Investment agreements generally include provisions for liquidation preference. Investors have the right to receive a specific amount before other shareholders on the occurrence of pre-defined liquidation events such as acquisition, merger and the sale of substantial shareholdings or of substantial company assets.
Typically, these investors are entitled to receive their initial investment or a multiple thereof before the remaining proceeds are distributed to other shareholders. Liquidation preference is generally available at all stages of investment from seed round to various growth rounds. However, the manner of liquidation preference is usually dependent upon the stage of investment. Liquidation preference serves as downside protection…
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