Startup Survival Guide

Video Lessons: Shareholders’ Agreement Clauses: What is a Liquidation Preference?

In our new ‘Video Lessons’ blog series we share knowledge for both startups and investors in a short video format. The last couple of video lessons were dedicated to the shareholders’ agreement. The shareholders’ agreement is a contract between all shareholders. It defines additional agreements which lie outside of the articles of your legal entity and sets the rules of the working relationship. In this video, we’re talking about a liquidation preference: a right that has an effect during a liquidity event. A liquidity event is basically an event in which shares turn into cash: it can be the sale of the entire business, but it can also be a dissolution of the company. A liquidation preference ensures that an investor has a certain priority claim on the cash proceeds from the liquidity event.

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