What Is General Solicitation? Rules for Real Estate Raises

General solicitation is broad public marketing of a securities offering, such as ads, public posts about a deal, or open seminars that pitch it. Rule 506(b) bans it, and Rule 506(c) allows it if every investor is accredited and you verify that. If you are the sponsor, we built DoorRaise to run either path, so you can pick the one that matches how you find investors.

What does Rule 502(c) actually ban?

Rule 502(c) bans offering or selling securities by any form of general solicitation or general advertising, unless the exemption you use allows it. The text is in 17 CFR 230.502, and the exceptions are Rule 504(b)(1) and Rule 506(c).

The rule lists examples rather than a full definition: advertisements or notices published in newspapers, magazines or similar media, or broadcast on television or radio, and seminars or meetings whose attendees were invited by general solicitation. That is why most of the practical work is judgment, and why counsel matters.

This is one piece of a larger real estate syndication process, and the choice between 506(b) and 506(c) mostly comes down to this single line in the rules.

What counts as general solicitation in practice?

Anything that publicly offers a specific deal to people you have no relationship with is high risk in a 506(b) raise. Whether a communication is general solicitation depends on the facts, so these are examples that advisers commonly flag, not a legal list.

Activity	Typical risk in a 506(b) raise
Public post describing the deal, terms or returns	High
Podcast or video that pitches the specific offering	High
Mass email or text to a purchased or scraped list	High
Open webinar that pitches the deal	High
Deal page anyone can find and open without a login	High
General post about your company and your experience	Lower, but ask counsel where the line is
One-to-one conversation with someone you know	Low

The SEC's Rule 506(b) overview states the condition plainly: no general solicitation or advertising to market the securities. The same page says the offering is also subject to the "bad actor" provisions, which we cover in our bad actor rule guide.

What is a pre-existing substantive relationship?

It is a relationship with a person that exists before the offering and gives you enough knowledge of their circumstances to judge whether they are accredited or sophisticated. The concept comes from SEC staff guidance, including Compliance and Disclosure Interpretations and the August 2015 Citizen VC no-action letter, not from the text of Rule 502(c) itself. Counsel uses it as the working test. A new follower or someone who just joined your email list usually does not meet it.

There is no number of conversations that turns a stranger into a relationship. The question is what you knew about them, and when you learned it. Our post on whether followers can invest in a 506(b) deal covers how sponsors with an audience think about this.

If your audience is large and mostly unknown to you, that is a signal. It points toward 506(c) rather than trying to stretch the relationship test.

What is allowed without general solicitation?

You can talk about a deal to people you know, and a few other activities are carved out. The main ones are below.

Conversations and offering materials sent to people with whom you have a pre-existing, substantive relationship.
A good-faith Form D filing. Rule 502(c) says that a notice under Rule 503 does not count as general solicitation, and the Investor.gov Reg D page describes Form D as a brief notice.
Notices under Rule 135c, which the rule also says are not general solicitation. Rule 135c is written for Exchange Act reporting issuers and certain non-U.S. issuers, so it will not help a typical private apartment sponsor.
Certain press activities outside the United States that satisfy Rule 135e, which the rule also says are not general solicitation. It is rarely relevant to a domestic apartment raise.
Seminars and meetings that meet Rule 148, a safe harbor for events run by sponsors such as colleges, nonprofits, government entities, angel investor groups, incubators and accelerators. More than one issuer must take part, the event's advertising cannot reference a specific offering, and what an issuer may say at the event is limited. A single-property sponsor cannot run its own event under it, though it might present at a qualifying one.

General information about your company or your track record can sit in a gray area when it points toward a live offering. Ask your attorney before you publish it.

A worked example (illustrative)

Suppose a sponsor has a list of 120 contacts. Of those, 45 are people the sponsor has known for years and has discussed investing with. The other 75 came from an open webinar and social media in the last two months. These numbers are illustrative.

Under 506(b), the sponsor should limit deal talk to the 45. If 20% of them invest at $50,000 each, that is 45 x 0.20 = 9 investors and 9 x $50,000 = $450,000. The 75 recent contacts are not yet people the sponsor can pitch the deal to under that path, and posting the deal for them to see risks the exemption.

Under 506(c), the sponsor can speak to all 120 and the broader public, but each buyer must be accredited and verified. If the same 20% of 120 invest at $50,000, that is 24 investors and $1,200,000, though verification then becomes the bottleneck. The 506(c) path scales reach, while the 506(b) path scales trust.

The point is not which path is better. It is that the list, the content and the exemption have to match each other before the first message goes out.

What happens if you get it wrong?

If a 506(b) offering is found to have used general solicitation, the exemption may be lost for that offering. The issuer could then be treated as having sold unregistered securities. Section 12(a)(1) of the Securities Act (15 U.S.C. 77l) gives buyers in an unlawful offering a rescission remedy, and regulators may also take an interest. Whether and how that applies depends on the facts, so ask counsel.

Sponsors who start marketing publicly sometimes try to switch to 506(c) mid-raise. Whether that works depends on what was said, to whom, and who has already invested. That is a legal question to settle before the first post, not after.

Antifraud rules apply no matter which path you pick. Public statements in a 506(c) raise still need to be accurate and supportable, as 15 U.S.C. 77r preserves state antifraud authority even for covered securities. Our post on what creators can say about a real estate deal gives practical wording ideas.

How do you decide which path to take?

Choose by looking at who your investors will be and how you will reach them. This is a short checklist.

Who is on your list today? If most of them are people you know, 506(b) may fit.
Do you want to post, speak or advertise about this deal? If yes, plan for 506(c).
Will any investor be non-accredited? If yes, only 506(b) can accommodate them, and only with added disclosure.
Are you willing to verify accredited status? 506(c) requires it. See accredited investor verification.
Do you have a record of when each relationship began? Without it, 506(b) outreach is hard to defend.

Our full comparison is in 506(b) vs 506(c).

Our take

Our take: for sponsors with a public audience, 506(c) is usually the cleaner choice, because it removes the guessing about the relationship test. For sponsors who raise only from people they know, 506(b) fits and avoids the verification step.

We think the worst outcome is the in-between one: posting a deal publicly, raising under 506(b), and hoping nobody asks. The rules reward deciding first and documenting the decision.

We also think sponsors should treat their social accounts as part of the offering file. Save what you posted and when, and make sure it matches the offering documents.

Trade-offs and who this is not for

Staying quiet protects 506(b), but it limits your reach and slows your fundraising. Going public under 506(c) expands your reach but limits who can invest and adds paperwork.

Not for sponsors with a large, anonymous audience who want non-accredited investors. The two goals conflict under federal rules.
Not for sponsors who cannot control their team's posting. One enthusiastic post by a partner or agent can undo a 506(b) plan.
Not for sponsors who want certainty from a blog post. Facts decide these questions, and this is general information.

A common mistake is assuming a password makes a deal room private. A room open only to people you have a relationship with is different from one anyone can register for, and the second is a gray area. Ask counsel how your platform is set up.

How DoorRaise fits in

DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from people who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services, not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent. We do not give legal advice about what counts as general solicitation, so that stays with your attorney.

The $500 setup fee, due when the raise opens, covers forming the deal's LLC, investor documents from attorney-approved templates, an escrow account in the deal's name, the deal page, and accreditation checks on every investor. The $5,000 closing fee, paid from the funds raised and only if the deal closes, covers attorney review of the offering documents and the Form D filing. The $3,500 yearly fee covers bookkeeping, the tax return and K-1s while you own the property. We take 0% of the raise or profits.

Ready to raise? Create your free sponsor page or see pricing.

FAQ

Is a LinkedIn post general solicitation?

It can be, if it offers or describes a specific securities offering to a public audience. Posts about your company in general are less risky, but ask your attorney before you publish.

Can I post about a deal if I only invite accredited investors?

In a 506(b) raise, not by public post, even if you only want accredited investors. In a 506(c) raise you can, as long as you verify accredited status.

Is a password-protected deal room general solicitation?

A room open only to people you already have a relationship with is not. A room anyone can sign up for is a gray area, so ask counsel.

Does Form D count as general solicitation?

No. Rule 502(c) says a good-faith Form D filing under Rule 503 is not general solicitation.

Can I tell people I am "working on a deal" without naming it?

Some general statements are lower risk than a specific offer, but the line depends on what is said and how it points to a live offering. Ask your attorney for your exact wording.

Does general solicitation apply if the raise is small?

Yes. Rule 506 has no minimum size, and the Rule 502(c) condition applies to 506(b) raises of any amount.

Sources

This article is general information, not legal, tax or investment advice. Talk to a securities attorney before marketing any offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.