Federal offering workflows
Rule 506(c), Rule 506(b) and Regulation A, step by step
What the company does in its Sprowtt workspace, and what its securities counsel does, for each federal exemption Sprowtt supports, including testing the waters under Regulation A. The company runs its own offering, its counsel reviews it, and Sprowtt supplies the tools and keeps the record.
Rule 506(c): open to the public, sold only to accredited investors
Rule 506(c) of Regulation D (17 CFR 230.506(c)) has no limit on the amount raised and allows general solicitation, so the company may advertise the offering openly. Every purchaser must be an accredited investor, as defined in 17 CFR 230.501(a), and the company must take reasonable steps to verify that each one is.
The rule lists ways to verify that are not the only ones allowed: reviewing IRS forms for the two most recent years with a written representation; asset and liability documents dated within the last three months plus a credit report; a written confirmation dated within three months from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant; or a representation from a person the company verified within the past five years (230.506(c)(2)(ii)).
In the SEC staff no-action letter, Latham & Watkins LLP (March 12, 2025), SEC staff said a company is viewed as having taken reasonable steps to verify when it requires a minimum investment of at least $200,000 from an individual, $1,000,000 from an entity accredited by its assets, or $1,000,000 or $200,000 for each equity owner from an entity whose equity owners are all accredited; obtains written representations that the purchaser is accredited and that the minimum investment is not financed in whole or in part by any third party for the specific purpose of the investment; and has no actual knowledge of facts to the contrary. A staff letter is not a rule; the company's counsel decides whether to rely on it.
Sprowtt does not verify accreditation. The company verifies each purchaser itself, with its own verification provider or by its own reasonable steps, and its counsel decides what is enough. In the deal room the investor can send a provider's letter or an attorney's or CPA's letter, or, where the company has set a minimum that meets the staff letter's level, commit to that minimum with written statements; the company decides each one.
Rule 506(c): what the company does in Sprowtt
- Opens a Rule 506(c) offering. Its deal room carries the 13 sections a 506(c) notice needs complete before it can publish: summary, the business, products and services, market, competition, management and board, use of proceeds, financial condition, risk factors, terms of the offering, how to subscribe, accreditation, and related-party transactions
- Writes the Accreditation section: that every purchaser must be accredited, and how the company will verify it, whether by a letter, a verification provider or another reasonable step
- Reviews each investor's accreditation verification on its Investors screen and accepts or declines it. If it chooses, sets a minimum investment per kind of investor on the offering; where that meets the levels in the SEC staff no-action letter, Latham & Watkins LLP (March 12, 2025), an investor may commit to it with written statements, and the company confirms it knows of nothing to the contrary before accepting
- Fixes whatever the language check finds: publishing is refused while a section describes a return as guaranteed or the investment as risk-free, says a regulator approved the offering, promises a specific percentage return, uses pressure language or compares the company to a famous one
- Lists its officers, directors and 20% holders on the Officers list, with each person's background-check status and whether they have had a disqualifying event under Rule 506(d)
- Publishes the notice as a card on its own website, drawn by Sprowtt with the 506(c) legend: offered only to accredited investors under Rule 506(c), and the company is responsible for verifying accredited status
- Adds each person it deals with to the offering's people list and keeps their status: invited, viewing, indicated, subscribed, paid, cancelled, closed or refused
- Shares documents in the data room at the level each needs (Room, Invited members, Counsel or Operator), with every open and download recorded against the version seen
- Records each subscription and each payment that arrives at the company's own bank account; the amount raised and the investor count follow the recorded payments, never a typed figure
- Adds Form D to the filings tracker and enters the date of the first sale, so the due date 15 days later is on screen
- Records each issuance on its own cap table, including whether the holder is accredited and the exemption relied on
- Posts a material-change notice to everyone who has indicated, subscribed or paid, and asks them to reconfirm by a date when the change calls for it
Rule 506(c): what counsel does
- Reads each section the company submits in the review queue, and clears it or blocks it with a reason the company can act on; the notice cannot publish while a section is blocked
- Places a hold on the whole offering when needed: the notice comes down and cannot be published again until counsel clears the hold
- Decides whether the company's verification steps are reasonable, and whether to rely on the SEC staff no-action letter, Latham & Watkins LLP (March 12, 2025), including the minimums the company sets and the wording investors agree to
- Approves investor updates before they go, if the company turns on counsel review
- Files Form D on EDGAR (Sprowtt files nothing), after which the company records the file number and date on the tracker
- Assembles a dated closing binder of the sections, documents, investor register and timestamps, and exports the offering's audit trail as a CSV file
Rule 506(b): private, by invitation only
Rule 506(b) (17 CFR 230.506(b)) also has no limit on the amount raised, but it does not allow general solicitation or general advertising (230.502(c)). The company may sell to any number of accredited investors and to no more than 35 non-accredited purchasers in any 90-calendar-day period, each of whom must be sophisticated, alone or with a purchaser representative (230.506(b)(2)). Non-accredited purchasers must receive disclosure and financial statements at the Regulation A level, and a chance to ask questions (230.502(b)).
Rule 506(b): what the company and counsel do in Sprowtt
- The company opens a Rule 506(b) invite room. Its six required sections are summary, the business, management and board, risk factors, terms of the offering and how to subscribe
- It invites only people it already knows, recording how it knows each person and since when before the invitation is created; that record is what counsel will ask for
- Each invitation is a personal link that the company can revoke at once. The room's card never renders on a public page, with or without a link in the page
- In the data room, a document set for the whole room is narrowed to people holding a live invitation, both on upload and every time it is opened
- Investor updates go only to people the company already invited or admitted to the room
- Form D, the language check, counsel's section review, holds, the closing binder and the audit export work as they do for Rule 506(c)
Regulation A: testing the waters
Sprowtt supports testing the waters. A Regulation A test-the-waters room collects indications of interest only: no money is taken, nothing is sold, and an indication involves no obligation or commitment of any kind.
Regulation A allows up to $20,000,000 in 12 months under Tier 1 and up to $75,000,000 under Tier 2 (17 CFR 230.251(a)). A company may test the waters, before and after it files its offering statement on Form 1-A, under Rule 255 (17 CFR 230.255). It may make no sale until the offering statement is qualified (230.251(d)).
Before qualification, no money or other consideration, and no commitment, binding or otherwise, may be solicited or accepted from anyone. Every testing-the-waters communication must say three things: that no money or other consideration is being solicited, and if sent in response will not be accepted; that no offer to buy can be accepted and no part of the purchase price received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance is given after qualification; and that an indication of interest involves no obligation or commitment of any kind.
After the offering statement is publicly filed, each communication must also say where the preliminary offering circular can be obtained, or give its web address, or include a copy. Material that later turns out to be materially inaccurate must be corrected and sent again. Rule 255 does not forbid stating the price per share, the valuation or the total amount the company expects to raise.
Regulation A: what the company and counsel do in Sprowtt
- The company opens a Regulation A test-the-waters room. Its required sections are summary, the business, management and board, use of proceeds, and indicating interest; a term sheet, subscription steps and related-party section are not allowed, because there are no terms to accept yet
- The room's card carries the three statements Rule 255 requires, word for word as set out above
- Once Form 1-A is publicly filed, the company enters the web address of the preliminary offering circular on the offering and the card shows it. While a Form 1-A is marked filed on the filings tracker with no address entered, the card stays down and the readiness checklist says why
- People indicate interest; Sprowtt counts and totals the indications. No subscription, payment or cap-table issuance can be recorded under a test-the-waters room
- The language check also blocks invitations to buy (invest now, buy shares, purchase shares, subscribe now), requests for a reservation (reserve your shares, priority reservations) and commitment wording (soft commitments, commit capital, pre-commit), on the room, its notices and the company's investor updates. Stating the price, valuation or amount being tested is not blocked
- The company tracks Form 1-A on the filings tracker; counsel prepares and files it, and Sprowtt files nothing
- Counsel reviews the sections, can hold the room closed, and assembles the closing binder, as in every room
Bad actors and Form D, for any Rule 506 offering
Rule 506 is not available if a covered person has a disqualifying event (230.506(d)). Covered persons include the company and its predecessors, directors, executive officers and other officers taking part in the offering, general partners and managing members, holders of 20% or more of the voting securities, promoters, and anyone paid, directly or indirectly, to solicit purchasers. Sprowtt runs no background checks: the Officers list holds the status the company enters. The company, usually with its counsel, makes the factual inquiry the rule's reasonable-care defense calls for (230.506(d)(2)(iv)).
Form D is filed on EDGAR no later than 15 calendar days after the first sale; when that day falls on a weekend or a federal holiday, the deadline moves to the next business day. It is amended for material mistakes and changes, and every year while the offering continues (230.503).