Liquidation Preference
A term in preferred stock agreements that determines the order and amount of payouts to investors when a company is sold, dissolved, or undergoes a liquidity event. Liquidation preferences ensure that preferred stockholders receive a specified return on their investment before common stockholders receive anything. Common structures include 1x non-participating (investors get their money back or convert to common, whichever is greater) and participating preferred (investors get their money back plus a share of remaining proceeds).
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