Lock-up period


Lockup Period

A time during which a publicly-traded company forbids management and large stockholders to sell their shares, usually following an initial public offering. Depending on the company, the lockup period may be 90 to 180 days. It exists to ensure that the market is not flooded with shares in the company at any given time, which would increase supply and cause a drop in price. Large shareholders selling their shares may also be seen as an indication of a lack of confidence in the company, triggering a panic sell. After the lockup period ends, however, shareholders may sell without restriction.

Lock-up period.

A lock-up period is the time during which you cannot sell an investment that you own.

You are most likely to encounter a lock-up period if you acquire shares in an initial public offering (IPO) because you had a private equity investment in the company before it went public and receive shares in the IPO proportionate to your private equity ownership interest.

You may also have a lock-up period if you are an owner or an employee of the company and are granted shares.

The lock-up period may last as long as 180 days. In some cases, though, the lock-up period is graduated, meaning that after the initial 180 days you can sell an increasingly larger portion of your shares over the next two years.

After the lock-up period ends, you are free to sell all your shares if you wish.