General Securities Representative (Series 7) Practice Exam

Under Rule 506 of Reg D offerings, how much can be offered to investors?

1. A fixed amount of up to $1 million

2. Unlimited amount, with 35 unaccredited investors maximum

3. Only to accredited investors

4. A maximum of $5 million

The correct answer is: Unlimited amount, with 35 unaccredited investors maximum

Rule 506 of Regulation D provides a framework for private placements of securities that can offer significant flexibility to issuers. Under this rule, there are two distinct offerings: 506(b) and 506(c). In a 506(b) offering, a company can raise an unlimited amount of money and can include up to 35 non-accredited (unaccredited) investors, alongside an unlimited number of accredited investors. This feature allows companies to tap into a broader investor base for their fundraising efforts while maintaining some regulatory protections for non-accredited investors. In a 506(c) offering, issuers can also raise an unlimited amount of capital, but this route permits only accredited investors and mandates that the issuer take reasonable steps to verify the accredited status of such investors. Therefore, the statement that indicates an unlimited amount can be offered to investors, with a maximum of 35 unaccredited investors allowed, correctly encapsulates the provisions of Rule 506(b), allowing issuers to optimize capital raising while balancing investor qualifications.