How does liquidity preference work in a situation where the company was not 100% acquired? Do the preferred shareholders apply their preference then lose them pro-ratably on the next liquidity event?
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Actually, in most of the shareholders' agreements I have seen involving professional investors, a partial sale or sale of assets are considered deemed liquidations and do trigger liquidation preferences, entitling the holders of these preferences to first dibs at the money coming in from the transaction. You should check the liquidation preference clause in your agreements and look for the definition of a deemed liquidation. |
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It all depends on the deal and terms of the investment. If it's a partial liquidity event that usually means a portion of the company (or assets) were sold to someone else. This does not necessarily trigger a liquidity event in the normal sense because the company is still technically still in business -- it just sold off some asset to raise money. In that case, no liquidity event really happened -- you just sold an asset and obtained some money for it. Ultimately, it's up to the board, CEO and investors to sort it out. If the company is still around and functioning, then the usually liquidity triggers probably don't apply. |
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