How to Turn a Self-Drafted PPM Into a 506(b) Offering in 2026
by Raises.com
This article is general information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.
A self-drafted PPM becomes a compliant Rule 506(b) offering when it is audited against the rule, every promise made in conversation is written down, and no money moves until the structure exists. The last of those three costs nothing. Compliance is cheap before capital moves and expensive after it.
A homemade PPM, a decade-old community and terms nobody had named
Dr. Roberta Hoskie, founder of RH Legacy Partners, LLC, worked with Raises.com® on the fund behind her modular affordable housing in Pennsylvania. She arrived with a PPM she had drafted herself, return tiers she had improvised, and a decade-old community of women investors she had trained, most of them not accredited. "I'm not an attorney," she said on the first substantive call.
She had also invented a return schedule without knowing its name. The schedule offered 10% a year on $10,000, 12% on $20,000, and 12% plus a 10% share of net profit on $50,000, with capital held three years. That is a preferred return with a hurdle. She had built it correctly by instinct.
What Rule 506(b) asks of an offering with non-accredited investors
Rule 506(b) allows an unlimited number of accredited investors and up to 35 non-accredited investors, and it forbids general solicitation. Dr. Hoskie already knew that cap. The rest of the rule is where a self-drafted PPM gets checked.
Under Rule 502(b), every non-accredited investor must receive specified disclosure a reasonable time before the sale, including financial statement information, and must be able to ask questions. Under Rule 506(b)(2)(ii), each of them must also be sophisticated, alone or with a purchaser representative. That is what a homemade PPM gets rewritten against.
The no-solicitation rule matters just as much for a community raise. The SEC's staff has long treated a pre-existing, substantive relationship with each investor as evidence that an offering was not generally solicited. Document those relationships before the raise, investor by investor.
1. Name the exemption once, in every document
The package Raises.com® built for her was standardized on Rule 506(b) across every document after an initial 506(c) draft, so the non-accredited tranche was properly supported rather than retrofitted. One document still saying 506(c) is a contradiction. Search the whole set for the other rule's language.
The bigger decision was sequence. A first 506(b) tranche admits the community and funds the proof-of-concept project, and a separate vehicle for accredited investors, with marketing permitted, follows once the prototype stands. Her community gets in first, and the fund still scales.
2. Turn every promise made in conversation into a written term
The tiers she had offered verbally belong in the operating agreement and the disclosure, because terms offered in conversation are securities terms whether or not anyone calls them that. One investor tier was owed an additional 2%. That promise became a written ROI agreement amendment instead of a memory.
List every number you have said out loud to a prospective investor: a rate, a hold period, a profit share, a minimum. Each one goes into the PPM, the operating agreement or a signed amendment. A rate left in a text thread invites a dispute.
3. Check each non-accredited investor before you take the subscription
Every non-accredited investor needs a file showing sophistication under Rule 506(b)(2)(ii), alone or with a purchaser representative, and a record of how you knew them before the offering. The file is per person, never per community. Accredited investors sign their own questionnaire, and institutional buyers sign one that carries KYC and anti-money-laundering disclosure.
Then run the Rule 506(d) bad actor check on yourself and every other covered person, because one disqualifying event takes the exemption away. Write down when you ran it.
4. Get counsel's opinion on the documents investors sign
The documents investors sign carry the most risk, so hers went to outside securities counsel for review: the subscription agreement, the LLC agreement and both investor questionnaires. Sponsors fixate on the PPM because it is the thickest. Every investor signs the subscription agreement, so that one has to be right. Get the opinion's scope in writing.
5. Certify the cap table against the signed subscriptions
A cap table records who owns which units on which terms. With three return tiers and an amendment owed to one of them, an unchecked spreadsheet is where a payout dispute starts. Hers was prepared and certified alongside the document set. Certify yours against the signed subscription agreements, so every payout traces to a signature.
6. Put each project in its own SPV, then take the money in order
Each project gets its own special purpose vehicle, beginning with an Altoona, Pennsylvania SPV for her first project, so one project's risk and its investors stay ring-fenced from the next. That first project is ten modular homes at roughly $1.5M in total project cost. It is deliberately small. It exists to prove the concept.
The order of signatures matters as much as the documents. An investor reads the PPM, signs the questionnaire that fits their status, then signs the subscription agreement. Only then does the sponsor open the fund bank account under the vehicle, get the EIN and take the capital. Form D goes to the SEC within 15 days of the first sale.
Why she waited, and why you should
"I want to do it the right way," she said in June 2026. She had verbal commitments in hand and a project waiting on them, and she still did not take the money. Her words for the goal were "total compliance". Holding the money back is what kept her there.
As it was put to her on a later call, the moment you take money from an investor is the moment you start to owe them money on their returns. A sponsor who takes community money first and builds the structure afterwards is unwinding a completed securities offering. One who waits is simply getting organized.
That advice only works when the advisor says the unwelcome part out loud. Hannah Dowty, founder of Sovereignty Enterprise, worked with Raises.com® and said the team will always be honest with you, setting appropriate expectations rather than overselling. A PPM audit needs that posture. The useful answer sends your draft back for a rewrite.
A self-drafted PPM vs the finished 506(b) package
| Item | Where she started | What the finished package has |
|---|---|---|
| Vehicle | None that could legally accept money | RHLP LLC as the fund entity, Delaware recommended, and a separate SPV per project |
| Offering documents | A PPM she drafted herself; a subscription agreement still to be written | Six documents: PPM, subscription agreement, operating agreement, accredited investor questionnaire, qualified institutional buyer questionnaire, operating company equity purchase agreement |
| Return promises | Tiers and an extra 2% offered in conversation | A written ROI agreement amendment for the tier owed the extra 2% |
| Review | Her own, as a non-attorney | Counsel's review of the subscription agreement, the LLC agreement and both questionnaires |
| Ownership record | Verbal commitments | A certified cap table |
| Money | None taken | Taken only after disclosure, questionnaire and subscription, into the vehicle's own account |
| Filing | None yet | Form D filed with the SEC |
Frequently asked questions
Can I write my own PPM?
You can draft one. It becomes a usable 506(b) disclosure document only after it covers what Rule 502(b) requires for non-accredited investors and counsel has reviewed what investors sign.
How many non-accredited investors can be in a 506(b) offering?
Up to 35, alongside an unlimited number of accredited investors, under Rule 506(b). Each non-accredited investor must be sophisticated, alone or with a purchaser representative, and must receive the disclosure Rule 502(b) requires.
What does a legal opinion cover on a 506(b) offering?
It covers what counsel actually reviewed. Ask which documents are on the list. For RH Legacy Partners, that list was the subscription agreement, the LLC agreement and both investor questionnaires.
When is Form D due for a 506(b) offering?
Within 15 days of the first sale, filed with the SEC. States can also require a notice filing for a Rule 506 offering, so check each state where an investor lives.
Do I need a separate SPV for each project?
No rule requires it, but a separate SPV per project keeps one project's problem away from the next project's investors. RH Legacy Partners starts with an Altoona SPV.
Raises.com® builds the structure, meaning the PPM, subscription and operating agreements, CFA financial proformas and data room, so the raise is legally and financially sound. See how acquisition capital gets structured at https://raises.com/buy-a-business, or book a strategy call at https://raises.com/call.
General information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.