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A lock-up period is the time following an initial public offering (IPO) when certain shareholders aren’t allowed to sell their shares. The restriction could apply to founders, employees, investors, the IPO’s underwriter, and other major shareholders, and it typically lasts 180 days.
If your startup has an IPO, you (and possibly your family and friends) could be prohibited from selling shares during the lock-up period. While you aren’t required to have a lock-up period when IPOing, the company or the bank that underwrites the IPO may request one.
It’s put in place to help protect other investors and allow the company’s share price to stabilize after it goes public. Without the lock-up period, early investors who bought in at a lower price might sell lots of shares and drive down the stock.
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