Pari Passu

Pari passu is a latin phrase that is most commonly used in the context of investments and raising capital by companies. The phrase literally means “equal footing.” In the context of capital raises it refers to the equal nature of investment terms as between classes of shares. For instance, if a company is raising a round of Series A Preferred and wants to ensure that all investors have the same rights as to liquidation, a reference in the investment documents will be made to all investors sharing such liquidation rights on a pari passu basis. Another example is, if a company wants to ensure that the recipients of a secondary issuance of shares receive the same rights as the holders of the initial issuance of the shares, then the recipients of the secondary issuance will be said to have their shares rank pari passu with the initial issuance. So, in essence, the phrase pari passu essentially means same or equal. The phrase usually shows up investment documents that describe the attributes of the equity being issued, particularly as compared to other equity already issued by the company. The phrase also sometimes occurs in term sheets, which are summaries of a company’s intended or planned future offering.