# Liquidation preference

Concept · [Fundraising and equity](https://ecosystem.samcarlton.com/fundraising)

Also called: liquidation pref, liq pref, 1x preference, 1x liquidation preference, liquidation preferences

A term that sets who gets paid first, and how much, when a company is sold or shut down. It usually lets investors with [preferred stock](https://ecosystem.samcarlton.com/preferred-stock) get their money back before holders of common stock receive anything.

**For example:** Investors put in 2 million dollars with a 1x liquidation preference. The company later sells for 3 million dollars. The investors can take their 2 million first, and the other shareholders split the remaining 1 million.

## Connects to (4)

- [Preferred stock vs common stock](https://ecosystem.samcarlton.com/preferred-stock): The two main kinds of shares in a startup.
- [Exit](https://ecosystem.samcarlton.com/exit): The moment when founders and investors can turn their shares into cash.
- [Term sheet](https://ecosystem.samcarlton.com/term-sheet): A short document that lays out the main terms of a proposed investment, such as the amount, the valuation and the investor's rights.
- [Priced round](https://ecosystem.samcarlton.com/priced-round): A fundraising round where investors buy shares at a set price per share, which fixes the valuation of the company.

> This glossary is plain-language orientation, not legal or financial advice. Before you decide on a company structure, a contract, taxes or a fundraising deal, talk with a lawyer or an accountant.

Map view: https://ecosystem.samcarlton.com/liquidation-preference