Define: Preference Amount

What Preference Amount Means in a Contract

Preference Amount is a defined term used in constitutional documents, shareholder agreements, and share subscription documentation to fix the monetary value attached to each preference share. In its most common form, it equals the amount paid up or credited as paid up on a share, including any premium, plus a sum equal to any Arrears of dividend that have accrued but not been paid. The term exists so that, at moments of significant corporate change, everyone knows exactly what a preference shareholder is owed without renegotiating the figure each time.

The concept matters because preference shares sit between ordinary equity and debt. Holders typically accept limited or no participation in general company growth in exchange for a preferential, calculable return. The Preference Amount is the mechanism that delivers that preferential treatment in practice, whether the trigger is redemption, a buyback, liquidation, or a capital reduction. Without a precise definition, the priority promised to preference holders would be theoretical rather than enforceable.

How Preference Amount Is Defined or Measured

The baseline formula is straightforward: subscription price (or an agreed multiple of it) per share, plus paid-up capital and premium, plus accrued Arrears. Some agreements use a flat multiple of the original issue price, particularly in venture financing structures, while others tie the figure strictly to what was actually paid up on the share register. Either approach must be stated with precision because the Preference Amount often determines the order and size of payouts on exit.

Arrears typically refer to dividends that were due under the share terms but not paid in the relevant period, often because the company lacked distributable profits or the board deferred payment. Including Arrears in the Preference Amount ensures preference holders are made whole for missed income before ordinary shareholders receive anything. Some documents also specify whether interest accrues on unpaid Arrears, which can materially increase the final figure over time.

• Paid-up value per share, including any share premium
• Any agreed multiple applied to the original subscription price
• Accrued but unpaid dividend Arrears
• Interest on Arrears, if the agreement provides for it

Where Preference Amount Appears in Agreements

The term most commonly appears in the rights attaching to preference shares set out in a company's articles of association, and correspondingly in a