Before a startup in Maryland or DC approaches investors, five things should already be in order: the Regulation D exemption the offering will rely on (Rule 506(b) or 506(c)), the corporate approvals and financing documents that match the structure you are actually using, the accredited-investor review your exemption requires, the Form D and state notice filings that follow your first sale, and a cap table clean enough to survive diligence. This is a readiness checklist, not a cost guide or a pitch. Almost all of this work can be finished before an investor is in the room, on your own timeline, and it gets more expensive to fix once one is. The mistakes that stall a round are the ones a founder discovers during diligence, when a missing signature or an unfiled election is no longer cheap to correct. What follows is the work to complete first, in a sensible order.
Raising capital into an operating company is different from forming a pooled investment vehicle. This article addresses the company-side process: SAFEs, convertible notes, preferred-stock financings, Regulation D, investor eligibility, state notice filings, and cap-table readiness. It does not address private investment fund formation or fund-manager regulation.
For what outside counsel does in this region, see the local service guide; for how to choose counsel, see the selection-criteria article. Our capital formation practice and outside general counsel practice pages cover the scope.
Which Regulation D exemption fits your raise, 506(b) or 506(c)?
Many early-stage private raises rely on one of two exemptions inside Regulation D: Rule 506(b) or Rule 506(c). Both let you raise an unlimited dollar amount from accredited investors without registering the offering with the SEC. The difference is who else can invest, whether you can advertise, and how you confirm an investor is accredited.
Under Rule 506(b), you can raise from an unlimited number of accredited investors and no more than 35 non-accredited purchasers in any 90-calendar-day period, counted under Regulation D's purchaser-counting rules. Accredited investors do not count toward that 35. The tradeoff is no general solicitation, and if any non-accredited purchaser participates, you must furnish that purchaser the specified disclosure and financial information Regulation D requires. You do not owe accredited investors that prescribed package, but any material written information you give an accredited investor must also be made available to the non-accredited purchasers. Under Rule 506(c), you can take accredited investors only, you can advertise the raise publicly, and in exchange you must take reasonable steps to verify accredited status rather than accept an investor's word for it.
The practical comparison founders decide on:
| Question | Rule 506(b) | Rule 506(c) |
|---|---|---|
| Who can invest? | Unlimited accredited, plus no more than 35 non-accredited purchasers in any 90-day period | Accredited investors only |
| Can you advertise the raise? | No general solicitation | General solicitation permitted |
| Confirming accredited status | Reasonable belief on the facts; a questionnaire alone may not be enough | Reasonable steps to verify; documentation or qualifying third-party confirmation |
| If a non-accredited purchaser participates | Must furnish the specified information under Regulation D; preparation burden rises | Not applicable, accredited only |
| Common founder fit | A quiet round from investors you already know | A publicly marketed, accredited-only round |
The line that trips founders is general solicitation. Choose the offering pathway and solicitation plan before making offers or beginning fundraising outreach. Public marketing, whether an unrestricted public pitch, a public post describing the offering, or a demo day that does not meet the applicable conditions, can make Rule 506(b) unavailable unless an exclusion or safe harbor covers the communication. The SEC's general solicitation guidance and its Rule 148 safe harbor treat certain demo-day communications as outside general solicitation when the sponsor, the advertising, and what you say on stage meet the rule's conditions. The analysis is fact-specific, and other pathways such as 506(c), Regulation Crowdfunding, and Regulation A carry their own requirements.
How do you confirm an investor is accredited, and what does verification actually mean?
An accredited investor, under SEC Rule 501(a), is broadly an individual with net worth over $1 million excluding their primary residence, or income over $200,000 individually (or $300,000 with a spouse or spousal equivalent) in each of the two most recent years, or a holder of certain licenses in good standing such as the Series 7, 65, or 82. The SEC's page on accredited investors carries the full definition, and its guidance on assessing accredited investors under Regulation D walks through how to evaluate status.
The distinction founders miss is between confirming and verifying. Under 506(b), you need a reasonable belief, based on the facts, that an investor is accredited. Under 506(c), you must take reasonable steps to verify. SEC staff guidance is direct on one point: self-certification alone, without other knowledge about the investor, may be insufficient under either standard. A checked box on a questionnaire, by itself, does not necessarily carry the reasonable-belief test for 506(b) or the verification requirement for 506(c). A questionnaire is evidence, not a conclusion.
Rule 506(c) lists non-exclusive verification methods: reviewing specified financial information, such as recent tax filings for income or a net-worth review for the wealth test, or obtaining written confirmation from a licensed attorney, certified public accountant, registered broker-dealer, or SEC-registered investment adviser. Qualifying third-party confirmation can satisfy the standard without requiring you to store an investor's sensitive financial records, a privacy and data-security risk worth weighing before you ask for raw tax returns or bank statements. Keep a verification record appropriate to the method you used.
What documents do you actually need? It depends on the structure.
There is no single document set for a company-side raise. What you need follows the financing structure you choose, and the difference between a SAFE round and a priced preferred round is substantial.
| Financing structure | Typical core documents |
|---|---|
| SAFE round | SAFE, board approval, cap-table update, and applicable investor representations |
| Convertible-note round | Note, note purchase agreement, board approval, and any applicable security documents |
| Priced preferred-stock round | Stock purchase agreement, amended charter, investor-rights agreement, voting agreement, ROFR and co-sale agreement, board approvals, and stockholder approvals as applicable |
| Private placement using a subscription process | Offering materials appropriate to the facts, subscription agreement, investor questionnaire, and required corporate approvals |
A few points founders get wrong often enough to name. A private placement memorandum is not universally required by Regulation D. When a non-accredited purchaser participates in a Rule 506(b) offering, the specified information requirements must be satisfied through a PPM or another compliant disclosure package, but an accredited-only round does not carry that prescribed obligation. The absence of a PPM never eliminates the federal anti-fraud rules: if you tell an investor something material that is wrong, or omit something material, the missing document does not protect you.
Two more distinctions matter. A term sheet summarizes the proposed business terms; it is not a substitute for the definitive financing and governance documents the transaction requires, and treating a signed term sheet as if the round were papered is a common miscalculation. And private securities are generally restricted securities that may also carry contractual transfer restrictions. Do not loosely call ordinary transfer restrictions "lock-ups" unless the document actually creates one.
When do you file Form D, and what do Maryland and DC require?
Fifteen calendar days. That is the federal deadline: Form D must be filed with the SEC through EDGAR within 15 days after your first sale of securities under Regulation D. The clock starts on the date the first investor is irrevocably committed, not the day funds arrive, and founders routinely miscount from the wire. If the fifteenth day falls on a weekend or federal holiday, it moves to the next business day.
A late Form D does not automatically destroy your Rule 506 exemption, because filing the form is not a condition of the exemption. A late filing can still produce federal and state compliance consequences and, in more serious circumstances, affect an issuer's future ability to rely on Regulation D. The appropriate response is to file in good faith as soon as practicable, not to assume the exemption has automatically disappeared or to treat the deadline as optional.
Form D is federal, but it is not the whole obligation. Because Rule 506 offerings are covered securities under Section 18 of the Securities Act, states cannot subject them to merit review or full registration, but they retain the authority to require a notice filing and a fee. Maryland and DC each require their own notice filing when you sell to an investor located there:
- Maryland. The notice goes to the Maryland Securities Division, generally within 15 days after the first sale in Maryland. The current Maryland Securities Division fee schedule lists a $100 Rule 506 notice-filing fee and a $150 late fee (current as of July 2026; confirm the fee and deadline when filing).
- Washington, DC. The District's Department of Insurance, Securities and Banking requires a Form D notice, a $250 filing fee (current as of July 2026), and a cover letter containing the information DISB identifies, including the date of the first sale in DC and the number and category of DC investors. The filing is due within 15 days after the first sale in DC. DISB accepts filings through the NASAA Electronic Filing Depository, which may charge its own system-use fee.
State notice obligations ordinarily follow the jurisdictions where offers or sales occur and where purchasers reside, and the specifics depend on the facts. Sales to investors in Virginia or other states may create additional notice filings, so if you raise from more than one jurisdiction, track the filings as a set.
Have you screened for bad actors before relying on Rule 506?
Both Rule 506(b) and Rule 506(c) are subject to the Rule 506(d) bad-actor disqualification. Before you rely on the exemption, identify and screen your covered persons: the company's directors, executive officers and other officers participating in the offering, general partners or managing members, beneficial owners of 20 percent or more of your voting equity, promoters, and anyone you compensate for soliciting investors. A disqualifying event in a covered person's history, such as certain criminal convictions or securities-related court or regulatory orders, can disqualify your reliance on Rule 506 absent an applicable exception, a waiver, or the reasonable-care protection for events you neither knew of nor could have found through reasonable care. Certain events predating September 23, 2013 may trigger disclosure to investors rather than automatic disqualification. The founder-facing point is simple: screen your covered persons before the offering, not after diligence surfaces a problem.
Are you paying someone to bring you investors?
Paying transaction-based compensation to a person who solicits or introduces investors can create broker-dealer registration issues under the Securities Exchange Act. The label does not settle it: calling someone a "finder," an "advisor," or a "consultant" does not determine the answer. What matters is what the person actually does, whether they solicit or negotiate, and how they are paid, particularly compensation tied to the success or size of the raise. The SEC's Guide to Broker-Dealer Registration lays out the analysis. Paying an unregistered person a percentage of what they raise is a common, avoidable mistake, so put this on the pre-offering checklist.
What cap table red flags will investors find in diligence?
The cap table is where preparation quietly pays off or quietly costs you. Four issues surface again and again in diligence, each easier to address before a raise than during one. Run this list before an investor asks:
- Missing or incomplete founder vesting. A four-year vesting schedule with a one-year cliff is a common venture-market structure, not a legal requirement. What matters in diligence is whether the arrangement is documented, and the fix depends on what was actually authorized and executed. If founder vesting was never put in place, do not treat it as a retroactive administrative correction. The company should work with corporate and tax counsel to decide whether founders should enter into prospective vesting or repurchase arrangements before the financing, a process that can require investigation, negotiated agreements, appropriate consideration, corporate approvals, and tax analysis.
- No repurchase rights on unvested equity. If a co-founder or early employee leaves, the company needs a documented right to repurchase their unvested shares. Without it, a departed founder can stay on the cap table indefinitely, holding equity the company cannot recover. Investors look for this, because dead equity is a governance problem they would inherit.
- Unsigned or unfiled 83(b) elections. Covered in detail below. For the checklist: confirm every founder who received substantially nonvested stock filed an 83(b) election within the applicable 30-day window. A missed election is a personal tax problem for the founder and a signal about the company's paperwork discipline.
- Stacked SAFEs and notes with overlapping caps. If you raised on multiple SAFEs or convertible notes with different valuation caps and discount rates, they do not convert equally at a priced round. Generally, all else equal, the instrument with the lowest cap converts on the most favorable terms and takes the largest share, but the outcome depends on the instrument form, whether a SAFE is pre-money or post-money, the cap and discount mechanics, and any most-favored-nation or pro-rata rights. Reconcile every instrument, document its terms, and model the conversion before an investor models it for you.
Timing matters here too. Start the cap table cleanup 60 to 90 days before you expect a term sheet: once an investor is engaged, missing signatures and unresolved conversion terms stop being housekeeping and become deal friction that can stall or reprice a round.
Why is the 83(b) election a hard 30-day deadline?
The 83(b) deadline runs from the transfer of substantially nonvested property in connection with services, not from a generic "grant." An ordinary option grant is not itself the property transfer; an early exercise of options into substantially nonvested stock, or a direct issuance of restricted stock, is the event that starts the clock. Under Section 83(b), the holder may elect to include in income at the time of transfer the excess of the stock's fair market value, determined without regard to lapse restrictions, over the amount paid for it, rather than recognizing income as the stock vests. For early-stage founder stock purchased at its then-current fair market value, that taxable spread may be zero or relatively small. The election also begins the holding period at the time of transfer, which can allow later appreciation to receive capital-gain treatment upon a qualifying disposition.
The mechanics worth getting right: the election must generally be filed within 30 days after the transfer. The IRS now provides Form 15620 for the election, and a compliant written statement in the traditional format remains permitted; a copy goes to the service recipient as applicable. The election does not automatically convert all later appreciation into long-term capital gain; the applicable holding period must still be satisfied, so a sale before it is met still produces short-term gain on the post-election appreciation. A missed election generally has no simple late-filing remedy. This is general information, not individualized tax advice. File within the window and keep proof of filing and delivery.
Pre-Offering Readiness Checklist
Run this before you approach investors:
- Name the project. Confirm you are raising into your company, not forming a fund, so you prepare the right documents.
- Choose the offering pathway and solicitation plan. Settle 506(b) versus 506(c) before making offers or beginning fundraising outreach. Public marketing can make Rule 506(b) unavailable, while qualifying communications and other offering pathways require their own analysis.
- Match documents to structure. Assemble the core documents for your SAFE, note, priced round, or subscription process, not a generic template set.
- Set your accredited-investor method. Decide how you will form a reasonable belief or take reasonable steps to verify, and keep an appropriate verification record without over-collecting sensitive data.
- Screen Rule 506(d) covered persons. Run a bad-actor check on directors, officers, 20 percent owners, promoters, and paid solicitors before you rely on the exemption.
- Check anyone you pay to introduce investors. Confirm transaction-based compensation will not trigger broker-dealer registration issues.
- Run the four cap table red flags. Address vesting, repurchase rights, 83(b) status, and stacked-SAFE conversion, working with counsel where an arrangement has to be negotiated.
- Calendar the filings. Set the 15-day Form D clock and each Maryland, DC, or other state notice filing from the commitment date.
- Start 60 to 90 days out. Give the cleanup runway before a term sheet compresses the timeline, and handle the time-sensitive, hard-to-correct items first.
Closing Perspective
What I keep coming back to is that almost all of this is work you can finish before anyone is watching, and that is exactly why founders skip it. The exemption choice, the financing documents, the accredited-investor review, the Form D calendar, the vesting and 83(b) paperwork: none of it requires an investor in the room, and none of it gets cheaper once one arrives. The founders who move fastest through a raise tend to have the most boring binders, everything signed, filed, and reconciled before the term sheet landed, so diligence confirms what they said instead of uncovering what they missed.
Not every item is equal, so handle the time-sensitive, hard-to-correct ones first. A missed 83(b) election ordinarily has no simple late-filing remedy, so its 30-day window is the hardest deadline on the list. Missing or never-adopted founder vesting is a different kind of problem: it can often be addressed, but only through the prospective, counsel-driven path described above, not a same-day fix. Name who owns each filing, give the cleanup its runway, and let the investor find a company that already did the work.
This article is for general informational purposes only and is not legal or tax advice. Reading it, contacting Consilium Law, or submitting information through this website does not create an attorney-client relationship, which is formed only after Consilium Law confirms an engagement in writing. Consilium Law practices in Maryland and the District of Columbia; matters governed by the law of Virginia or another jurisdiction may require counsel admitted there or coordinated co-counsel. Securities and tax outcomes depend on facts this article does not know, and every company's situation is different, so consult qualified counsel admitted in the applicable jurisdiction before acting on anything discussed here.
