A capital commitment is the total dollar amount a limited partner contractually agrees to contribute to a fund over its life — most of it not paid up front, but drawn down later through a series of capital calls as the general partner finds deals to fund.
Committing capital to a fund’s limited partnership interest is itself a purchase of a security, so it needs a prospectus exemption under NI 45-106. Most individual investors rely on the accredited investor tests: financial assets “before taxes but net of any related liabilities” exceeding $1,000,000 alone or with a spouse, or $5,000,000 alone; net income exceeding $200,000 in each of the two most recent years ($300,000 combined with a spouse), reasonably expected to continue; or net assets of at least $5,000,000. In Ontario, several of those categories come from the Securities Act (Ontario) rather than the national instrument itself, so the exact test an Ontario investor relies on can differ from the rest of the country.
An entity making the commitment — a family holding company rather than an individual — can instead rely on the minimum amount exemption, available where the purchaser “is not an individual,” buys as principal, and the commitment is at least $150,000 to a single issuer. The commitment itself is recorded in a subscription agreement — one of the CVCA-published, ILPA-based model documents Canadian funds use — which is the contract a capital call later draws against.
An individual investor wants to commit $2 million to a fund’s newest vehicle. Because the minimum amount exemption is not available to an individual purchasing as principal, they instead rely on the accredited investor test, showing $1.3 million of financial assets in a taxable brokerage account, net of a $150,000 investment loan against it — clearing the $1,000,000 threshold. A family holding company making the identical $2 million commitment could instead use the minimum amount exemption directly, since it is not an individual and the commitment clears the $150,000 floor without needing to show any net worth at all.
See also: Capital call · Carried interest · Cutting the turnaround time on quarterly LP reports.
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