are not difficult, but they are easy to miss, and they are the sort of thing a later investor’s counsel asks about during diligence.
The finder’s fee problem
One pattern comes up more than any other, and it is worth naming plainly: paying someone a percentage of the money they bring in.
A friend with a good network offers to introduce investors for a slice of the raise. It feels like a commercial arrangement between adults. But transaction-based compensation for selling securities is the classic indicator of broker activity, and a person acting as an unregistered broker creates a problem that belongs to the issuer as much as to them — including, potentially, rescission rights for the investors who came in that way.
There are ways to compensate people who help. A percentage of the raise is the one to stop and think about first.
Fund or SPV?
Sponsors often assume they need a fund when what they actually need is a single-asset vehicle.
- An SPV holds one deal. Investors see exactly what they are buying, the documents are simpler, and the economics are easier to explain.
- A fund raises against a strategy and invests over time. It buys discretion and speed, at the cost of more complex terms, and investors who are underwriting you rather than an asset.
Pooled investment vehicles also raise questions under the Investment Company Act and, depending on structure and compensation, the Investment Advisers Act. Those are structural questions worth settling before documents are drafted rather than after.
This page is a general overview of federal exemptions as they stand in August 2026. It is not legal advice, not an offer, and not a solicitation of any investment. Whether an exemption is available, and what it requires, depends on the facts of a particular offering. Do not act on this summary without advice on your own circumstances.
What I do here
Formation and offering work, start to close.
- Fund, joint venture, and single-asset SPV formation
- Operating and limited partnership agreements, and sponsor economics
- Regulation D private placements — 506(b) and 506(c)
- Offering documents, subscription agreements, and investor questionnaires
- Form D and state notice filings
- Co-investment and sponsor-side arrangements
A note on perspective
Before this practice I worked in-house for a charitable foundation and its investment affiliate, which meant reading these documents from the investor’s side of the table rather than drafting them for a sponsor.
That changes what you notice. Terms that are unremarkable to draft are sometimes the ones an investor stops on — and a raise goes faster when those have been thought about in advance.
Planning a raise?
The cheapest time to sort out structure, exemption, and documents is before the first conversation with an investor. It is considerably more expensive afterwards.