Reg D Options: 506c vs 506b, 3c1 vs 3c5
Here is an overview of the differences between Regulation D 506c and 506b funds:
| Reg D 506(b) | Reg D 506(c) |
Dollar Limit: | None | None |
Eligible Investors: | Up to 35 non-accredited investors permitted; remaining must be accredited investors | Only verified accredited investors |
Accredited Investor Check: | Self-certify through an investor questionnaire | Fund manager must take reasonable steps to verify accredited status, usually through 3rd party. |
Advertising: | Marketing limited to investors with direct relationships. No general solicitation or advertising of any kind. | No restrictions on advertising or general solicitation. |
Financial Statements: | Financial statements required if non-accredited investors: Audits may be required as size of fund grows. | Not required. |
For Reg D funds, there are 2 exemption options that we primarily support.
| 3c1 Exemption | 3c5 Exemption |
Number of investors: | Limited to <100 investors for funds Limited to <250 investors for venture capital funds | Less than 2000 total investors. |
Asset Class Restrictions: | No restrictions | At least 55% of the fund portfolio must be allocated directly to real estate holdings that you control. 25% must be in real estate related interested. 20% can be any other assets. |
So which way should you go?
506b | 506c | |
3c1 | - Fund can invest in any asset class - Limited to 99 investors - No plans to advertise the fund | - Fund can invest in any asset class - Limited to 99 investors - Engage in general solicitation and advertising |
3c5 | - Primarily a real estate fund - Control underlying assets for 80% of portfolio - No plans to advertise the fund | - Primarily a real estate fund - Control underlying assets for 80% of portfolio - Engage in general solicitation and advertising |
