27 Apr Capital Call

Capital Call

A capital call is a demand made by a company for payment of an amount an investor has committed to pay in a capital agreement. Capital calls are common in investment funds such as a venture capital funds and private equity funds. Typically, each investor in the fund subscribes to the fund by committing to contribute a certain total amount of capital on an as-needed basis. The fund manager uses capital calls on an as-needed basis to pool the funds needed for specific investments and to meet obligations of the fund such as expenses and fees. A capital call is usually made formally in writing. Non-investment companies can provide for the right of the company to make capital calls in certain circumstances. For instance, in a limited liability company, if the company experiences a capital shortfall is not able to meet its commitments, the limited liability company operating agreement may provide that the company can call on existing members to make additional contributions to the company. Members can typically elect not to commit funds, but the operating agreement may provide for consequences for failure to meet a capital call including reduction in capital account and force sales of membership interests.