Most private equity funds raised in the United States are never registered with the SEC. Sponsors instead rely on Regulation D, a set of rules under the Securities Act of 1933 that allows private sales of securities without full registration. Which Regulation D path a fund takes shapes its marketing, its investor base, and the paperwork signed at closing.
Rule 506 is the workhorse. It has no cap on offering size, and because securities sold under it are “covered securities,” states cannot review the offering on its merits. They can only require a notice filing and fee.
Rule 506(b) or 506(c): Picking a Lane
Rule 506(b) is the traditional route. A fund may admit unlimited accredited investors and up to 35 non-accredited but financially sophisticated investors. The catch is that general solicitation is off the table, so investors usually come through pre-existing relationships with the firm or its placement agents. Most PE funds avoid non-accredited investors altogether, since admitting even one triggers disclosure obligations close to those of a registered offering.
Rule 506(c), added in 2013 under the JOBS Act, lets sponsors advertise publicly. In exchange, every purchaser must be accredited, and the issuer must take reasonable steps to verify that status. A self-certification checkbox on its own does not meet this standard.
Qualifying and Verifying Investors
Under 506(b), firms generally rely on investor questionnaires and a reasonable belief that each investor qualifies. Under 506(c), the rule offers non-exclusive safe harbor methods: reviewing IRS forms for the past two years to confirm income, reviewing bank, brokerage and credit reports to confirm net worth, or obtaining a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or CPA.
In March 2025, SEC staff added another option Through a no-action letter. A high minimum investment of $200,000 for individuals or $1 million for entities, paired with written investor representations, can count as reasonable verification, as long as the commitment is not third-party financed for that purpose and the issuer knows of nothing to the contrary. Many PE funds already set minimums at these levels, though funds with smaller tickets still need traditional verification.
Sponsors should also watch rulemaking. In September 2026, the SEC requested comment on new credential-based routes to accredited status, including CPA, CFA and CFP credentials and a FINRA-developed exam.
What the Subscription Agreement Should Cover
The subscription agreement is where qualification gets documented. A typical package includes accredited investor representations, qualified purchaser representations for funds relying on Section 3(c)(7) of the Investment Company Act, the capital commitment amount, acknowledgment of transfer restrictions, AML and KYC information, and tax forms. For 506(c) offerings, the file should also show which verification method was used and when.
Ongoing Compliance Obligations
The work continues after first close. Form D must be filed within 15 days of the first sale and amended annually while the offering continues, or sooner if key information changes. Most states expect notice filings on a similar schedule. Sponsors must monitor “bad actor” disqualification for covered persons, such as general partners, placement agents and 20% beneficial owners, throughout the raise.
For 506(c) funds, every subsequent close brings new investors to verify. SEC staff guidance allows a lighter approach for an investor the issuer verified within the past five years, provided the investor reconfirms accredited status in writing. Records of each step should be kept, since examiners review them closely.
Getting Verification Right
For many sponsors, verification is where friction shows up. Investors are often reluctant to share tax returns with a deal team, and in-house reviews can be uneven from one close to the next. That is why many issuers turn to an Independent verification process, where a qualified professional reviews the documents and issues a written confirmation letter. It keeps sensitive data away from the fund, creates a consistent audit trail and frees the investment team to focus on the raise. Whatever approach a firm chooses, the goal is a defensible record showing every investor was properly qualified before capital changed hands.
