Lockup Period

What it means

When a company goes public (starts selling shares on the stock market), it is called an IPO. During the first 180 days after an IPO, employees and early investors usually sign an agreement promising not to sell their shares. This rule helps keep the stock price steady by preventing too many shares from hitting the market all at once.

Sometimes, parts of this period end early if the stock price reaches a certain level. Once the 180 days are over, you can sell, but you must still follow your company's rules about when you are allowed to trade. This is often called a Blackout Period.

A simple example

Imagine Sarah works at a company that just went public. She owns 100 shares. The IPO happened on January 1st. Because of the lockup period, she cannot sell her shares until 180 days later, which is about six months. She must wait until July. If she tries to sell in April, the bank or brokerage will not allow the trade because her shares are still locked.

Why it matters to you

• You cannot sell your shares to pay for expenses or taxes during the lockup.
• You must plan your personal finances around this waiting period.
• You may need to wait for a company-approved trading window to open after the lockup ends.
• A tax professional can help you understand how selling later affects your tax bill.

Common mistakes to avoid

• Assuming you can sell your shares the moment your company goes public.
• Forgetting that even after the lockup, you may be restricted by a Blackout Period.

Words used on this page

• IPO: When a private company starts selling shares of its stock to the public for the first time.
• Blackout Period: A time when you are not allowed to trade company stock because you might have private information.
• Shares: Tiny pieces of ownership in a company.