Preference Shares
Shares that rank ahead of ordinary shares for dividends and/or proceeds in a liquidation or exit, often used in PE structures to return capital to the fund before management.
Also known as: Preferred shares, Prefs, Preference equity
One-line definition
Preference shares sit between debt and ordinary equity — they get paid first in the waterfall, often with a preferred return (coupon), before common shareholders see any proceeds.
PE use case
PE funds often invest via preference shares + a small ordinary share position. The preference shares provide downside protection (capital return before management equity); ordinary shares provide upside participation.
Related terms
Waterfall
The contractual order in which proceeds from a sale or liquidation are distributed among debt holders, preference shareholders, and equity holders.
Equity Value
The value of the shareholders' stake in a business, derived by subtracting net debt from enterprise value.
Ratchet
An equity incentive mechanism where management's percentage ownership increases if investment returns exceed agreed thresholds.