Equity Call

Last Updated: Jun 7, 2019

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A legal right which permits a company to require its investors to pledge a certain amount of stock or any other security representing an ownership interest to the company.

Also used in lending where a provision of the loan agreement requires a company's owners to invest additional capital if certain provisions are not met. The provisions involved may include, but are not limited to: failure to maintain a minimum debt to equity ratio, losses exceed a maximum permitted amount, or cash flows fall below a minimum threshold.

Equity calls may also be established as a way for a borrower to avoid default if specified financial covenant requirements are not met through operating performance. In this case the lender may permit a company to remain in compliance with covenant requirements if ownership invests additional equity, when combined with operating performance, would allow the company to meet the covenant requirement.