Liquidation Preference

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What It Means

Liquidation Preference refers to the order in which different stakeholders have claims to the value of a company in the event the company is liquidated, sold, or goes bankrupt.

Why It’s Important

Liquidation preference determines who gets paid first and how much they will receive. Thus, the position of a claim in the overall liquidation priority stack is a contributing factor to the risk of that claim and, as a result, the return that the holders of that claim should expect. For example, Senior Debt holders are often willing to accept a relatively low Interest Rate in exchange for first priority in the liquidation preference.

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