Capital Call: A Comprehensive Guide to Its Legal Meaning and Use

Definition & Meaning

A capital call is a formal request made by a firm, organization, or insurance company to its investors, asking them to provide the funds they previously committed. This process is also referred to as a "draw down." When investors agree to invest in a capital call fund, they commit to providing a certain amount of money. The capital call is the actual transfer of those promised funds to the investment target. The terms of the capital call are typically outlined in a capital call agreement.

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Legal Use & context

Capital calls are commonly used in investment and finance law. They are particularly relevant in private equity, venture capital, and real estate investment contexts. Legal professionals may encounter capital calls when drafting agreements, managing investor relations, or resolving disputes regarding funding obligations. Users can manage some aspects of capital calls using legal templates from US Legal Forms, which are crafted by experienced attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A private equity firm raises a fund and secures commitments from several investors totaling $100 million. When the firm identifies an investment opportunity, it issues a capital call for $10 million, requesting each investor to contribute their proportionate share.

Example 2: A real estate investment trust (REIT) may issue a capital call to fund the purchase of a new property, asking investors to fulfill their commitments as outlined in their agreements. (hypothetical example)

State-by-state differences

Examples of state differences (not exhaustive):

State	Capital Call Regulations
California	Requires detailed disclosures in capital call agreements.
New York	Has specific rules regarding the timing and manner of capital calls.
Texas	Allows more flexibility in the capital call process.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition	Difference
Capital Call	A request for funds from investors based on prior commitments.	Specific to investment commitments.
Draw Down	The act of accessing committed funds.	Often used interchangeably with capital call.
Subscription Agreement	A contract between an investor and a fund.	Defines the terms of investment, including capital calls.

Common misunderstandings

What to do if this term applies to you

If you receive a capital call, review your capital call agreement to understand your obligations. Ensure you have the necessary funds available to meet the request. If you have questions or concerns, consider consulting a legal professional. Additionally, you can explore US Legal Forms for templates that may assist you in managing your investment commitments effectively.

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Quick facts

Typical fees: Varies by fund.
Jurisdiction: Varies by state and fund structure.
Possible penalties: Failure to respond to a capital call can result in loss of investment rights.