A charter clause decides who gets paid first in a sale

The record

The document that fixes who gets paid first when a venture-backed company is sold or wound up is not the term sheet; it is the certificate of incorporation. NVCA's model Certificate of Incorporation, updated October 2025, states that on a liquidation or “Deemed Liquidation Event,” each series of preferred stock is paid “on a pari passu basis based on their respective Liquidation Amounts... before any payment shall be made to the holders of Common Stock.” The text defines that Liquidation Amount, per share, as “the greater of (i) [__ times] the applicable Original Issue Price, plus any dividends declared but unpaid... or (ii)” the amount the share would receive if converted into common stock.

What the sources establish

That “greater of” wording is the model's non-participating structure: a preferred holder either takes its fixed preference multiple or converts and shares pro rata with common, not both. Cooley GO's glossary defines a liquidation preference generally as “a right that one class of stockholders may have to be paid ahead of other class(es) of stockholders in the case of a liquidation of the company,” confirming the mechanism independently. The charter also states that if assets cannot cover every series' full Liquidation Amount, holders “shall share ratably in any distribution... in proportion to the respective amounts which would otherwise be payable,” rather than paying one series in full before another, absent a seniority clause.

Scope and revision

The model document is a template with bracketed, negotiable placeholders, including the preference multiple itself, shown as “[__ times]” rather than a fixed number; NVCA does not state what multiple deals actually use, only how the clause is structured once one is agreed. The version referenced is the one NVCA lists as updated October 2025, retrieved 16 September 2026; because NVCA revises this document on its own schedule, an earlier charter can carry different bracketed defaults or numbering. Nothing here reports how often deals choose a 1x, greater-than-1x, or participating structure; that needs a separate dataset.

The decision in front of you

A founder modeling an exit should compute the payout under the specific Liquidation Amount language in their own charter, not a generic assumption, since the “greater of” test changes which formula governs depending on the sale price relative to the original issue price. This is an editorial checklist beyond the document itself: run the waterfall at both a modest and a strong exit price, because a non-participating preference that looks founder-friendly at a high valuation can still absorb most proceeds at a low one.

• What preference multiple and seniority does this specific charter set, and is it participating or non-participating?
• At the exit price being modeled, does the “greater of” test favor the fixed preference or the as-converted amount?
• If proceeds fall short of covering every series, does the charter pay pari passu or in a stated seniority order?

The liquidation preference is negotiated once, at financing, and paid out only once, at exit, which is exactly why the gap between those two moments is where a founder's assumptions most need checking against the actual document.