Liquidation preference

It mainly aims to protect investments, provided that a liquidation event occurs (liquidation of a company, mergers, sales or other). In simple words, it is a provision to define how the profit acquired from the sale of a company in case of an exit will be shared. In the absence of such a provision, each shareholder shall be entitled to a profit from the sale of a company in the amount of their capital share, i.e. pro-rata.