What Is a Lock-Up Period? What Pre-IPO Employees Should Know Before Selling Shares

What Is a Lock-Up Period? (Quick Answer)

A lock-up period is a restriction that prevents company insiders—such as employees, founders, and early investors—from selling shares for a set period of time after an IPO, typically 90 to 180 days. Lock-ups are designed to help stabilize the stock price by preventing a large number of shares from being sold immediately after a company goes public.

What Pre-IPO Employees Should Know About Lock-Up Periods

For employees at pre-IPO companies, an IPO can represent a significant financial milestone. However, one of the most common surprises is that liquidity is often delayed.

Even after a company goes public, employees are typically subject to a lock-up period, which limits when shares can be sold.

Understanding how these restrictions work—and planning ahead for when they expire—can help employees make more informed decisions when their equity becomes liquid.

Why Lock-Up Periods Exist

Lock-up periods are designed to create stability in the early days of public trading.

If employees, founders, and early investors were all able to sell shares immediately after an IPO, it could introduce a large supply of stock into the market and create downward pressure on the share price.

To manage this, underwriters (investment banks) typically require insiders to hold their shares for a defined period.

For example, companies like Facebook and Snowflake implemented lock-up periods to help manage the transition to public markets, with shares becoming eligible for sale in stages over time.

How Long Is a Typical Lock-Up Period?

Most lock-up periods fall within a standard range:

• 90 days (less common)
• 180 days (most common)

In some cases, companies use staggered lock-ups, where shares are released in phases rather than all at once.

For example, Facebook’s IPO included multiple lock-up expiration dates, which led to several waves of shares becoming available to the market.

The exact timing and structure will depend on the company and underwriting agreement.

Where Can Employees Find Their Lock-Up Details?

Lock-up terms are typically outlined across several sources, rather than in a single document.

Employees can usually find details in:

IPO Prospectus (Form S-1)

The company’s SEC filing often includes information under sections like:

• “Shares Eligible for Future Sale”
• “Underwriting”

These sections typically describe lock-up timing and structure.

Internal Company Communications

Many companies provide employees with:

• IPO guides
• HR or equity team communications
• Educational sessions

These resources often clarify specific dates and company policies.

Brokerage Accounts (Post-IPO)

Once shares are held in a brokerage account, restrictions may be visible directly in the platform, including when shares become eligible to trade.

If details are unclear, employees can typically reach out to their company’s HR or equity compensation team for clarification.

What Happens When a Lock-Up Period Ends?

When the lock-up period expires, employees and other insiders are generally allowed to begin selling shares—subject to company policies and trading windows.

At that point:

• Shares become eligible for sale
• The market may see increased supply
• Stock prices can experience short-term volatility

It’s important to note that not all employees sell immediately. Many take a more gradual approach depending on their financial goals and tax considerations.

Key Questions to Consider Before Selling Shares

A lock-up expiration is often the first meaningful opportunity for employees to convert equity into personal wealth.

Before making decisions, it can be helpful to consider:

How concentrated is your net worth?

If a large portion of your wealth is tied to one company, you may want to evaluate diversification over time.

What are the tax implications?

The tax treatment of your shares may depend on:

• How long you’ve held them
• Whether they are RSUs, ISOs, or NSOs
• Your overall income in the year of sale

What is your timing strategy?

Rather than selling all shares at once, some employees consider:

• Staggered sales
• Aligning sales with tax planning
• Coordinating with broader financial goals

Planning Ahead of a Lock-Up Expiration

For many employees, the most important decisions happen before the lock-up period ends.

Planning ahead can help create more flexibility and reduce the likelihood of reactive decisions.

Building a Liquidity Plan

Understanding how much you may want to sell—and when—can help guide decisions once shares become eligible.

This may include:

• Identifying short-term liquidity needs
• Evaluating long-term investment goals
• Considering diversification over time

Coordinating With Your Advisory Team

Lock-up expiration often intersects with multiple areas of planning.

Working with a coordinated team may help align:

• Tax strategy (CPA)
• Equity compensation planning
• Investment and diversification decisions

Understanding Trading Windows

Even after a lock-up expires, employees may still be subject to:

• Insider trading policies
• Blackout periods around earnings

This means shares may only be sold during specific windows, which should be factored into planning.

Considering a 10b5-1 Trading Plan

Some employees choose to establish a Rule 10b5-1 trading plan in advance of a lock-up expiration.

These plans allow insiders to:

• Pre-schedule trades based on a set formula
• Reduce the risk of making decisions during volatile market conditions
• Create a more structured approach to selling shares over time

Because these plans must be established before you have material nonpublic information and are subject to company policies, they typically require coordination with legal counsel and your advisory team.

For employees with significant equity exposure, a 10b5-1 plan can be one way to approach liquidity in a more disciplined and systematic way.

Common Mistakes Employees Make Around Lock-Ups

• Assuming liquidity is immediate after IPO
• Selling all shares at once without a broader plan
• Overlooking tax implications
• Remaining heavily concentrated in one stock

Avoiding these pitfalls often starts with planning ahead rather than reacting once shares become available.

Frequently Asked Questions

How long is a lock-up period after an IPO?

Most lock-up periods last 90 to 180 days, though the exact timing depends on the company.

Can employees sell shares immediately after an IPO?

No. Employees are typically restricted from selling shares until the lock-up period expires.

What happens when a lock-up period ends?

Shares become eligible for sale, which may increase market supply and lead to short-term price movement.

What is a 10b5-1 trading plan?

A 10b5-1 plan allows company insiders to pre-schedule stock sales under SEC rules, helping reduce timing risk and compliance concerns when selling shares.

Final Thoughts

A lock-up expiration is often the first opportunity for employees to turn equity into personal wealth—but it is also a point where planning can make a meaningful difference.

Decisions around timing, taxes, and diversification can have long-term financial implications, particularly for employees with a significant portion of their net worth tied to company stock.

Taking time to plan ahead—rather than reacting once shares become available—can help create a more thoughtful and flexible approach to liquidity.

To learn more, connect with a Freestone advisor to discuss strategies tailored to your situation.

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