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[Music] welcome to our shareholders agreement video tutorial about liquidation preference clauses a liquidation preference is a right that has an effect during a liquidity event a liquidity event is basically an event in which shares turn into cash it can be the sale of an entire business but it can also be a dissolution of the company at liquidation preference ensures that an investor has certain priority claim on the cash proceeds from the liquidity event usually the cash investor gets their money back first and only after this the founders will have a claim on what money is still left depending on what it says in the shareholders agreement the investors might get more than just their money back they could claim a predetermined positive percentage return in addition that means they get a positive return before the founders even start to benefit it could also be that the investors want their money back first and subsequently want to benefit again based on their percentage shareholding