At IPO lockup expiration, company insiders can legally sell shares on the open market for the first time, typically 180 days after the offering date. Several restrictions survive that date, including Rule 144 volume limits, company blackout periods, and Section 16 reporting obligations, which means the shares can be free under the lockup agreement and still unavailable to sell. This post covers those restrictions, the tax consequences of selling, and the planning structures available before, at, and after expiration.
What Is an IPO Lockup Period and How Long Does It Last?
An IPO lockup period is a contractual agreement between company insiders and the underwriters of the offering that prohibits the sale, transfer, or hedging of shares for a defined window after the IPO, most commonly 180 days. The agreement is signed as a condition of the offering and is disclosed in the S-1 prospectus.
The lockup binds a broad group: founders, officers, directors, pre-IPO investors, and employees holding vested equity through Restricted Stock Units (RSUs), Incentive Stock Options (ISOs), or Non-Qualified Stock Options (NSOs).
Two features of the lockup agreement are frequently misunderstood:
- Length is set by the underwriter, not the SEC. The 180-day standard is market convention. Terms in the market have run as short as 90 days for higher-quality offerings and as long as 365 days in specific cases.
- Underwriters can release the lockup early. Waivers happen, and some agreements contain staggered release tranches or price-based early-release triggers that free a portion of shares before the stated expiration date.
The controlling document is the individual lockup agreement, not the general market convention. Reading it, alongside the company’s insider trading policy, is the starting point for any planning around the date.
Can You Sell Your Shares Immediately When the Lockup Expires?
Not necessarily. Lockup expiration removes one restriction, and three separate layers of restriction can remain in place for company insiders.
Rule 144 volume limitations. Affiliates of the issuer, which generally includes officers, directors, and large shareholders, may sell within any three-month period no more than the greater of 1% of the outstanding shares of that class or the average weekly reported trading volume during the four calendar weeks preceding the filing of a Form 144. Manner-of-sale requirements and current public information requirements also apply. Details are available through the SEC’s investor education materials on restricted and control securities.
Company blackout periods. A 180-day lockup counted from the IPO date often expires close to a quarterly earnings release. Company insider trading policies typically close the trading window in the weeks before earnings. A lockup can expire during a closed window, which means the shares are legally free under the lockup agreement and still unavailable for sale under company policy.
Section 16 obligations. Officers and directors subject to Section 16 must report transactions on a Form 4 within 2 business days. The Section 16(b) short-swing profit rule requires disgorgement of profits from any purchase and sale of company stock matched within a six-month window, which can be triggered by Employee Stock Purchase Plan (ESPP) purchases or option exercises sitting on either side of a sale.
Pre-clearance through the legal or compliance department applies on top of all three. Planning conversations about what to do before a stock trading blackout period apply directly to the weeks surrounding a lockup expiration date.
What Is a 10b5-1 Trading Plan and Should You Set One Up Before Lockup Expiration?
A 10b5-1 Trading Plan is a written trading arrangement adopted under Rule 10b5-1(c) of the Securities Exchange Act that specifies in advance the amount, price, and timing of future stock sales. When properly structured, it may provide an affirmative defense against certain insider trading allegations, because the instructions were set at a time when the insider did not possess material nonpublic information. Once adopted, sales occur according to the plan’s predetermined instructions, including during periods when discretionary trading would be closed.
Timing is the critical variable around a lockup expiration date. The December 2022 SEC amendments imposed a mandatory cooling-off period between adoption and the first trade:
- Directors and Section 16 officers: the later of 90 days after adoption or two business days after the filing of financial results for the quarter in which the plan was adopted, capped at 120 days.
- Other employees: 30 days after adoption.
The plan must also be adopted while the insider is not aware of material nonpublic information, with a written certification to that effect, and the rules restrict overlapping plans and limit single-trade plans to one per 12-month period.
The sequencing problem is straightforward. A director who waits until the lockup expires to adopt a plan may face a cooling-off period of up to 120 days before the first sale can occur, and a blackout period may close the discretionary window in the meantime. Adoption during an open window well ahead of expiration is what preserves the option. Structuring and adopting a plan requires coordination with company counsel and the compliance department. Additional detail on plan mechanics is covered in 10b5-1 Plans: A Structured Approach to Selling Company Stock.
What Are the Tax Consequences of Selling at Lockup Expiration?
Selling shares at lockup expiration is a taxable event, and the applicable rate depends on the holding period of each individual lot rather than on the lockup timeline. The lockup agreement restricts the ability to sell. It does not toll, pause, or extend any tax holding period.
For Restricted Stock Units (RSUs), ordinary income was recognized at vesting, and the cost basis equals the fair market value on the vesting date. The capital gains holding period begins at vesting and settlement. Shares held more than one year from that date qualify for long-term capital gains treatment on any appreciation above basis. Shares held one year or less are taxed at short-term rates, which match ordinary income rates.
Three additional layers apply to a California resident:
- The Net Investment Income Tax (NIIT) adds 3.8% on net investment income, including capital gains, above modified adjusted gross income of $250,000 for married filing jointly and $200,000 for single filers.
- California taxes capital gains as ordinary income at rates up to 13.3%, with no preferential long-term rate. Holding a share for 13 months changes the federal rate and does nothing to the California rate.
- Combined federal ordinary income, NIIT, and California tax can push the marginal cost of a short-term sale above 50%.
Incentive Stock Options (ISOs) carry a separate clock. A qualifying disposition requires holding shares more than one year from the exercise date and more than two years from the grant date. Selling before both conditions are met creates a disqualifying disposition, which converts the exercise spread to ordinary income. An ISO exercised shortly before an IPO will frequently fail the one-year test at a 180-day lockup expiration. Exercise-year Alternative Minimum Tax (AMT) exposure is a related planning item covered in What Triggers the Alternative Minimum Tax When You Exercise ISOs?
Running the projected tax on a specific sale, lot by lot, with a CPA before the expiration date is what turns these rules into a number. Spectrum Asset Management coordinates with your CPA on that modeling and does not provide tax advice.
What Are the Alternatives to Selling at Lockup Expiration?
Several structures exist for holders who want to reduce risk, generate liquidity, or address charitable intent without an outright sale of the full position at the expiration date. Each carries meaningfully different costs, tax treatment, and eligibility requirements.
- 10b5-1 Trading Plan. Spreads sales across a defined schedule rather than concentrating them at a single date, and continues operating through blackout periods once the cooling-off requirement is satisfied.
- Option Collar. Combines a purchased put and a written call to define a range of outcomes, limiting downside while capping upside participation. Deferring a sale defers the tax, though hedges must be evaluated against the constructive sale rules under IRC Section 1259.
- Prepaid Variable Forward. Provides cash at inception in exchange for a future delivery obligation of shares, which can create liquidity without an immediate taxable sale. Cost, counterparty risk, and complexity are significant.
- Donor-Advised Fund (DAF) or Charitable Remainder Unitrust (CRUT). Where charitable intent already exists, contributing appreciated shares rather than cash can address concentration and giving objectives together. Related considerations appear in Charitable Planning with Employer Stock.
Two constraints apply across all of these. Many company insider trading policies prohibit hedging and pledging of company stock by officers and directors outright, which removes the Option Collar and the Prepaid Variable Forward from consideration before any analysis begins. And these structures interact with Rule 144, Section 16, and the lockup agreement itself, which frequently prohibits hedging during the lockup term.
No single structure fits every situation. The appropriate approach depends on the size of the position relative to total net worth, the tax basis and holding period of each lot, company policy, liquidity needs, and charitable intent. A structured way to sequence those decisions is outlined in How Do Executives Diversify Concentrated Stock?
Planning around an IPO lockup expiration works best when it starts months before the date, while a 10b5-1 Trading Plan can still be adopted in an open window and while tax lots can still be modeled. Contact Spectrum Asset Management to talk through your position.
By Garrett Peterson, Wealth Advisor | Spectrum Asset Management | Reviewed August 2026
Disclaimer: This material is for informational and educational purposes only and should not be construed as investment, legal, or tax advice, or as a recommendation of any specific security or strategy. All investing involves risk, including the potential loss of principal. Hedging and structured strategies involve significant cost, complexity, counterparty risk, and tax consequences, and may be prohibited by company policy. Consult your financial, legal, and tax professionals regarding your personal circumstances. Nothing herein constitutes an offer to enter into an advisory relationship. Spectrum Asset Management, Inc. (SAM) is an SEC-registered investment adviser headquartered in Newport Beach, California. SAM is not affiliated with any other firm using a similar name.
Third-Party Website Disclosure: Links to third-party websites are provided for informational purposes only. Spectrum Asset Management, Inc. does not control or endorse the content of external sites and is not responsible for their accuracy or completeness.
The market standard is 180 days from the IPO date. Lockup length is set by the underwriters as a condition of the offering rather than by the SEC, so terms vary and have ranged from 90 days to 365 days. Some agreements contain staggered tranches or price-based early-release triggers, and underwriters retain the ability to waive the lockup early. The lockup agreement and the S-1 prospectus control.
Often not. Affiliates remain subject to Rule 144 volume limits of the greater of 1% of outstanding shares or the average weekly trading volume over the prior four calendar weeks in any three-month period. Company blackout periods can close the trading window if expiration falls near a quarterly earnings release, and Section 16 officers must file a Form 4 within 2 business days of any transaction plus clear the six-month short-swing profit rule.
Yes. The capital gains holding period for RSU shares starts at vesting and settlement, not at the IPO or at lockup expiration. Shares held more than one year from vesting receive long-term capital gains treatment federally, while shares held one year or less are taxed at ordinary income rates. California taxes both at up to 13.3% with no long-term preference, and the 3.8% Net Investment Income Tax applies above $250,000 MAGI for joint filers.
A 10b5-1 Trading Plan is a written arrangement adopted under Rule 10b5-1(c) that sets the amount, price, and timing of future sales in advance. It can be adopted before lockup expiration, and adopting early is usually the point. Directors and Section 16 officers face a cooling-off period equal to the later of 90 days after adoption or two business days after the next quarterly results filing, capped at 120 days. Other employees face 30 days. Adoption requires coordination with company counsel and compliance.
Selling before holding the shares more than one year from exercise and more than two years from grant creates a disqualifying disposition. The exercise spread is then taxed as ordinary income rather than long-term capital gains, and any additional appreciation is taxed as a short-term or long-term gain depending on the holding period. An ISO exercised shortly before the IPO will typically fail the one-year test at a 180-day expiration. Model the outcome with your CPA before selling.
