Pari passu—“with equal step” in Latin—means creditors or security holders rank at the same priority level, sharing proceeds pro rata without one class jumping ahead.

How it works

In venture preferred stock, later rounds sometimes sit pari passu with earlier preferred in the liquidation stack—everyone in that tier gets paid together before common receives anything. That differs from senior/subordinated stacks where Series B might be paid before Series A.

In lending, pari passu clauses align multiple lenders so none has priority over the others in collateral or repayment. Restructuring agreements may give new money lenders pari passu status with existing debt. Lawyers spell this out because ranking determines who recovers what in distress or sale.

Term sheets sometimes describe new preferred as pari passu with prior series for liquidation preference only, while keeping separate voting or dividend rights. Read the full stack—economic pari passu does not always mean identical governance or conversion terms across classes.

In down rounds, new money may negotiate senior preferences while older series remain pari passu among themselves—a split stack that changes who gets paid first without equal treatment across every class.

Why it matters

• Founders: A pari passu preferred stack can mean more dollars sit above common, shrinking founder payout at moderate exits compared with senior-only preferences.
• Investors: Pari passu treatment affects risk between tranches—later investors may demand it instead of subordinating to earlier VCs.

Common mistake

Assuming all preferred is automatically pari passu. Many cap tables senioritize newer rounds; read the liquidation preference section carefully.

Related ideas

See pari passu debt, liquidation preference, and participating preferred.