What a lock-up agreement means for shareholders
For shareholders, a lock-up agreement means that the shares cannot be sold freely during the agreed period. This applies regardless of whether there are buyers or whether market conditions change.
At the same time, the agreement can strengthen the company's credibility. When major owners accept a lock-up, it shows a long-term commitment, which investors often view positively.
How a lock-up agreement is usually drafted
Lock-up agreements contain clear terms on the time period, the scope and any exceptions.
- A set period during which selling is prohibited
- The named shareholders or share classes covered
- Any exceptions, for example in the event of a mandatory bid
- Sanctions for breach of the agreement
- Interaction with other ownership agreements or issue terms
When the terms are clear, the risk of misunderstandings and disputes about when and how shares may be sold is reduced.
When lock-up agreements are used
Worth bearing in mind
Lock-up agreements are often used in connection with initial public offerings, share issues or major changes of ownership. By restricting sales by founders, management or major owners, they reduce the risk of sharp price movements immediately after the deal.
In unlisted companies, lock-up agreements are also used to secure long-term commitment from key owners. They signal that the owners stand behind the company even after a capital raise.
Frequently asked questions
How long does a lock-up agreement last?
It varies, but common periods are between three and twelve months.
Are lock-up agreements required by law?
No, they are contractual and based on an agreement between the parties.
Can a lock-up agreement be ended early?
Only if the agreement contains exceptions or if all parties agree to it.
Who is most often covered by lock-up agreements?
Founders, management and major shareholders are often covered.
Why are lock-up agreements important for investors?
They create stability and reduce the risk of sudden sales that could harm the value.