Deemed Liquidation Event
Among the most important terms of any series of shares of preferred stock is the liquidation provision because it describes what the preferred stock will receive in the event of a liquidation or dissolution of the issuing company. A "deemed liquidation event" is a merger, consolidation, sale of control (or of substantially all the corporation's assets), or other event that the preferred stock's terms treats like a liquidation in terms of the payment of the liquidation preference to the holders of the shares of that series. If treated as a liquidation, the investor has the right to receive in cash everything that the holder would have received if the transaction were a liquidation. If the liquidation provisions were not triggered, the holder of those shares would merely continue to hold shares in the surviving corporation or the issuing corporation itself, and an opportunity to exit from the investment would not occur. Although these matters are subject to negotiation, treating a sale of the company as a liquidation is fairly standard; however, in some cases the holders of a majority can waive the "deemed liquidation events". See Liquidation Preferences and Participating Preferred Stock.