Is the amount of money an investor is entitled to receive prior to any distribution to holders of common stock. For preferred stockholders, the liquidation preference is always an amount equal to the purchase price. Frequently, liquidation preferences also include the amount of any unpaid accumulated dividends. Liquidation preferences can be shared between separate classes of stock, or separate classes can have different priorities of payment. Different series of preferred stock may each have a liquidation preference in proportion to their respective purchase prices. For example, if Series A Preferred Stock invested $5 million and Series B Preferred Stock invested $10 million, and both had respective liquidation preferences equal to their respective purchase prices, then in a sale or liquidation for less than $15 million (i.e., the sum of their liquidation preferences), two results would be common: The liquidation preferences could be pari passu. If the total funds available on sale were only $9 million, then $3 million would go to Series A and $6 million to Series B; i.e., the available liquidation proceeds are shared in the same proportion as the respective liquidation preferences.

The liquidation preferences could be ranked. Series B Preferred Stock would have a liquidation preference that ranks ahead of Series A Preferred Stock since Series B made the investment after Series A. In this case, holders of Series B Preferred Stock would receive the entire $9 million available for distribution.