Optima Law Group Blog

Raising Private Funding From Those You Know Got Easier This Year!

A recent amendment to Federal Rule 504 of Regulation D that went into effect in January of this year allows companies to offer up to $5,000,000 in securities in a 12-month period, a big increase from the previous $1,000,000 limitation. The new amendment also subjects the issuers (the company seeking investment) of the offering to the bad actor disqualifications of Federal Rule 506.


Rule 504 has many benefits which include:

- Requiring less disclosures about the company to the purchaser, which can be costly and burdensome for a small business. Companies are still required to comply with antifraud regulations of federal securities laws.

- Investors do not need to be accredited (i.e. wealthy). This is important because often times start-ups acquire initial funding from friends and family.

- No limit on the number of investors, which enables many people to contribute only a relatively small amount. Let’s face it, most of our friends and family want to be able to help but they often do not have large disposable sums of money to invest, which is why this is so beneficial.

- Generally, the offering will be exempt from registration with the U.S. Securities and Exchange Commission (SEC) as long as the issuer is not a “blank check” company, does not advertise or solicit the offering to the public, the amount of the securities sold in the offering does not exceed the $5,000,000 cap, and the issuer is not disqualified pursuant to the bad actor disqualifications of Rule 506.

Although Rule 504 has many benefits such as a less rigorous disclosure requirements and the ability to source non-accredited investors, it has been very limiting in the past due to the $1,000,000 offering cap, and thus, it is often overlooked by companies who favor another exemption such as Rule 506 which has no dollar maximum. This new amendment should prove to be a valuable resource and enable start-ups and small business to have more flexibility when it comes to raising capital, while also offering increased protection to non-accredited investors due to the change in legislation which forces issuers to be subjected to the bad actor disqualifications of Rule 506.

For more information on the SEC amended Rule 504 of Regulation D under the Securities Act of 1933 please visit this website:


In addition to Rule 504 which is federal law, be mindful that each state involved will have its own laws and regulations that will also apply. We assist ventures comply with all applicable securities laws – on the federal and state level.


If you have any questions about raising capital, please do not hesitate to reach to us. We would love to hear from you by telephone at 858-964-4697, or by e-mail at either tom@optimalawgroup.com or paul@optimalawgroup.com.


So You Want To Raise Private Funding? Dos and Don’ts


1. Your research (on your customers, types of private funding, investors, etc.).

2. Get to know your target audience first and get feedback from them. Be prepared for and open to criticism. Listen, then revise and improve your product again and again. Learn to anticipate what questions your target audience will ask you and proactively address them to remove the roadblocks keeping them from investing, one by one.

3. Make a complete business plan including an over-estimate of the capital you will need, hypothetical problems that can arise and how you have anticipated them and will resolve them.

4. Invest in yourself. Investors will want to see that you believe in yourself and your product – if not, why should they take a chance on you?

5. Make sure you are complying with state and federal securities laws as to not put your company in jeopardy and not scare off investors (look like you have been here before).

6. Solicit friends, family & coworkers and consider nontraditional techniques such as crowdfunding, but beware of disclosing too much information with this latter option which can put your product/idea at risk (other sources include banks, grants, venture capital, and angel investors). Consult with your attorney about the funding avenues available to you based on your specific situation and needs.



7. Be unorganized – recruit a great Board, have a structured team and make sure your corporate documents and minutes are orderly.

8. Begin with fully developing your product before you know what your target audience wants. You don’t want to financially strap your company before it’s even up and running.

9. Forget to hire an experienced attorney. There are a lot of rules and regulations that must be complied with during the startup and fund raising process, by consulting an attorney, you can avoid legal issues and focus on other business logistics.

10. Enter into agreements you do not understand or engage in “handshake deals” (oral agreements). Another reason it is especially important to hire an attorney and discuss with them, as agreements can be very complex.

11. Ask for investment from people you do not have an existing relationship with or use the internet to solicit investment, unless your attorney says it is okay.

12. Fail to raise enough money, understand your burn rate (how quickly you burn through cash), or move quickly enough to raise your next round of funding.  If you wait too long for the next round, you will be at a serious disadvantage with the next group of investors.


If you have any questions about raising capital, please do not hesitate to reach to us. We would love to hear from you at 858-964-4697 or info@optimalawgroup.com.

A Dynamic Patent System

The patent system is continually evolving both in the US and internationally. There have been a few notable Supreme Court cases as well as proposed legislation this year which have changed or may influence the dynamic patent system landscape:

1. TC Heartland v. Kraft Foods – In this case, the Supreme Court upended a rule enforced for 27 years which enabled plaintiffs (with an emphasis on patent trolls) to pick court venues that favor them.  In the case of patent trolls, this is the court in an Eastern district of Texas. Now plaintiffs are required to file patent suits in the city where the defendant is incorporated or “where it has committed acts of infringement and has a regular and established place of business”. This new reform should help to keep patent trolls and their bullying at bay or will it? What exactly is a “regular and established place of business”? In the past it would have probably meant a city where the company owns property and runs business operations, but today’s definition isn’t so clear – what about online retailers like Amazon who have a global presence and operate all over?


2. Impression Products, Inc. v. Lexmark International, Inc. – Lexmark sued Impression Products for infringing on their patent rights by providing a toner refill service for customers of Lexmark patented toner cartridges and offering a cheaper price than Lexmark, which requires its customers to buy new toner cartridge replacements. The Supreme Court in this case, held that once a product is sold, the seller exhausts all patent rights that they may have had in that product. Although this ruling is consistent with past patent practice, it does raise questions regarding ever evolving technology and blurs the line for deciding what constitutes patent and copyright infringement. Once a consumer purchases a product, it is up to the owner to decide if he or she wants to modify it, sell it, etc., but what happens when you purchase patented products with copyrighted material such as apps or software? Is it patent or copyright infringement to resell the product? These types of scenarios will only become more numerous and complex with the advancement of technology.


3. AstraZeneca AB v. Apotex Corp. – Just recently Apotex Corp, in a patent litigation battle with AstraZeneca, argued that AstraZeneca’s Nexium product should be invalidated due to Canadian patent law and the Promise Doctrine, which allows for the utility of an invention to be challenged should any of the claims that the initial patent discloses fail to be demonstrated in the actual invention. The Canadian Supreme Court ruled that the Promise Doctrine goes too far. The ruling has had mixed reactions. Proponents of enforcing the Promise Doctrine are angry that inventors can patent inventions whether they adhere to the claims they make or not. They argue that it is good for global pharmaceutical and technology companies who are already patent holders, but not so great for innovation and small startups, especially those located in Canada. A Canadian survey (http://www.crai.com/sites/default/files/publications/The-impact-of-IP-and-the-promise-doctrine-on-pharmaceutical-RD-activity.pdf?utm_campaign=Subscribe) done last year, shows that lower levels of research and development investment in Canada can be attributed to the Promise Doctrine. Opponents of the Canadian Supreme Court’s ruling contend that this decision will boost Canada’s economy and should attract foreign investors, who prior to the ruling, weren’t confident in investing in companies that could potentially be subjected to the country’s Promise Doctrine.


4. Stronger Patents Act of 2017 (read about the bill here: http://www.ipwatchdog.com/wp-content/uploads/2017/06/STRONGER-Patents-2017.pdf) – A bill proposed to Congress this year that, if enacted, will mostly amend both inter partes review and post grant review proceedings at the Patent Trial and Appeal Board. Advocates of the bill assert that our current patent system is steadily weakening and is set up to favor large corporations and foreign companies. They claim that the bill will promote and reward innovation which will create more jobs and keep investments in the U. S., protect smaller companies and entrepreneurs, and boost the economy. According to the U.S. Chamber of Commerce, the U. S. fell to the 10th spot on a list that ranked the strength of patent systems around the globe. On the flip side, others claim that this bill would perpetuate the validity of bad patents by stripping inter partes review of its ability to invalidate patents that don’t do what they claim, allow patent trolls to keep bullying companies, and move research and development overseas.

This is but a small sample from the ever-changing patent universe.  It is critical that patent applicants and holders stay on top of these changes.  Today’s strategies may need major revisions based on tomorrow’s legislative changes and court rulings.  The complexity is ratcheted up for those clients who file internationally. 

If you have any questions about your patent or intellectual property needs, please do not hesitate to reach to us. We would love to hear from you at 858-964-4697 or info@optimalawgroup.com.


A patent troll is an individual or company that obtains patent rights of inventions, not for the purposes of using them, but strictly to sue allegedly infringing companies for monetary compensation. Patent trolls usually obtain patent rights by acquiring patents from bankrupt companies which are then added to their growing portfolios. They do not offer goods or services, or add anything tangible to the economy – their only intent is to seek out and bring lawsuits against potential infringers.

Fortunately, the US Supreme Court recently put restrictions on where patent lawsuits can be filed, which overturned 27 years of patent infringement law. It was found that more than 40% of all patent lawsuits are filed in a court located in Marshall, in the Eastern District of Texas, as they are known to favor plaintiffs bringing infringement suits. The recent US Supreme Court ruling upheld by unanimous decision, requires that all patent lawsuits be filed in the city where the defendant is incorporated or where it “has committed acts of infringement and has a regular and established place of business”. This requirement should make it harder for patent trolls to win cases and settlements, while also significantly reducing the amount of lawsuits brought on by patent trolls in the first place. It also frees the defendant from necessarily having to travel to another state to engage in legal proceedings, which may not be a significant for large companies, but can be costly and detrimental for smaller businesses who usually settle out of court because they cannot afford the large financial burden of litigation.

With this reform, the so-called “Forum Shopping” in patent litigation, should come to an end, although patent trolls will do anything in their power to stay in their favored venue as shown last week when patent troll Uniloc filed a complaint desperately trying to link Google to Texas in order to keep their ongoing case grounded in the widely known plaintiff-favored jurisdiction. Although the new restrictions may not completely eradicate patent trolls and their attempts at bullying companies, it certainly should lower their chances of successful suits and deter them from filing to begin with.


If you have any questions about your patent or intellectual property needs, please do not hesitate to reach to us. We would love to hear from you at 858-964-4697 or info@optimalawgroup.com.

Corporate Maintenance: I Incorporated – Now What?

Congratulations on making it through tax season! Just like filing taxes each year, there are other things required annually if you have a corporate entity, in addition to the standard tasks that must be completed initially after incorporating. You may think that after the entity is formed, everything is complete – this is not the case. Generally, it is advised that a corporation do the following after its initial formation:

1.       Conduct business as a corporate entity which means to reflect the corporation’s full legal name,       address and telephone number on invoices, correspondence and letterhead, signage, listings, lease agreements, etc.

2.       Check to see if local business licenses are required where you are doing business (E.g. city, county, etc.).

3.       Make required annual state filings and pay associated annual state fees (note: California also requires a filing within 90 days of incorporation).

4.       Hold, at least, annual meetings of the shareholders and meetings of the board of directors, and properly document these meetings.

5.       When offering, issuing, or selling securities be aware of and adhere to federal and state securities laws, especially given the broad definition of a security.

6.       Protect the corporation's valuable patent, trademark and trade name assets by taking the necessary steps to prevent against loss through improper timing, usage and infringement. This can be registering your corporation’s name or logo with the USPTO for example, or requiring employees to sign agreements guaranteeing the safekeeping of trade secrets, confidential information and ownership of intellectual property.

7.       Obtain appropriate insurance to match your business activities.

8.       Comply with local zoning laws.

9.       Acquire health, police, and fire permits, if applicable.

10.   Register the corporation with the Securities and Exchange Commission ("SEC") if you choose to raise capital, and then complete the necessary filings (blue sky, etc.) before or immediately after the first sale (as required by the states involved).

11.   Create an Equity Incentive Plan for employees in the form of stock options, if applicable.

12.   Establish and execute agreements such as employment agreements, board of directors agreements, advisory agreements, consulting agreements, confidentiality agreements, license agreements and the like.

13.   Document the corporation’s debt or expense obligations. Make the balance sheet, income statement, and a statement of changes in financial position for the fiscal year, etc., available for inspection, if required.

14.   Keep personal and business finances independent of one another at inception as well as moving forward. This starts by opening a bank account solely for the corporation. “Piercing the corporate veil” is legal slang to describe a situation when an entity’s legal existence is ignored because the owners neglected to treat the corporation as a true and separate entity (E.g. keep their personal expenses and finances separate from the corporation’s). This can be problematic because if a business comes up short and cannot pay their creditors due to the owners using the entity’s money to pay personal expenses, the creditors could be entitled to go after the owners directly.

That was just a summary of some of the numerous responsibilities a newly formed corporation must be cognizant of! As previously mentioned, annual maintenance, by way of annual “minutes” (described below) and annual state filings, must be done for a corporation in order to keep it in good standing. In order to stay compliant with federal and state laws, a business must ensure its maintenance for the duration of the entity’s life. Each year (depending on the state of incorporation), corporations must make an informational filing with its state of incorporation. This must be done regardless of whether there were any changes or not, and includes general information such as the names and addresses of corporate directors and officers, etc. Annual corporate maintenance requirements vary by state, but California law, for example, requires shareholders meet at least annually to vote on electing directors and discuss other key business decisions. A record, listing the issues that were presented and voted on during the meeting – known as “minutes” – must be documented and kept on file, and then certified by the secretary. This not only catalogs the results and decisions made during the meeting, it also serves as evidence that the meeting took place should compliance ever be questioned.

Although it is extremely important that a corporation comply with the annual requirements in a complete and timely manner, attending to this sort of maintenance can easily be overlooked or inconvenient to businesses. For these reasons, many of our clients prefer to hire our Firm to maintain their companies’ corporate records.  We offer a program of standard maintenance to keep your corporation compliant for a flat fee, which includes:

1.       Annual state informational filing in the state of incorporation, as needed;

2.       Preparation of standard minutes for one annual meeting of the shareholders, or an action by written consent in lieu of one annual meeting of the shareholders;

3.       Preparation of standard minutes or consents for one additional shareholders meeting, upon client’s request;

4.       Preparation of standard minutes for one annual meeting of the board of directors, or an action by written consent in lieu of one annual meeting of the board of directors; and

5.       Preparation of standard minutes or consents for one additional board of directors meeting, upon client’s request.

If you are interested in having us maintain your corporate records, please contact us, as we would be happy to answer any questions you may have. We can even catch you up if you are several years behind.

Please contact us at 858-964-4697 or info@optimalawgroup.com.

Suggested article for additional information: https://smallbiztrends.com/2011/06/corporation-llc-in-compliance.html