Pari Passu means “on equal footing” and describes securities or claims that rank equally in priority for payment or distribution, without one being senior to the other. In capital structures and liquidation waterfalls, Pari Passu treatment determines whether multiple series of preferred share proceeds pro rata, and Pari Passu drafting is important when stacking preferred rounds or layering debt.
For example, if 10 people each loaned $10,000 and the startup desired to pay down the debt by $50,000, each person would receive a pay-down of $5,000 if their collective payment rights were pari passu with each other.
Pari Passu can also be used for non-economic terms as well (e.g. registration rights).
