Lockup agreements prohibit company insiders from selling their shares for a specific period of time. This causes the shares to be "locked up." Before a company makes its initial public offering, the company and its backer typically sign a lockup agreement to guarantee that shares owned by these insiders aren’t offered too soon after the initial public offering.
The terms vary, but the standard agreement usually contains a "no-sell clause" for the first 180 days. These agreements can limit other things such as the number of shares an insider can sell over a specified amount of time. The terms are generally determined by the backer or underwriter.
- The Agreement Locks up shares according to the terms
- The Date Critical to know due to possible value changes in the stock
- The Quiet Period A 25-day period following the initial public offering when certain parties such as the company, insiders, and security analysts cannot recommend the stock
Some states do require companies to have them. Federal law requires only that if such agreements exist within the company, that the terms should be disclosed in the company’s registration documents.
You can find out if a company has a lockup agreement by contacting the company’s shareholder relations department for a copy of the prospectus or by asking your broker. If the company has filed its prospectus electronically, the SEC’s database is a useful resource as well.
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