Paralegal Exam Prep

Category - Miscellaneous

Creditors who have the right to be paid before shareholders if a corporation liquidates have a:
  1. First priority.
  2. Liquidation preference.
  3. Conversion right.
  4. Cumulative dividend right.
  5. Dividend preference.
Explanation
Answer: B. Creditors who have the right to be paid before shareholders if a corporation liquidates have a liquidation preference. Upon liquidation, the corporation will sell its assets and pay the creditors first. There are three types of liquidation preferences: straight preferred, participating preferred, and capped participating preferred; each varies in how favorable they are to the investor or to the liquidating company.
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