Lockup agreement
A lockup agreement is a promise by insiders or investors not to sell or transfer their shares for a set period, commonly 90 to 180 days after an IPO or an offering.
Last verifiedHow it works
Underwriters and placement agents typically require officers, directors and large holders to sign lockups before an offering. Each signer agrees not to sell, pledge or otherwise transfer shares (and often not to hedge them) for a fixed period. For IPOs the period is commonly 180 days; for follow-on and registered direct offerings it is often shorter, such as 60 or 90 days. The company itself frequently agrees to a standstill on new issuances for a period too.
Lockups can include early release provisions, for example after a strong earnings release, or if the stock trades above a set price for a number of days. The underwriter can also waive a lockup.
Why it matters
A lockup temporarily removes shares from the supply that can trade. When it expires, a large number of shares can become saleable on a single date. In companies with a small public float, the shares held by insiders and pre-IPO investors can be several times the float.
Worked example
Hypothetical: Company X lists with 3,000,000 shares sold in its IPO and 17,000,000 held by founders and pre-IPO investors under 180-day lockups. On day 181, up to 17,000,000 more shares can be sold, subject to Rule 144 for affiliates and any restricted shares. That is more than five times the IPO share count.
How to spot it
The IPO prospectus (S-1 and the final 424B4) has a section titled "Shares Eligible for Future Sale" and an "Underwriting" section describing lockups. Follow-on prospectus supplements and purchase agreements describe the company's own standstill. See Lockup expirations.
Guides that use this term
- Registered Direct vs PIPE vs Underwritten OfferingRegistered direct vs PIPE vs underwritten offering: how each sells a block of shares at a fixed price, how each is registered and disclosed, and what fees cost.
- Float vs Shares Outstanding: What Is the Difference?Float vs shares outstanding explained: how shares outstanding, non-affiliate float and tradeable float differ, where each is disclosed and when each matters.
- Form 4 vs Form 144: Planned Insider Sale or Completed TradeForm 144 is a notice of a proposed sale under Rule 144; Form 4 reports a completed insider trade within two business days. Who files each, when and why.
- Form 144 Explained: Notice of Proposed SaleForm 144 explained: who files a notice of proposed sale, the 5,000-share and $50,000 thresholds, Rule 144 volume limits, and why it does not prove a sale.
- Form S-1 Explained: IPO vs Resale RegistrationForm S-1 explained: IPO vs resale S-1 registrations, how an S-1 moves through S-1/A amendments to effectiveness, and what the 424B4 and 424B3 prospectuses mean.
- IPO Lockup Expiration Explained: 180-Day LockupsHow IPO lockup expirations work: the typical 180-day period, where lockup terms are disclosed, how early releases are announced, and how leak-outs cap selling.
Related terms
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Definition from the Signal8 Academy glossary. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.