Can I turn my 506b offering into a 506c offering?

Can I Turn My 506b Offering Into a 506c Offering?

Yes, you can convert a 506b offering into a 506c offering, but there are important limitations and considerations to keep in mind. Below is a detailed explanation to guide you through this process including an alternative suggestion from Avestor.

Key Limitations

Restrictions on Current Investors

Once a 506(b) offering is converted to a 506c offering, existing investors from the 506b phase cannot participate in any new deals that arise after the conversion. This is because 506b offerings allow non-accredited investors to participate under specific conditions, whereas 506c offerings are strictly limited to accredited investors.

Compliance With Advertising Rules

Under a 506b offering, general solicitation and advertising are prohibited. However, a 506c offering permits general solicitation, provided that all investors are verified as accredited. If you plan to use advertising or public promotion, ensure that all such activities begin only after the formal conversion to a 506c offering.

Accredited Investor Verification

In a 506c offering, issuers must take reasonable steps to verify that all investors are accredited. This requirement is stricter than the self-certification typically allowed under 506b. Avestor’s fund registration process and partner Accred.com ensures that your investors are verified accredited investors.

Steps to Convert From 506b to 506c

Assess Investor Composition

Review the list of existing investors to identify accredited and non-accredited participants. Communicate the changes to all investors and ensure they understand how the conversion affects their ability to participate in future deals.

Update Offering Documents

Amend the Private Placement Memorandum (PPM), subscription agreements, and other relevant offering documents to reflect the new 506© status with your lawyer.

File an Amended Form D

Have your lawyer notify the SEC of the change by filing an amended Form D. This form must specify the new exemption under Rule 506©.

For further guidance, consult with a securities attorney or a compliance expert to ensure a smooth transition and compliance with applicable laws and regulations.

What Avestor Advises

Due to the limitations in the ability of your investors to participate in the 506c after it is converted from a 506b, Avestor typically does not advise a 506b to 506c conversion.

We suggest fund managers create a brand new 506c fund separate from their 506b fund. With a separate 506c fund, accredited investors from the 506b fund can come into new deals in the new 506c fund.