SEC 'Reasonable Steps': What Rule 506(c) Asks Issuers to Consider

When you raise money under Rule 506(c), you can market your offering to the public. In return, you must take “reasonable steps to verify” that each investor is accredited. Our easy guide to accredited investor verification under Rule 506(c) covers the full process.

That sounds simple. It is not always easy to apply.

This post explains what the SEC means by “reasonable steps.” It also shows where the rules are flexible and where issuers often go wrong.

What Does the SEC Mean by “Reasonable Steps”?

Rule 506(b) is the private route. The company needs a “reasonable belief” that an investor is accredited. That depends on two things:

• The company’s relationship with the investor.
• What the company knows about the investor.

Rule 506(c) asks for more. The company must take “reasonable steps to verify” that each investor is accredited.

The SEC does not give a fixed checklist. It uses a flexible method based on principles. You must make an objective decision about whether your steps are reasonable. That decision depends on the facts of each investor and each deal.

What the SEC Says to Consider

The SEC says a company should consider factors like these:

1. Who the investor is. This means the type of investor and how they say they qualify. A person who qualifies on income is different from an entity that qualifies on assets. Retirement accounts like SDIRAs and Solo 401(k)s add more layers.
2. What you already know. This is the amount and type of information you have about the investor.
3. The offering itself. This includes how the investor found you. It also includes the terms of the deal, such as a minimum investment.

Put simply: who the investor is, what you know, how they found you, and how much they are investing. Each one can change how much verification is reasonable.

Verification Methods the SEC Lists

Rule 506(c) also lists some methods you may use. You do not have to use them. The list is not complete, so other methods can work too. But these methods can give you more certainty.

1. Income. Review IRS forms that show income. Examples are a W-2, a 1099, a Schedule K-1 of Form 1065, or a Form 1040.
2. Net worth. Review documents dated within the last three months. Examples are bank statements, brokerage statements, certificates of deposit, tax assessments, and a credit report from a nationwide consumer reporting agency. You also need a written statement from the investor.
3. A letter from a professional. The letter can come from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a CPA. It must say that, within the last three months, they took reasonable steps to verify the investor. It must also say they decided the investor is accredited.
4. A past verification. Say you already took reasonable steps to verify an investor. You know of nothing that says otherwise. Then a written statement from the investor at the time of sale can meet the rule for five years from the first verification.

Each method has trade-offs. They affect the investor experience, privacy, and your workload. CPA letters have their own benefits and limits too.

The 2025 Minimum Investment Guidance

In March 2025, SEC staff issued a no-action letter. It describes another way to meet the standard.

An issuer may reasonably conclude it took reasonable steps if all of these are true:

• The investor commits a high minimum investment. That is $200,000 for individuals and $1,000,000 for legal entities.
• The investor gives written statements. These include that the investor is accredited and that no third party is specifically financing the minimum investment.
• The issuer has no actual knowledge of facts that contradict those statements.

This is staff guidance with specific conditions, so the no-action letter is not a blanket exception.

Where Issuers Often Go Wrong

Trying is not the same as taking reasonable steps. Common mistakes include:

• Relying on a checkbox. The SEC says self-certification alone, such as checking a box, is not enough. That is true when the company knows nothing else about the investor’s finances or sophistication. Subscription agreement statements help with onboarding, but they do not replace verification.
• Using old net-worth documents. The SEC’s net-worth method calls for documents dated within the last three months.
• Accepting weak letters. If you rely on the SEC’s professional-letter method, the letter must come from a listed professional. It must say they took reasonable steps within the last three months and decided the investor is accredited. Any letter or report should be clear about what was reviewed and when. A vague or templated letter does not do that.
• Skipping debts. Net worth is assets minus debts. The SEC’s list includes a credit report. Account statements alone do not show the full picture.

These are only a few of the most common mistakes issuers make.

One Size Does Not Fit All

The standard depends on the facts of each investor and each offering. So a process that works for one issuer may not fit another.

For example, a platform with thousands of investors may automate its review. A fund raising from ten LPs it knows well may set up its process differently. Both still must take reasonable steps. The SEC expects you to match your process to the situation.

Where Third-Party Verification Fits

Many issuers use a third-party provider to review documents and keep records. This can cut manual work and build a stronger audit trail.

The SEC’s list names letters from specific licensed professionals. If you use a provider, check three things:

1. How it reviews documents.
2. What its letter or report says it confirms, and when.
3. Whether its records help you show your steps were reasonable.

Many issuers use a third-party provider to review documents and keep records. This can cut manual work and build a stronger audit trail.

Pro Tip: Document Your Process

The SEC does not set a format for records. But reasonableness depends on the facts. So your records are your best proof of what you did and why. Good habits include:

• Keeping timestamped records of how and when you verified each investor.
• Saving proof that the investor agreed to share financial information.
• Keeping audit logs, especially if you use a platform.

Together, these habits make your recordkeeping easier to review later

Final Takeaways for 506(c) Issuers

• “Reasonable steps” is flexible, but it is not optional.
• The SEC’s list of methods is not complete. It can give you more certainty, but it is not the only route.
• A checkbox alone is not enough.
• Match your process to the investor and the offering. Think about who they are, what you know, how they found you, and the deal terms.
• Record what you did and why.

Verification does not have to slow down your raise. When you know what the SEC asks you to consider, you can build it into your workflow with confidence.

Source: U.S. Securities and Exchange Commission, Assessing Accredited Investors under Regulation D. This article is general information for issuers. It is not legal advice. Talk to securities counsel about your offering.If you rely on the SEC’s professional-letter method, the letter must come from a listed professional. It must say they took reasonable steps within the last three months and decided the investor is accredited. Any letter or report should be clear about what was reviewed and when. A vague or templated letter does not do that.