What Does Lock-Up Agreement Mean

October 14th, 2021

This is because insiders who sell a portion of their shares can exert downward pressure on the company`s shares. A lock-up agreement is a provision or clause agreed upon between the underwriters and insiders of the company that enters the stock exchange with an initial public offering (IPO). It prohibits insiders from selling their stake in the company for a certain period of time from the date of completion of the IPO. In some cases, the agreement can only limit the number of shares that insiders are allowed to sell during the prescribed period. The clause could also be part of a contractual offer to sell the majority stake in a company that obliges the new buyer not to resell the stake or assets for a certain period of time. Courts approve prohibitions if they determine that the lock was used to encourage a bidder to bid, rather than as a means of ending an auction or auction process. However, the asset freeze discourages other bidders and is usually discouraged by the courts.

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