Why lock-up agreement matters to a first-time founder
Transfer restrictions can reassure investors that founders and major holders will not sell immediately after a listing or transaction. They also limit personal liquidity and flexibility. Founders should understand which transfers are prohibited, who can waive the restriction and what happens on breach.
Examples of lock-up agreement
Before an IPO, founders agree not to sell their shares for 180 days after admission, subject to limited exceptions for certain family or estate transfers. The underwriter may waive the restriction early under the agreement, while market and regulatory rules may impose separate limits.
Common misunderstanding
Lock-ups are not limited to IPOs and do not always ban every transfer. They may appear in private investments, acquisitions or fund arrangements, with negotiated exceptions. Contractual restrictions can coexist with securities laws, exchange rules and insider-dealing controls that operate independently.
When to use it
Use one when a transaction requires key holders to retain securities for an agreed time. Define the securities, restricted actions, duration, exceptions, waiver authority and consequences. Check the agreement against governing law, market rules and other transfer restrictions before signing.