Quick Answer
The workhorse private-placement safe harbor is the most heavily used Reg D rule because it has no dollar cap and produces "covered securities" preempted from state registration. The private Reg D safe harbor (the traditional path) prohibits general solicitation but permits up to 35 non-accredited sophisticated purchasers. The verified-AI Reg D safe harbor (the post-JOBS Act path) permits general solicitation but requires verified accredited investors only.
The workhorse safe harbor is where the vast majority of U.S. private capital flows. Hedge funds, venture capital funds, growth-equity deals, and most middle-market private placements use one of its two sub-paths. The choice between them is binary and consequential.
Why the Workhorse Safe Harbor Dominates
Two structural advantages drive the workhorse safe harbor's dominance over the small-offering Reg D tier:
- No dollar cap: A 506 offering can raise $5 million or $5 billion. There is no aggregate offering-size limit.
- Federal preemption: 506 securities are "covered securities" preempted from state registration. States cannot require substantive registration; they are limited to notice filings and filing fees.
This combination makes 506 the default rule for any deal that touches multiple states or involves institutional investors.
506(b): Traditional Private Placement
The private Reg D safe harbor (the 506(b) path) is the older of the two sub-rules. It is the path most commonly used by venture funds, hedge funds, and traditional middle-market private placements.
| Element | Substance |
|---|---|
| Dollar cap | None |
| Investor limits | Unlimited accredited investors plus up to 35 non-accredited sophisticated purchasers |
| Investor qualification | Accredited: "reasonable belief" standard (self-certification questionnaire is generally sufficient); non-accredited: must have such knowledge and experience that they (alone or with a purchaser representative) can evaluate the merits and risks |
| General solicitation | PROHIBITED |
| Information delivery | If any non-accredited purchasers, full financial and non-financial information must be furnished a reasonable time before sale |
| Form D | Required (file within 15 days of first sale) |
| Securities character | Restricted securities (resale safe harbor holding period applies) |
| Bad-actor disqualification | Applies |
| Federal preemption | YES (covered securities; state cannot require registration, only notice filing plus fee) |
The 35 Non-Accredited Limit
The 35-purchaser cap is one of the most-tested numbers in the Reg D universe.
- The cap is on purchasers, not offerees. Issuers can offer to many more people than they sell to.
- Non-accredited purchasers must be sophisticated (knowledge and experience to evaluate the investment, alone or with a purchaser representative).
- Bringing in even one non-accredited purchaser triggers full information delivery to ALL purchasers, accredited or not.
Reasonable Belief Standard for Accredited Status
For accredited investors in a 506(b) deal, the issuer needs a "reasonable belief" that the purchaser is accredited.
- A signed accredited-investor questionnaire is generally sufficient.
- The issuer is not required to independently verify income, net worth, or license documentation.
- This is the looser of the two qualification standards under the workhorse safe harbor.
Exam Tip: Gotchas
- The 35 non-accredited limit is on PURCHASERS, not offerees. Sending the deck to 100 non-accreds and selling to 35 of them is fine; selling to a 36th is not.
- One non-accredited purchaser triggers full information delivery to EVERY purchaser, accredited or not.
506(c): General Solicitation Permitted
The verified-AI Reg D safe harbor (the 506(c) path) implements the JOBS Act mandate to permit general solicitation in qualifying private offerings.
| Element | Substance |
|---|---|
| Dollar cap | None |
| Investor limits | Accredited investors ONLY (no non-accredited purchasers at all) |
| Investor qualification | Issuer must take reasonable steps to verify accredited status (self-certification questionnaire alone is NOT sufficient) |
| General solicitation | PERMITTED (websites, social media, press, mailings, public events) |
| Information delivery | No specific requirement (no non-accredited purchasers) |
| Form D | Required, with check-box indicating reliance on the verified-AI safe harbor |
| Securities character | Restricted securities |
| Bad-actor disqualification | Applies |
| Federal preemption | YES (covered securities) |
Reasonable Steps to Verify
The verified-AI standard is a principles-based test, but the SEC has identified non-exclusive safe-harbor methods:
- Review of Internal Revenue Service (IRS) forms reporting income (for the income test)
- Review of bank statements, brokerage statements, credit reports, and tax assessments (for the net-worth test)
- Written confirmation from a licensed attorney, certified public accountant (CPA), registered broker-dealer, or registered investment adviser
- Verification by a credentialed third-party service
A 2025 SEC update permits the issuer to rely on purchaser representations that the purchaser is accredited AND that the investment is not third-party financed, provided the minimum investment is at least $200,000 (natural person) or $1 million (entity) AND the issuer has no actual knowledge to the contrary.
Exam Tip: Gotchas
- The verified-AI safe harbor requires VERIFICATION, not self-certification. A signed accredited-investor questionnaire is enough for the private safe harbor's "reasonable belief" but NOT for the verified-AI path. Issuers using general solicitation must affirmatively check income, net-worth, or license documentation, or use a third-party verifier.
506(b) vs 506(c) Side-by-Side
| Dimension | Private safe harbor (506(b)) | Verified-AI safe harbor (506(c)) |
|---|---|---|
| Dollar cap | None | None |
| Accredited purchasers | Unlimited | Unlimited |
| Non-accredited purchasers | Up to 35 sophisticated | None |
| General solicitation | Prohibited | Permitted |
| Accredited verification | Reasonable belief | Reasonable steps to verify |
| Information delivery | Required if any non-accredited | Not specifically required |
| Federal preemption | Yes | Yes |
| Securities character | Restricted | Restricted |
Exam Tip: Gotchas
- Once an issuer takes the verified-AI path and uses general solicitation, it CANNOT later add non-accredited investors. The verified-AI safe harbor is accredited-only. The choice between the private safe harbor (35 non-accreds OK, but no marketing) and the verified-AI safe harbor (marketing OK, but accredited-only) is binary.
- Both safe harbors yield RESTRICTED securities. The buyer in a verified-AI deal still cannot turn around and resell freely. The restricted-share resale safe harbor's holding period applies just like in a private 506(b) deal.