Preferred equity
An LLC equity class with preference over common equity in distributions and liquidation.
Definition
Preferred equity is an LLC equity class with priority over common equity in distributions and liquidation proceeds. Multi-class LLC structures common in real estate and investor-backed deals.
Context
Permitted under 6 Del. C. § 18-302 class-and-voting flexibility.
Example
A real estate LLC raises capital from investors via preferred equity entitled to 8% preferred return plus capital return before common members receive distributions.
Common pitfalls
- Multi-class Operating Agreements require lawyer drafting.
- Tax allocations need careful substantial economic effect analysis.