Under the Companies Act, 2013, preference shares carry a statutory right to priority repayment of capital upon winding-up, meaning preference shareholders rank ahead of equity shareholders by default. A similar priority framework is reflected in the IBC waterfall. That said, both these statutory positions can be modified through a company’s articles of association, and neither extends automatically to the broader, contractually defined “liquidation events” typically found in VC shareholders’ agreements.
This distinction matters. The statutory regime provides the baseline and is a key reason financial investors favour preference shares to begin with. But in practice, things get more layered. Investors holding equity shares arising from…