A lock-up agreement is a type of document where underwriters and insiders of a particular company sign a deal which prohibits anyone associated with the company, like managers, employees and their families, venture capitalists etc, to sell any shares of the stock for a particular period of time, thereby maintaining the stability of the price of the stock during the initial months of trading. These agreements are created before the company goes public to make sure that the insiders don’t sell the stocks so soon that the price of the shares plummet and also to limit the number of shares sold in a year.
Although there is no fixed lock-up term, usually a lock-up period lasts between 6 months to one year, after which certain people connected to the company are allowed to sell the stock, a move which may bring down a huge drop in the price of the stock as suddenly there is a huge increase in the supply of that stock in the market.
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Sample Lock-Up Agreement
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