What is Lock-Up Period?
Lock-Up Period
A Lock-Up Period is a contract window (typically 180 days) after an IPO during which company insiders, founders, and early investors are prohibited from selling their shares.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Lock-Up Period is critical for managing long-term cap table health and alignment during post-ipo liquidity planning and stock price stabilization.
Detailed Deep Dive
Lock-Up Periods prevent insider share sales immediately following an IPO, stabilizing stock pricing before insider liquidity window opens.
Frequently Asked Questions
Q:Why do underwriters enforce a lock-up period?
To prevent a mass sell-off of insider shares from flooding the market and crashing the stock price right after listing.
Q:Who is subject to the lock-up period?
Founders, directors, early venture capital firms, and employees holding stock options.
Quick Facts
- CategoryLegal
- Key ApplicationPost-IPO liquidity planning and stock price stabilization
Coverage Trend12 Weeks
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