On October 19, the law firm A&O Shearman published its reading of five notices the SEC issued on September 30. Each asks whether a credential such as a CPA license, a CFA charter or a new FINRA exam should make an individual an accredited investor. Comments are due December 4, 2026, according to the notice in the Federal Register, and nothing has changed yet. For a sponsor, the practical question is where such a change would land first. The answer is the subscription agreement every investor signs before money moves.
A subscription agreement is the contract through which an investor offers to buy an interest in a deal and the sponsor decides whether to accept. It is also where a private offering's exemption becomes a record for each investor. The questionnaire, the representations and the verification evidence attached to it show why that person was allowed in. A sponsor that builds the document around its offering track and rereads it before every raise keeps that record in good order. The standards behind each test are set out in the guide to accredited investor verification under 506(c).
What a Subscription Agreement Does in a Real Estate Raise
Most real estate offerings give investors three documents. The private placement memorandum describes the deal and its risks. The operating agreement or limited partnership agreement sets the rights of owners once they are in. The subscription agreement records the purchase itself, and it is where the investor confirms having read the private placement memorandum. Its usual terms name the amount, explain how funds are wired, let the sponsor accept or reject a subscription and appoint the manager to sign the governing agreement.
The investor's side of the contract is a set of representations. The investor states that it is buying for its own account rather than for resale. It confirms that the interest has not been registered under the Securities Act of 1933 and cannot be freely transferred. It also states that it can bear the loss of its entire investment. Those statements matter because a private offering depends on facts about each buyer, and if an exemption is ever questioned, this signed record is the first document anyone asks for.
The Accredited Investor Questionnaire Inside the Subscription Agreement
The questionnaire attached to most subscription agreements follows Rule 501(a), the SEC's definition of an accredited investor. An individual qualifies with net worth above $1 million, alone or with a spouse or spousal equivalent, excluding the primary residence. An individual also qualifies with income above $200,000 in each of the two most recent years, or $300,000 jointly, and a reasonable expectation of the same this year. Entities have their own boxes. A trust with total assets above $5 million qualifies when a sophisticated person directs the purchase, and so does an entity whose equity owners are all accredited.
A further category, Rule 501(a)(10), covers professional credentials the SEC designates. Only three have been designated so far, the Series 7, Series 65 and Series 82 licenses, which the SEC named in 2020. The September 30 notices would add a FINRA accredited investor exam, the CPA license, the CFA charter and the CFP certification. They would also add the Series 79, 86 and 87 licenses, each held in good standing. If any is adopted, a questionnaire written for today's list will offer no box for it, which is where a sponsor's documents would first fall behind the rule.
How Rule 506(b) and Rule 506(c) Change the Subscription Agreement
Under Rule 506(b), a sponsor may sell to accredited investors and to no more than 35 other purchasers in any 90 calendar day period. Each of those other purchasers, alone or with a representative, must be able to evaluate the merits and risks. The questionnaire therefore does two jobs in a 506(b) deal. It records accredited status, and for everyone else it captures the experience that supports the sponsor's view of their sophistication.
Rule 506(c) works differently because it permits general solicitation and requires every purchaser to be accredited. The sponsor must take reasonable steps to verify that status. In the 2013 release that created the rule, the SEC said a checked box in a questionnaire or a signed form is not enough on its own. In a 506(c) raise, the questionnaire is a starting point. The verification evidence filed with it is what carries the weight.
The rule lists methods a sponsor may use. It can review IRS forms showing income for the two most recent years, or account statements dated within the prior three months plus a consumer report. It can also rely on a written confirmation from a registered broker dealer, an SEC registered investment adviser, a licensed attorney or a CPA, given within three months of their check. For an investor it already verified, a new written representation at the time of sale works for five years. The SEC staff no action letter of March 12, 2025 described one more route, pairing written representations with a minimum investment amount the letter set out.
Regulation S Certifications, Tax Forms and Screening
When a raise also takes investors outside the United States under Regulation S, the subscription agreement carries a separate set of promises. Equity of a U.S. company falls in Category 3, where Rule 903 requires each purchaser to certify that it is not a U.S. person and is not buying for one. The purchaser also agrees to resell only under Regulation S, registration or an exemption, and not to hedge unless the Securities Act allows it. The securities carry a legend, and the issuer must refuse to register any transfer that breaks those terms. A one year distribution compliance period applies, and the guide to Regulation S offerings explains how that track runs beside a domestic raise.
Tax documentation travels in the same packet. U.S. investors give Form W-9, which supplies a correct taxpayer identification number to the party that files information returns. Investors outside the United States give Form W-8BEN as individuals or Form W-8BEN-E as entities. The IRS says foreign entities use the second form to document their status under chapters 3 and 4 of the tax code. Collecting the right form at subscription, not when the first distribution is due, keeps the year end reporting in the guide to Forms 8804, 8805 and 1042-S on schedule.
Two more checks belong in the same file. Rule 506(d) removes the exemption if a covered person has a disqualifying event. Covered persons include any beneficial owner of 20 percent or more of the issuer's outstanding voting equity, measured by voting power. A questionnaire for a larger investor therefore needs to ask about that investor's own history. Sanctions are the other check, because the Treasury's Office of Foreign Assets Control says all U.S. persons must comply, including every U.S. incorporated entity, so screening investor names falls to the sponsor.
What Sponsors Can Do Before the Next Raise
The practical work is to treat the subscription agreement as part of the offering design, not a form carried over from the last deal. Before launch, you can confirm with securities counsel which track each investor will use. Each track then gets its own questionnaire and representations, so a 506(c) file holds verification evidence and a Regulation S file holds the offshore certification. You can check that the accredited investor categories match Rule 501(a) on the day of each sale, and watch for final action on the SEC's notices after December 4. Collecting tax forms and screening names during subscription means one record carries each investor from signature to the first K-1 or Form 1042-S.
Raveum offers sponsors an investment management platform, fund administration, a global raise track under Regulation S and an operating partnership for selected sponsors. U.S. investors come in under Rule 506(c) and receive K-1s, while offshore investors invest through a U.S. C corporation blocker whose dividends Raveum reports on Form 1042-S, and sponsors keep their investor relationships, property and business plan. See how the Raveum Sponsor Program works.
Why the Subscription Agreement Deserves a Fresh Read
The SEC's notices may or may not become final, and December 4 is only one step. What they show is how much of a private raise rests on a document many sponsors treat as boilerplate. Every exemption a sponsor relies on is tested one investor at a time. The subscription agreement, with its questionnaire, verification and certifications, is the evidence for each of them. Reading it against the current rules before every raise keeps that evidence current, and the 506(c) verification guide sets out the standard the file has to meet.
Frequently Asked Questions
What Is a Subscription Agreement in Real Estate?
A subscription agreement in real estate is the contract an investor signs to buy an interest in a private offering, such as LLC or partnership units. It records the amount, the investor's representations about eligibility and risk, and the sponsor's right to accept or reject the subscription. It sits alongside the private placement memorandum and the operating or partnership agreement.
What Is the Difference Between a Subscription Agreement and an Operating Agreement?
The subscription agreement governs the purchase, meaning who is buying, how much, and what the investor confirms about eligibility and risk. The operating agreement, or the limited partnership agreement in a partnership, governs ownership after the subscription is accepted, including management, distributions, transfers and voting. Many subscription agreements appoint the manager to sign the operating agreement for the investor once the subscription is accepted.
How Does a Subscription Agreement Work in a Limited Partnership?
In a limited partnership, the investor completes the subscription agreement and questionnaire, provides tax forms and verification where required, and funds the commitment. Once the general partner accepts the subscription, the investor is admitted as a limited partner under the partnership agreement. Because a partnership issues Schedule K-1s, the tax details collected at subscription feed directly into each year's reporting.
Is Checking a Box Enough to Verify an Accredited Investor Under 506(c)?
No. In its 2013 release adopting Rule 506(c), the SEC said an issuer has not taken reasonable steps if it only asks a person to check a box or sign a form, absent other information. A sponsor can add income or net worth documents, a written confirmation from a licensed professional, or another method its securities counsel approves for the deal.
Can Subscription Documents Be Signed Electronically?
Generally yes. The federal Electronic Signatures in Global and National Commerce Act provides that a contract relating to a transaction in interstate or foreign commerce may not be denied legal effect solely because an electronic signature or record was used to form it. A sponsor still keeps the signed record, verification evidence and tax forms together, and counsel should confirm any state or foreign rules for particular investors.
When Should a Sponsor Have Counsel Review Its Subscription Agreement?
Before every new offering, and whenever the offering track or the rules change. A document written for a Rule 506(b) deal will not hold the verification steps a 506(c) raise needs or the certifications Regulation S requires. If the SEC acts on its September 30 accredited investor notices after the December 4, 2026 comment deadline, the questionnaire categories will need updating as well.
This article is for general education only and is not legal, tax or investment advice. Securities and tax rules change and depend on each sponsor's facts, so work with qualified securities counsel and tax advisors before launching an offering. Real estate investments involve risk, including loss of capital, illiquidity and changes in property values. Offerings on Raveum are available to eligible investors only and are not open to the general public.
