#Liquidation preference how to

For example, if the investors invested £500K in the company, and the company sells for £3M, the investors will get their £500K back first, and then the remaining £2.5M will be divided amongst the Ordinary shareholders (actually it’s a little more complex than that, with Participating and non-Participating Preferences, but we’ll leave that for another article). a sale of the company, the total amount raised from the sale is paid back equally to all shareholders, proportional to the number of shares they own, known as a “pro-rata return of capital”.īut, with Preference Shares, the investor gets their money back first, before the Ordinary shareholders get paid. But it’s not all bad news, “liquidation” is wider than that, it includes what happens on a sale of the company.Īnd there lies the key difference between Ordinary Shares and Preference Shares:

In this article we’ll focus on the last of these.Ī liquidation preference is, as you might expect, related to what happens when a company is wound up.

#Liquidation preference how to

Liquidation Preference - What is it, and what do I do if an investor asks for it? How to give your investors SEIS/EIS-compatible liquidation preference shares, and when to do so.īroadly, there are two types of shares that are applicable to a startup: Ordinary Shares and Preference shares.Įach may have a variety of attributes associated with them – voting rights, dividend rights and the liquidation preference being the most common. Standalone documents - editing/uploading documentsĮMI Option Scheme - step by step guides on how to complete a valuation and grant options!ĮMI Option Scheme - what to do once the options have been granted!Įmployee, Advisor & Consultancy Agreementsīoard of Directors and Company Governance Step by step guides on how to use the platform regarding SEIS - EIS Cap Table, Companies House, Shares and Share Certificatesīefore starting - Do I qualify for SEIS/EIS?