Why exemptions exist
The Securities Act of 1933 established a foundational principle: before securities can be offered to the public, the issuer must file a registration statement with the SEC containing detailed financial and business disclosures. The goal is investor protection — making sure buyers have the information they need to make informed decisions.
But full registration is costly. A traditional IPO can run $2-5 million in legal, accounting, and underwriting fees, take 6-12 months, and saddle the company with ongoing public-company reporting obligations. For a startup raising $500K or a growth-stage company raising $10M, this is disproportionate.
Congress and the SEC created exemptions to allow capital formation without full registration, while preserving varying levels of investor protection. Each exemption balances three competing goals: access to capital for companies, access to investment opportunities for investors, and protection from fraud for everyone.
Source: Securities Act of 1933, Section 5 (registration requirements) and Section 4 (exemptions); SEC — Exempt offerings.
Regulation D
Regulation D is the most commonly used exemption for private placements and accounts for the vast majority of capital raised in exempt offerings. It includes three rules: Rule 504, Rule 506(b), and Rule 506(c).
Rule 504
Rule 504 permits offerings of up to $10 million in a 12-month period. It does not restrict the type of investor (accredited or non-accredited), but the securities are generally restricted — meaning they cannot be freely resold. Rule 504 does not preempt state Blue Sky laws, so issuers must comply with the registration requirements of every state where securities are offered.
Rule 506(b)
Rule 506(b) has no cap on the amount raised and is the workhorse of venture capital and private equity fundraising. It allows an unlimited number of accredited investors and up to 35 non-accredited investors who are "sophisticated" (meaning they have sufficient knowledge and experience to evaluate the investment). The key restriction: no general solicitation — the issuer cannot publicly advertise the offering.
When non-accredited investors participate, the issuer must provide disclosure similar to what's required in a Regulation A offering. When only accredited investors participate, no specific disclosure document is required by federal law (though issuers typically provide a private placement memorandum anyway).
Rule 506(c)
Added by the JOBS Act in 2013, Rule 506(c) allows general solicitation — meaning issuers can publicly advertise the offering — but restricts participation to verified accredited investors only. The issuer must take "reasonable steps" to verify each investor's accredited status, which can include reviewing tax returns, bank statements, or obtaining written confirmation from a registered broker-dealer, attorney, or CPA.
Source: 17 CFR 230.504, 230.506; SEC — Regulation D.
Regulation Crowdfunding (Reg CF)
Regulation Crowdfunding, created by Title III of the JOBS Act, allows companies to raise up to $5 million in a 12-month period from both accredited and non-accredited investors through an SEC-registered funding portal or broker-dealer.
Investor limits are based on income and net worth. If either your annual income or net worth is less than $124,000, you can invest the greater of $2,500 or 5% of the lesser of your annual income or net worth across all Reg CF offerings in a 12-month period. If both are $124,000 or more, you can invest up to 10% of the lesser, capped at $124,000.
Issuers must file Form C with the SEC, which includes a description of the business, the offering terms, financial statements (reviewed or audited, depending on the amount raised), and risk factors. Ongoing annual reporting is required via Form C-AR.
Reg CF securities are generally restricted and cannot be resold for one year, with limited exceptions (to accredited investors, family members, or back to the issuer).
Source: 17 CFR 227 (Regulation Crowdfunding); SEC — Regulation Crowdfunding.
Regulation A
Regulation A — sometimes called the "mini-IPO" — permits offerings of up to $75 million (Tier 2) or $20 million (Tier 1) in a 12-month period. It is open to both accredited and non-accredited investors, and Reg A securities are generally freely transferable from issuance — meaning they can trade on secondary markets without a holding period.
Regulation A involves SEC review and qualification of a Form 1-A offering statement, and Tier 2 issuers have ongoing reporting obligations (annual, semiannual, and current-event reports). It is the most disclosure-heavy exemption short of full registration, but it also provides the broadest investor access and the most liquid securities.
For a comprehensive guide, see our full Regulation A deep dive.
Regulation S
Regulation S provides a safe harbor for offerings made outside the United States. It clarifies that the registration requirements of the Securities Act apply only to offers and sales of securities within the U.S. — if a transaction occurs entirely offshore, it is not subject to Section 5 registration.
Regulation S has three categories of offerings, with increasing restrictions based on the likelihood that securities will "flow back" to U.S. investors:
- Category 1: Foreign issuers with no substantial U.S. market interest. Minimal restrictions — no directed selling efforts into the U.S. required, and no distribution compliance period.
- Category 2: SEC-reporting foreign issuers and foreign issuers of debt. A 40-day distribution compliance period during which offers and sales must remain offshore.
- Category 3: All other issuers (including U.S. domestic issuers). A one-year distribution compliance period for equity, with additional restrictions including purchaser certifications and legending of securities.
Regulation S is not a tool for domestic startups raising from U.S. investors — it's for genuinely offshore transactions. The SEC scrutinizes structures that appear designed to circumvent U.S. registration requirements using a Reg S label.
Source: 17 CFR 230.901–230.905; SEC — Regulation S.
Rule 144: reselling restricted securities
Rule 144 is not an exemption for issuers — it's a safe harbor for investors who want to resell restricted securities (securities acquired in private placements under Reg D or other exemptions) or control securities (securities held by affiliates of the issuer).
The key requirements for resale under Rule 144:
- Holding period: At least 6 months for securities of SEC-reporting companies; at least 1 year for non-reporting companies
- Current public information: The issuer must have adequate current public information available
- Volume limitations: For affiliates, sales in any 3-month period cannot exceed the greater of 1% of shares outstanding or the average weekly trading volume
- Manner of sale: For affiliates, sales must be handled as routine trading transactions
- Filing: Affiliates must file a Form 144 with the SEC when sales exceed certain thresholds
For non-affiliates who have held restricted securities for at least one year (non-reporting issuer), all Rule 144 conditions except the holding period are waived — you can freely resell. Understanding Rule 144 matters because it determines when and how you can exit a private investment.
Source: 17 CFR 230.144; SEC — Rule 144.
Comparing exemptions at a glance
The table below summarizes the key differences across the major SEC exemptions.
| Exemption | Max raise | Non-accredited? | General solicitation? | Securities restricted? |
|---|---|---|---|---|
| Reg D 504 | $10M | Yes | Generally no | Yes |
| Reg D 506(b) | Unlimited | Up to 35 | No | Yes |
| Reg D 506(c) | Unlimited | No | Yes | Yes |
| Reg CF | $5M | Yes | Yes (via portal) | Yes (1-year hold) |
| Reg A Tier 1 | $20M | Yes | Yes | No |
| Reg A Tier 2 | $75M | Yes (with caps) | Yes | No |
For a deeper understanding of how each instrument type (equity, debt, hybrid, RPA) interacts with these exemptions, see our guide to Securities & Investment Types.
Frequently asked questions
506(b) allows up to 35 non-accredited investors but prohibits general solicitation (public advertising). 506(c) allows general solicitation but restricts the offering to verified accredited investors only — the issuer must take reasonable steps to verify each investor's accredited status.
Yes. Regulation Crowdfunding and Regulation A both allow non-accredited retail investors, subject to investment caps. Regulation D 506(b) permits up to 35 non-accredited investors with additional disclosure requirements. Only Regulation D 506(c) is restricted to accredited investors.
Rule 144 is a safe harbor for reselling restricted securities. Securities acquired in private placements must generally be held for 6 months (reporting companies) or 1 year (non-reporting companies) before resale under Rule 144, subject to volume and manner-of-sale limitations for affiliates.
Regulation A, because Reg A securities are generally freely transferable from issuance — they are not restricted securities. This means they can trade on secondary markets (exchanges, OTC, or ATS platforms) without a holding period. All other exemptions produce restricted securities that require a holding period before resale.