USA: offering property tokens under Rule 506 and Regulation Crowdfunding

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Kooky

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A sponsor who divides an interest in a building into digital tokens and sells them to investors in the United States meets a practical question long before the first token moves: under which set of federal rules is the sale made? The Securities and Exchange Commission, the federal regulator, publishes pages for small businesses on what it calls exempt offerings, meaning sales of securities made without registering them with the Commission. Each exemption has its own conditions about who may buy, how the offering may be advertised, what is filed and what the buyer may do with the security afterwards.

This guide starts where the question of whether a token is a security ends. It takes the answer as given and follows the offering itself, under three federal routes that the Commission describes: Rule 506(b) and Rule 506(c) of Regulation D, and Regulation Crowdfunding. For each it sets out the amount that can be raised, the investors who can take part, the limits on what one person can invest, the forms and deadlines, and the limits on resale. It ends with what Commission staff and one Commissioner have said in writing about tokenised securities. Every rule here is federal; the Commission's pages add that state authorities keep some powers, described below.

Electronic Code of Federal Regulations, 17 CFR 227.100, current to 5 October 2026; Securities and Exchange Commission page on Rule 506(b), reviewed 21 September 2026.

Why a token changes nothing about the route

The starting point is a sentence from a statement that Commissioner Hester M. Peirce published on 9 July 2025: "Tokenized securities are still securities." The statement says that recording a security on a blockchain does not alter the nature of the underlying asset, and that the people who distribute, buy or trade such instruments have to consider the federal securities laws. The same legal requirements apply, it says, whether an instrument sits on a ledger or off it.

For a property sponsor, the consequence is that there is no separate federal exemption written for tokens. The offering uses the same rules as an offering of paper certificates or book entries in the same interest.

One limit of this guide needs stating at once. Regulation A, a further exemption that the Commission's own page on Rule 506(b) refers to, could not be read from a primary page during the research for this article, so its ceilings and conditions are not set out here. The comparison that follows covers the three routes that were verified.

Rule 506(b): the private placement without advertising

According to the Commission's page on Rule 506(b), reviewed on 21 September 2026, an offering under this rule can raise an unlimited amount of money and can be sold to an unlimited number of accredited investors. The price of that freedom is silence in public. The page states that the company may not use general solicitation or advertising to market the securities. How a particular communication is classed depends on its facts, and the page does not draw that line in detail.

Rule 506(b) also admits a small number of buyers who are not accredited. The page puts the ceiling at 35 non-accredited investors in any 90-calendar-day period. Each of them, alone or together with a purchaser representative, must have enough knowledge and experience in financial and business matters to be able to evaluate the merits and risks of the investment.

Admitting even one such buyer changes the paperwork. The Commission says the company must give non-accredited investors disclosure documents that generally contain the same type of information as is provided in Regulation A offerings, together with the financial statement information that Rule 506 specifies. Accredited investors do not have to receive those documents. There is, however, a levelling rule: any information the company does hand to accredited investors must also be made available to the non-accredited ones.

A short worked example shows how the count runs. Assume a sponsor sells tokens in one building to 60 accredited investors and 20 non-accredited investors within a 90-day period. The 60 are within the rule, since the number of accredited buyers is unlimited. The 20 are within the ceiling of 35, leaving room for 15 more in that period, provided each meets the knowledge and experience test and receives the disclosure documents.

Rule 506(c): advertising allowed, accredited buyers only

Rule 506(c) reverses the bargain. The Commission's page on it, reviewed on 17 March 2026, says the rule permits issuers to broadly solicit and generally advertise an offering. A tokenised property offering under this rule may therefore be promoted in public.

Two conditions come with that permission. First, all purchasers must be accredited investors; there is no allowance of 35 others. Second, the issuer must take reasonable steps to verify that each purchaser is accredited. The duty falls on the issuer. The page adds that certain other conditions of Regulation D must also be met. It does not list the methods of verification that count as reasonable, and this guide does not supply them from elsewhere.

The two versions of the rule share their remaining features. Under both, according to the Commission's pages, the purchasers receive what the pages call restricted securities. Under both, the company files a notice with the Commission on Form D within 15 days after the first sale of securities in the offering. Under both, the offering is subject to what the Commission calls bad actor disqualification provisions. And under both, federal law pre-empts state registration and qualification of the offering, although the pages state that the states keep authority to require notice filings and to collect fees.

Who counts as an accredited investor

Because Rule 506(c) is closed to everyone else and Rule 506(b) rations everyone else, the definition of an accredited investor decides who can buy most privately placed property tokens. The Commission's page on accredited investors, reviewed on 24 April 2026, lists the tests.

For an individual there are two financial tests, and meeting one is enough. The first is net worth: more than US$1,000,000, counted alone or jointly with a spouse or partner, and leaving out the value of the person's primary residence. The second is income: more than US$200,000 alone, or more than US$300,000 with a spouse or partner, in each of the prior two years, with a reasonable expectation of the same level in the current year.

As a worked example of the home exclusion, assume a couple own a home worth US$900,000 with no mortgage and hold US$400,000 in savings and investments. Their total assets are US$1,300,000, but with the primary residence left out the figure counted is US$400,000, which is below the threshold. Unless their income meets the second test, they are not accredited on these figures.

The page also lists routes that have nothing to do with wealth. Investment professionals in good standing who hold the Series 7, Series 65 or Series 82 licence qualify. So do the directors, executive officers and general partners of the company that is selling the securities. A family client of a qualifying family office qualifies, and for investments in a private fund, so do the fund's knowledgeable employees.

Entities have their own list. According to the same page it includes entities that own investments in excess of US$5,000,000; corporations, partnerships, limited liability companies, trusts, charitable organisations and employee benefit plans with assets above US$5,000,000; entities whose equity owners are all accredited investors; registered investment advisers and broker-dealers; and financial institutions such as banks, insurance companies and registered investment companies.

Regulation Crowdfunding: the route open to everyone

Regulation Crowdfunding is the exemption designed for sales to the general public in small amounts. The Commission's page describes it in three points: a company may raise up to US$5,000,000 in total through crowdfunding offerings in a 12-month period; all transactions must take place online through an intermediary registered with the Commission, either a broker-dealer or a funding portal; and securities bought this way generally cannot be resold for one year.

The text of the regulation, at 17 CFR part 227 in the Electronic Code of Federal Regulations, current to 5 October 2026, is more exact. Section 227.100 caps the issuer's sales under section 4(a)(6) of the Securities Act at US$5,000,000 in any 12-month period, and the count includes the offering under way. As a worked example, a sponsor that sold US$3,200,000 of tokens under the exemption in March could sell no more than US$1,800,000 under it during the rest of that 12-month period.

The same section requires the offering to be conducted through a registered broker or funding portal, exclusively on that intermediary's platform, and allows the issuer only one intermediary for the offering.

Some issuers cannot use the exemption at all. Section 227.100 excludes an issuer that is not organised under the laws of a state or territory of the United States or the District of Columbia; one that already reports under the Securities Exchange Act; an investment company, or a company excluded from that definition by sections 3(b) or 3(c) of the Investment Company Act; an issuer disqualified under the regulation's own disqualification rule; one that sold under the exemption before and did not file the annual reports due in the two years before its new offering statement; and one that has no specific business plan, or whose plan is to merge with or acquire an unidentified company. Whether a vehicle holding one or several buildings falls within the investment company exclusion depends on how it is built, and the regulation does not answer that for property in particular.

How much one crowdfunding investor may put in

Accredited investors are not limited in what they may invest under Regulation Crowdfunding. Everyone else has a personal ceiling, which section 227.100 sets across all crowdfunding offerings, by all issuers, in a 12-month period.

The rule has two branches. If either the investor's annual income or net worth is below US$124,000, the limit is the greater of US$2,500 or 5% of the greater of the two figures. If both annual income and net worth are at or above US$124,000, the limit is 10% of the greater of the two, and never more than US$124,000. Spouses may calculate their income and net worth jointly, but then their combined investment cannot exceed the limit that would apply to one individual at that level.

The third line shows that a high income does not open the 10% branch by itself: one figure below US$124,000 keeps the investor on the 5% branch. The ceiling of US$124,000 starts to bind when the greater of the two figures passes US$1,240,000, since 10% of that sum is US$124,000.

Form C: what the issuer puts on the record

The disclosure document of a crowdfunding offering is Form C, which section 227.203 requires to be filed before the offering begins. Section 227.201 lists what it contains. The list covers the issuer's identity, its directors and officers and anyone who owns 20% or more of it; a description of the business and the business plan, and the number of employees; and the material risk factors. It covers the target amount, the deadline for reaching it, whether more than the target will be accepted, and the intended use of the money. It covers the price, the capital structure and how the securities have been valued; the name of the intermediary and what it is paid; the issuer's debts, its exempt offerings of the past three years and its transactions with related parties; and a discussion of its financial condition.

The financial statements that go with the form depend on size, measured as the amount sold under the exemption in the previous 12 months plus the amount now offered. Section 227.201(t) sets three levels.

• US$124,000 or less. Figures from the issuer's income tax return (total income, taxable income and total tax) and financial statements, both certified by the principal executive officer.
• More than US$124,000 and up to US$618,000. Financial statements reviewed by an independent public accountant.
• More than US$618,000. Audited financial statements. An issuer that has never sold under the exemption before may instead provide reviewed statements for an offering of more than US$618,000 and up to US$1,235,000.

As a worked example, assume a sponsor with no earlier crowdfunding sale offers US$900,000 of tokens in a building. The amount is above US$618,000 and within US$1,235,000, and the issuer is a first-time user, so reviewed statements are permitted. If the same sponsor came back within 12 months to offer a further US$900,000, the total would be US$1,800,000 and the first-time allowance would no longer apply: audited statements would be required.

From first notice to closing

Regulation Crowdfunding regulates the calendar of the sale as closely as its content. The sequence below follows sections 227.203, 227.206, 227.303 and 227.304.

The first stage comes before filing. Section 227.206 lets an issuer sound out interest, but any such communication must say that no money is being solicited, that an indication of interest carries no obligation, that no purchase can be accepted until the offering statement is filed, and that purchases can be made only through an intermediary's platform.

Advertising is limited once the offering is live. Under section 227.204 an issuer generally may not advertise the terms of the offering, apart from a notice with limited content: a statement that the offering is being made under section 4(a)(6), the name of the intermediary and a link to its platform; the terms themselves; and basic facts about the issuer, such as its name, address and a brief description of the business. The regulation defines the terms as the amount, the nature of the securities, the price, the closing date, the planned use of the proceeds and the progress towards the target.

If something material changes during the offering, the issuer files an amendment on Form C/A, and investors must reconfirm their commitments within five business days. An issuer that reaches its target early may close early, but only if the offering has been open for at least 21 days, the new deadline falls at least five business days after notice is given, and the target is still met at that new deadline. In the US$900,000 example above, Form C-U would be due within five business days of commitments reaching US$450,000, and again within five business days of reaching US$900,000. Where the intermediary itself posts frequent public updates on progress, the regulation asks only for the final update.

After the sale: resale limits and annual reports

What the investor can do with a property token after buying it depends on the exemption it was sold under, not on what the software allows.

For Rule 506, the Commission's pages say only that purchasers receive restricted securities, a term the pages do not unpack. For Regulation Crowdfunding, the regulation ties the one-year limit to exceptions in a section that was not read for this article.

A crowdfunding issuer also keeps reporting. Section 227.202 requires an annual report on Form C-AR no later than 120 days after the end of the fiscal year. For an issuer whose fiscal year ends on 31 December, 120 days later is 30 April in a year that is not a leap year.

The duty lasts until one of five events. The issuer becomes a reporting company under the Securities Exchange Act; or it has filed at least one annual report since its most recent crowdfunding sale and has fewer than 300 holders of record; or it has filed annual reports for the three most recent years and has total assets of US$10,000,000 or less; or all the securities sold under the exemption have been repurchased or redeemed; or the issuer liquidates or dissolves under state law. An issuer that becomes eligible to stop files Form C-TR within five business days.

What Commission staff have said about token offerings

On 10 April 2025 the staff of the Commission's Division of Corporation Finance published a statement titled "Offerings and Registrations of Securities in the Crypto Asset Markets". It gives the Division's views on how existing disclosure requirements apply to offerings of securities in those markets. The forms it addresses include registration forms such as Form S-1 and Form 10, Form 20-F for foreign private issuers, and Form 1-A, which it describes as the form for offerings exempt from registration under Regulation A.

The statement goes through the parts of a disclosure document and names topics for each. In the description of the business: the stage the project has reached, how it earns revenue, its milestones, the network or application it relies on, the roles of the participants, how upgrades are made, and the security measures and governance. In the risk factors: risks tied to the features of the security, price volatility, the rights of holders, valuation and liquidity, technology and cybersecurity, reliance on other networks, and legal and regulatory matters. In the description of the securities: the rights and preferences of holders, how those rights are transferred and whether they can be modified; technical specifications such as wallets, transfer fees, divisibility and any third-party security audits; and the rules on supply, including how tokens are created or destroyed and any vesting.

Two further points bear on tokenised property. The staff says disclosure about management extends to sponsors or third parties who perform management-type functions, and to the fees paid to them. And where the holder's rights are written into smart contracts or other code, the staff says filings may include that code as an exhibit, updated as the code changes.

The statement's own description of its status is short. It says it "has no legal force or effect", that it is not a rule, regulation or guidance of the Commission, and that it creates no new or additional obligations for anyone. It adds that scaled disclosure may be available to issuers, and that the staff welcomes questions and requests for interpretive or no-action letters.

Commissioner Peirce's statement of 9 July 2025, which is a Commissioner's statement and not a staff one, refers distributors of tokenised securities to that staff text when they weigh their disclosure obligations. It also describes a different structure: a party unaffiliated with the issuer that holds securities and issues its own tokens tied to them. Buyers of such tokens, it says, may face risks of their own, counterparty risk among them, and depending on the facts the token may be a receipt for a security, which is itself a security, or a security-based swap. The statement says firms designing tokenisation products should consider meeting the Commission and its staff, and that the Commission is willing to craft exemptions and modernise rules where a technology warrants it.

An exemption decides who may be approached, how much they may invest and what must be filed. The token only records the result.

What the sources leave open

Four points could not be settled from the pages read for this guide.

Regulation A is the largest. Its ceilings, conditions and continuing reports were not verified from a primary page, and nothing here describes them beyond what the staff statement and the Rule 506(b) page say in passing.

The second is resale: the conditions for reselling restricted securities and the exceptions to the one-year crowdfunding rule were not read, so the rules of a secondary market in property tokens are outside this guide. The third is the states. Which of them ask for notice filings and fees in a Rule 506 offering was not researched, and the position for Regulation Crowdfunding was not stated on the Commission's summary page.

The last is date. The Commission's summary page on Regulation Crowdfunding was last reviewed on 24 April 2025, and the dollar thresholds in this guide come from the regulation's text as shown in the Electronic Code of Federal Regulations, current to 5 October 2026.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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