Skip to main content

Liquidation Preference

A liquidation preference is a right that one class of stockholders may have to be paid ahead of other class(es) of stockholders in the case of a liquidation of the company.

For example, in most venture-backed companies, the investors have a liquidation preference that allows the investors to get their invested capital back in a liquidation event before any proceeds from the liquidation event are distributed to the holders of common stock (i.e., before any proceeds are distributed to founders, management and employees).