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Liquidation Right

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Liquidation Right
The right of certain stakeholders in a firm to receive the proceeds of the firm's liquidation. Liquidation rights vary according to a hierarchy; that is, interested parties higher in the hierarchy have the right to receive all their proceeds before those lower in the hierarchy. Generally speaking, secured creditors have the highest liquidation rights, followed by general creditors, preferred stockholders, and, finally, common stockholders. See also: Bankruptcy.


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For example, in a stock-for-stock exchange, the newly issued stock could have distribution or liquidation rights that differ from the original outstanding stock.
Fourth, voting rights, board rights, and liquidation rights are allocated such that if the company performs poorly, the VCs obtain full control.
Liquidation rights are often defined in the shareholders' agreement relating to the targeted stock.
 
 
 
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