What Is an IPO Lockup Period and What Happens When It Ends?

Your company just went public. The stock is on the news, your shares have a price for the first time, and you still can’t sell a single one.

That waiting period is the lockup, and it catches many employees by surprise. After years of vesting, the IPO feels like the finish line. For most people it’s the start of a new set of decisions about taxes, timing, and how much to keep.

With the IPO market busier this year than it has been in some time, more of my clients are asking about it. Here’s how lockups work and how to plan for the day yours ends.

First, What an IPO Is

An initial public offering, or IPO, is the first time a private company sells its shares to the public on a stock exchange. Before the IPO, shares are hard to value and harder to sell. After it, they trade every day at a market price.

For employees holding stock options, RSUs, or shares, an IPO is often the first chance to turn equity into cash. It’s also when many of the tax consequences arrive. If you’re not sure which type of equity you hold, our guide to equity compensation is a good place to start.

What a Lockup Period Is

A lockup is an agreement that bars company insiders from selling their shares for a set time after the IPO. The banks that manage the offering require it, to keep a flood of insider selling

from pushing the price down in the first months of trading.

Lockups usually last 180 days, though some are shorter or longer. They typically cover founders, executives, early investors, and employees, including shares you received from RSUs, options, or early purchases. Many also bar hedging or borrowing against the shares.

Lockups come from contracts, not from law, so terms vary. Some companies allow a portion of shares to be sold early, either on set dates or if the stock trades above a certain price for a stretch of days. Companies that go public through a direct listing sometimes skip the lockup entirely. Your company’s IPO prospectus, called the S-1, spells out the terms.

What Happens During the Lockup

You can’t sell, but a lot can still happen.

RSUs may vest and create a tax bill

Many private companies grant double-trigger RSUs, which vest only after both a time requirement and a liquidity event such as an IPO. At many companies, the IPO satisfies that second trigger, and years of RSUs vest at once. The full value counts as ordinary income that year.

Your company will withhold some shares for taxes, but often not enough, and you can’t sell shares during the lockup to cover the rest. Setting aside cash or making an estimated payment ahead of time keeps you from scrambling. Our RSU, ISO, and NSO comparison explains the withholding gap in more detail.

Your options can still be exercised

You can often exercise stock options during the lockup even though you can’t sell the shares. For incentive stock options, exercising early in the lockup starts the one-year holding clock for long-term capital gains treatment. It can also trigger the alternative minimum tax on shares whose price could fall before you’re allowed to sell. Our ISO vs. NSO guide covers how to size an exercise around the AMT.

The stock price will move

New public companies often swing widely in their first months. The value on your statement during the lockup is not money you can spend yet. Plan around a range of prices, not the current one.

What Happens When the Lockup Ends

On expiration day, a large number of shares become eligible to sell at once. Studies of past IPOs have found share prices tend to dip around lockup expiration, as insiders and early investors sell and the market expects them to.

Even after the lockup ends, you may not be free to sell whenever you like. Most public companies have an insider trading policy with blackout windows, often in the weeks before quarterly earnings, when employees can’t trade. Officers, directors, and large holders face added limits and filing rules under SEC Rule 144.

A 10b5-1 plan can help. It’s a written plan, set up when you have no inside information, that sells shares on a preset schedule or at preset prices. Trades can then go through even during blackout windows. New plans come with a waiting period before the first sale, 30 days for most employees and longer for officers and directors, so set one up well before you need it.

How to Plan Before Your Lockup Ends

The weeks before expiration are the best time to decide what you’ll do. Decisions made on expiration day, while the price moves and headlines pile up, tend to be driven by emotion.

• Know your dates. Find the lockup expiration, any early-release terms, and your company’s blackout calendar.

• Estimate your taxes. Add up RSU income from the IPO, any option exercises, and the gains you’d realize from selling. Know how much you still owe beyond what was withheld.

• Decide how much to keep. Many advisors suggest keeping any single stock to 10% of your portfolio or less. Picking a target before the lockup ends makes the selling decision simpler.

• Consider selling in stages. Selling over several months or quarters, or through a 10b5-1 plan, spreads out the price risk and can spread the tax across years.

• Look at charitable giving. Donating appreciated shares to charity or a donor-advised fund can avoid capital gains tax on those shares and may give you a deduction.

• Match the money to your goals. Paying off a mortgage, funding college, or building a cash reserve are all easier to act on when you’ve decided in advance.

What You’re Probably Wondering

How long does an IPO lockup last?

Most last 180 days after the IPO, though some are shorter, longer, or release shares in stages. Check your company’s S-1 or your equity plan documents for the exact terms.

Can I sell any shares before the lockup ends?

Usually not, unless your company’s lockup includes an early-release provision. Some companies let employees sell a small portion at the IPO or after a strong earnings report. Selling in violation of the lockup can have serious consequences, so confirm with your company before you act.

Will the stock price drop when the lockup ends?

It might. Prices often dip around expiration as more shares hit the market, but the effect varies by company and market conditions. A plan for selling in stages protects you better than trying to time the date.

Do I owe tax on RSUs at the IPO even though I can’t sell?

Often, yes. If your RSUs vest at the IPO, their value counts as income that year whether or not you can sell. Plan ahead for the gap between what’s withheld and what you’ll owe.

What is a 10b5-1 plan?

It’s a preset trading plan that lets you sell shares on a schedule, even during blackout windows, because you set it up before you had any inside information. It can take emotion out of selling and help you diversify steadily.

Make a Plan Before the Date Arrives

An IPO can turn years of work into real wealth. What you keep depends heavily on the choices you make in the months around the lockup.

At Life Story Financial, I help women with pre-IPO and newly public company stock plan for taxes, set selling targets, and fit the proceeds into the rest of their plan. If your company is going public or already has, book a free intro call and we can walk through your timeline together.