In brief
In a real estate project abroad with several investors, the shareholders' or partnership agreement should set out in advance how much each investor commits to invest, how and when the developer calls for money, what happens to anyone who does not transfer on time, what reporting the investors receive and how often, and in what order the money returns to them. Mechanisms written in advance prevent disputes, but they do not replace the Securities Law: raising money from investors in Israel must be done within the exemptions from a prospectus, and the reporting itself must not promise a return.
Key takeaways
- 1Distinguish between a capital commitment (the maximum amount each investor has committed to) and a capital call (the actual demand to transfer part of it).
- 2A good capital call is a written notice setting out the amount, the purpose, the date, each investor's share and the balance remaining of the commitment.
- 3The remedies against an investor who has not transferred, such as dilution, a priority loan or suspension of rights, should be written into the agreement and aligned with local company law.
- 4Orderly quarterly reporting includes budget versus actual, timetable, sales, financing and risks. Annual reporting is based on the company's financial statements.
- 5The distribution waterfall sets the order in which money returns: usually return of capital, then a preferred return if agreed, and only then a split of profit between the investors and the developer.
The moment a developer raises investors for a project is only the beginning. From here begins a period of two to five years in which the developer needs to ask for money in stages, report on progress and explain overruns, and the investors need to know what is happening with their money. When these mechanisms are not written in advance, every capital call and every quarterly report turns into a negotiation.
This guide deals with the mechanics: capital commitments, capital calls, remedies against those who do not transfer, reporting and the distribution waterfall. It complements the guide to the founders' agreement, which deals with decision-making, deadlock and exit, and the guide to raising money from Israelis, which deals with the Securities Law.
What is the difference between a capital commitment and a capital call?
A capital commitment is the maximum amount an investor commits to provide to the project. A capital call is the actual demand to transfer part of that amount, when the project needs it. The separation allows the developer not to hold surplus money in the company's account before it is needed, and allows the investor to know the cap on their exposure.
In a development project, equity is usually required in several stages: acquiring the land, design and permits, the equity the bank requires before it makes a loan available, and, in the event of an overrun, covering costs. The agreement should set out whether the commitment is a fixed amount, whether there is an additional commitment for overruns and up to what cap, and whether an investor may refuse an additional investment beyond the original commitment.
A clause that says “the partners will transfer funds according to the project's needs”, without a cap, deters good investors and does not give the developer a real enforcement tool. It is better to set a cap, and alongside it an agreed mechanism for the case where the project needs more: a shareholder loan, preferred equity or bringing in a new investor.
What should a capital call notice include?
A capital call notice is a document an investor should understand without asking questions. The Institutional Limited Partners Association, ILPA, which publishes reporting templates for private investment funds, recommends attaching to the notice a cover letter, a description of the transaction and accounting data in a uniform format. ILPA published an updated version of the capital call and distribution template on 11 September 2025. A single real estate project is not a fund, but the logic is the same, so it is worth defining in the agreement the minimum content of each notice:
- The total amount of the call and each investor's share according to their commitment percentage.
- The purpose: what the money will be used for, and under which budget line.
- The transfer date, the account details and the currency of the transfer.
- The amount of the commitment already transferred and the remaining balance.
- If the call arises from a budget overrun: an explanation of the overrun and of the approval given for it under the agreement.
- Who approved the call and by what majority, if the agreement requires approval.
The agreement should also set the minimum period between the notice and the transfer date, the method of delivery (for example, email to the address each investor provided), and the exchange rate when the investors transfer in shekels and the company needs euros.
What happens when an investor does not transfer their share?
The answer should be written in advance, and in stages. Usually the agreement first gives a short cure period after a notice of default, and only after it is one of the remedies triggered. In the guide to the founders' agreement we set out the options; here we focus on what needs to be checked in each of them.
| Remedy | How it works | What to check |
|---|---|---|
| Dilution | The investors who transferred receive additional shares or rights, and the defaulter's share shrinks | At what value the dilution is calculated, and whether local law permits punitive dilution. In some countries issuing shares requires a general meeting resolution, a notary and registration |
| Priority loan | Another investor makes up the amount as a loan, repaid before any distribution of profits | The interest rate, the order of repayment relative to the bank, and whether the loan requires the financier's approval |
| Suspension of rights | The defaulter loses voting, appointment or distribution rights until they make up their share | That the suspended rights are precisely defined, and that the local articles allow the suspension |
| Purchase option | The other investors may buy the defaulter's share at a discounted price set in advance | That the price does not appear to be an unreasonable penalty, and that there is a practical way to transfer the shares |
| Claim for enforcement and damages | The company or the partners sue for the amount | Usually slow; serves more as a threat than as a solution during the project |
An agreement between the investors can be written under a law you have chosen, but issuing shares, changing rights and registering the shareholders are subject to the law of the country where the company is registered. A remedy based on issuing shares should be reviewed by a local lawyer, and it is sometimes worth attaching pre-prepared resolutions and powers of attorney to the agreement, to the extent local law allows.
Capital call or new raise: where does the Securities Law come in?
When an existing investor transfers money under a commitment already given, this is usually the completion of an existing investment. But when the developer approaches new investors to fill a shortfall, or offers existing investors new shares on new terms, this may be a new offer of securities. Such an offer to investors in Israel must be made within the exemptions from a prospectus, such as an offer to up to 35 offerees in a 12-month period or an offer to investors listed in the First Schedule to the Securities Law, 5728-1968. The details are in the guide to raising money from Israelis.
It is therefore worth checking with a lawyer who works in securities law, already at the stage of structuring the agreement, what a top-up raise would look like if required, and documenting every approach to a new investor as part of the list of offerees.
What should investor reporting include, and how often?
It is customary to provide in the agreement for quarterly reporting, annual reporting and immediate reporting of material events. ILPA recommends quarterly reporting and audited annual financial statements for funds. In a single project, the report should be simpler, but answer the same questions: what has progressed, how much it cost, what has changed, and what the risks are.
| Report | When | What it includes |
|---|---|---|
| Quarterly | Within a period set in the agreement after the end of each quarter | Progress in design and permits or construction, budget versus actual, sales and collections from buyers, status of the bank financing, projected cash flow and a risk update |
| Annual | After the company's financial statements have been prepared in the project's country | Financial statements, each investor's account status (capital transferred, distributions, balance), and information the investors need for tax reporting in Israel |
| Immediate | Within a few days of the event | A material delay in the permit, a material budget overrun, a breach of the financing agreement, a claim, a change of main contractor, an intention to call capital beyond the plan |
| Capital call and distribution | At each event | A detailed notice in accordance with what was defined in the agreement |
It is also worth writing inspection rights into the agreement: whether an investor may request the contractor and financing agreements, the books of account and the reports to the bank, and under what confidentiality terms.
How do you present budget versus actual without hiding overruns?
You present the original approved budget, the updated budget and the actual figures to date, by the same lines in every report. When a line is overrun, the report explains the reason and the effect on the timetable and on the need for capital. The developer does not need to guess what the investors will want to know: the agreement should define what a material overrun is, for example a certain percentage of a line or of the total budget, and who must approve it.
- Fixed lines: land, design and permits, construction, financing, marketing and sales, taxes and fees, management, contingency reserve.
- Use of the reserve: when it may be used without approval, and when approval is required.
- Related-party payments: management fees to the developer, fees to a related company or commissions, shown separately.
- Currency: in which currency the budget is managed, and how exchange differences are presented.
A report to investors should describe the actual situation, including risks and delays. Forecasts are forecasts, and should be marked as such, without promising a return. This matters both towards existing investors and if the report later reaches potential investors, because it may then be considered part of an offer.
What is a distribution waterfall, and how does it work?
A distribution waterfall is the arrangement that sets the order in which the money the project generates returns to the investors and the developer. The order is written into the agreement, and it matters mainly when the developer receives a share of the profit larger than its share of the capital. A structure customary in funds, which is also used in projects, includes four stages:
- Return of capital. All the investors receive back the capital they transferred.
- Preferred return. If agreed, the investors receive a return at the rate set in the agreement on the capital they transferred, before the developer receives its excess share of the profit.
- Catch-up. If agreed, the developer receives a large share of the subsequent distributions until it reaches its agreed share of the total profit.
- Distribution of the balance. The balance is split according to the agreed ratio between the investors and the developer.
It is important to understand that a preferred return is an order of priority in distribution, not a promise. If the project does not make a profit, there is nothing to pay it from. This is how it should be worded in the agreement and in every document that reaches the investors. We set out the order of repayment relative to the bank and the other financiers in the guide to development project financing: equity investors receive money only after the financiers have received what is due to them.
| Point in the agreement | What to decide |
|---|---|
| Basis of calculation | For the whole project, or per investor according to their transfer dates |
| Timing of distribution | Only at the end, or also interim distributions from sales |
| Clawback | Whether the developer returns any excess if it turns out in the end that it received more than its share |
| Management fees | Whether they are calculated before the waterfall, and what their cap is |
| Tax | Whether distributions are calculated before or after tax, and how withholding tax in the project's country is handled |
What needs to be checked on the Israeli side?
An Israeli investor holding shares in a foreign project company may be required to report to the Israel Tax Authority, for example on Form 150, and will be taxed in Israel on dividends and on gains from the sale of the shares, with a credit for foreign tax according to the rules. The annual reporting should therefore include the information the investors need for their returns. See the guide to tax for an Israeli investor in a foreign project company.
Checklist for the capital and reporting mechanism
- Define a capital commitment for each investor, and a cap for overruns.
- Set out who issues a capital call, by what majority, and with how much advance notice.
- Define the minimum content of each capital call notice and of each report.
- Choose remedies for a call default, and check them against local company law.
- Check with a securities lawyer what a top-up raise from new parties would look like.
- Set a fixed budget structure, a definition of a material overrun and who approves it.
- Write the distribution waterfall with a numerical example attached to the agreement.
- Make sure the annual reporting includes what the investors need for reporting in Israel.
How do we support this?
We build the capital and reporting mechanism with the developer as part of the shareholders' agreement, and align it with the project company's articles and with local law together with lawyers licensed in the project's country. When the structure includes raising money from investors in Israel, we also check it against the Securities Law before the first approach.
This article is general information as of November 2026 and is not legal, tax or investment advice for a specific case. Company law and securities law differ from country to country. Before signing a shareholders' agreement, it is worth consulting a lawyer and an accountant.
Frequently asked questions
What is the difference between a capital commitment and a capital call?
A capital commitment is the maximum amount an investor commits to provide to the project. A capital call is the actual demand to transfer part of the amount, when the project needs it. The agreement sets the cap, who may issue a call and the period for the transfer.
What do you do with an investor who does not transfer money in a capital call?
You apply the remedy set in the agreement, usually after a cure period: dilution, a priority loan from the other partners, suspension of rights or an option to buy the defaulter's share. Each remedy should be checked against the company law of the country where the company is registered.
How often are investors in a real estate project reported to?
It is customary to provide in the agreement for quarterly reporting on progress, budget versus actual, sales and financing; annual reporting with financial statements and each investor's account status; and immediate reporting of material events such as a delay in the permit or a large budget overrun.
Is a preferred return a guaranteed return?
No. A preferred return is an order of priority in distribution: the investors receive it before the developer receives its excess share of the profit, but only if there is profit to distribute. This is how it should be worded in the agreement and in every document that reaches the investors.
Is a top-up raise from new investors subject to the Securities Law?
It may be considered a new offer of securities, and if it is addressed to investors in Israel it must be made within the exemptions from a prospectus. It is worth checking this with a securities lawyer already when structuring the agreement.
Read next · 10 min readA Joint Venture with a Local Partner Abroad: Contractual JV or Joint Company, Shareholders' Agreement, Deadlock, Exit and Vetting the PartnerHow to structure a joint venture with a local partner abroad: contractual JV or joint company, shareholders' agreement, deadlock, drag and tag, in-kind contributions, UBO checks.Read the guideSources
- ILPA - Capital Call & Distribution Template
- ILPA - Best Practices: Capital Calls and Distribution Notices (Version 1.1)
- ILPA - Principles 3.0 (2019)
- Torys - Overview of ILPA Principles 3.0 and Model LPA (2020)
- Gen II - ILPA Releases New Capital Call and Distribution Template
- Securities Law, 5728-1968 (Sections 15, 15A and the First Schedule) - Wikisource
- Israel Tax Authority - Form 150, declaration of holding in a foreign resident body of persons
