Tilden Moschetti: One term you
oftentimes see in private equity

funds documentation, or in
documentation for syndications

is a term called capital
account. So what exactly is a

capital account? And how do you
use

it My name is Tilden Moschetti.
I am a syndication attorney with

the Moschetti syndication Law
Group. One of the things I

really enjoy most about my job
not only is working with the law

and working with great clients,
but I also get to work on things

in finance. So finance is
another one of my passions, I

love studying it, I read finance
books, even read accounting

books, because the two go hand
in hand. So one topic that

oftentimes comes up lets me talk
about it more than more than

ever, to my clients. And that is
what does this term mean capital

accounts? So for example, a lot
of times we talk about an

initial capital account for your
members or for your investors.

What is that? Or what are these
other accounts that are getting

set up? What is a capital
account anyway? Well, let's

break it down. So capital
obviously means money. So it

means cash. These are the cash
accounts that we use in order to

manipulate things and our
counts. We don't mean bank

accounts. That's an account
specifically in a bank. When we

talk about capital accounts,
we're talking about accounts as

it relates to accounting. So an
account is just like a group of

grouping of funds that we can
keep track of. So sometimes

you'll hear accountants talk
about a chart of accounts, that

can be a list of different
accounts. So you might think of

it as a budget item, like you
have your mortgage and that goes

into your your mortgage, on your
blog, excuse me on your budget

item. Or you think about
groceries, you know, things like

that are are parts of your
budget. for accounting purposes,

we talk about them as accounts.
So it's that pool of money

that's set aside or that's
segregated for a specific

purpose. So a capital account is
that cash that separate aside

for a specific person, that each
investor has a capital account,

so we keep track, if an investor
invest $100,000, we logged log

$100,000 in their capital
account, that's their initial

contribution, that is their
initial capital account. Now

that money can come up or it can
go down based on different

things that take place. If we
make a distribution of a get as

a return of money, that can
reduce the amount of their

capital account, that's we still
I oftentimes still call the

initial capital account, even
though it's not initial anymore,

but it's reduced that amount
that they have cash that they

have as pure equity in their
accounts. So I hope that's been

helpful. But let's talk about
some key takeaways before we

leave for today. Key takeaways
are capital accounts are those

accounts that keep track of the
capital in the LLC that always

start at zero and are adjusted
through those contributions,

distributions, taxable income
and taxable losses. Both both

the company's capital accounts
and the investors capital

account need to end at zero. So
your final distribution at the

very end of the day should be
zero. capital accounts are

oftentimes very confusing and
keeping track of them,

especially in that first year.
And especially if you have

different distribution periods
for each investor. Some of my

investors like to only get
distributions annually, some of

them get it quarterly. And it
can get confusing on which is

which because we have to build
different accounts. I also keep

track of a preferred balance
account, which is an account

that keeps track of any monies
that they've made that they

shouldn't be receiving because
of a preferred return, but they

haven't received yet. And
lastly, again, those cash

contributions, those cash
distributions, reporting taxable

income and reporting taxable
losses, all of those, they

impact the capital accounts. My
name is Tilden Moschetti. I'm a

syndication attorney with the
Moschetti syndication Law Group.

We can help you stay in
compliance with the SEC, make

sure that everything's right.
Keep your investors happy. All

those things. Start with a good
legal framework. That's what

we're here for to make sure that
we help you be successful as a

syndicator or a private equity
fund manager.