How Long After IPO Can You Sell (And Why)?

Exact Answer: 90 to 180 days

IPO is an abbreviation that connotes the initial public listing of a company’s shares. It essentially means that the company in question has decided to list its stocks on the public market forum of the country. It is generally done to arrange capital from public investors.

When a private company may need new investors, it may decide to list its stockholdings on the public market. This way it can gain novel institutional investors. The goal is to raise funds from public investors. When investors buy shares of the company, they become stakeholders liable to receive profits from the revenue of the company.

How Long After IPO Can You Sell?

The initial public listing of a company is invariably subjected to something called a lockup period. It is a restriction on selling its stocks owned by insiders. There is a corresponding period of time to this lockup protocol that has to be adhered to diligently to avoid legal action against the individual.

Generally, the IPO restriction contracts stipulate a minimum waiting period of 90 days. After the initial 90 days are over, an insider can sell his or her shares on the public listing forum. This time period can extend up to 180 days in some cases. It is therefore important to know the specific lockup period of your company before embarking on the journey of selling stocks.

Usually, the IPO restrictions lockup varies on a case-by-case basis.  In firms where the acquisition is termed as special purpose, an exception is made such that this restriction period extends from about 180 days to a year. It is also important to note that some companies allow for the shares to be sold immediately on the IPO opening day, however, in these cases the window of opportunity to sell one’s shares is quite brief.

RECOMMENDED
How Long Is Job Protected After FMLA (And Why)?

Selling after this period will be hinged on a number of variegated factors. After the 90 to 180 days, you will have to ascertain a conducive time for the selling of your stocks. This decision has to be based on a thorough assessment of risk factors, tax considerations, and the market climate. Without a careful calculation, one can endure losses.

In summary:                                                        

Kind of FirmTime Period of Waiting
Normal90 to 180 days
Special Purpose Acquisition Co.180 days to a year

Why Do I Have To Wait After IPO To Sell?

The rationale for this restriction on insiders is quite prudent and significant. Insiders like employees of the firm holding shares, investors, and clients are restricted from selling its shares when it goes public simply because of the financial repercussions of such actions.

Simply put, this restriction period is needed to stop large investors from flooding the market with the company’s shares. If the share prices rise, insiders may be tempted to sell their shares, this will invariably affect the supply-demand scale of the shares of the company.

This will automatically cause others to view the events as panic selling and they too will begin abandoning the recently listed company’s shares. The share prices of the company may be severely affected when insiders start selling their stock reserves. Hence, the financial losses suffered by the company will be quite significant.

To avoid this, the lockup period is instituted. Moreover, since the insiders are well aware of the strategies and policies of the firm, they may be able to influence the sales of its shares by selling their own stocks. To prevent this catastrophe the 90-day waiting period is considered mandatory by most companies.

RECOMMENDED
How Long After Purchase Can You Refinance (And Why)?

It is equally important to note that this restriction applies to employees, managers, investors of the firm as well as venture capitalists who may own shares of the enterprise.  Sometimes insiders may still be unable to sell their stocks after the lockup period because of legal restrictions that make selling shares equivalent to insider trading, especially during the earning season.

Conclusion

IPO listings can be undertaken by companies due to several reasons but some factors remain constant. For instance, usually, there is a moratorium on selling shares after the initial IPO is released. Insiders are debarred contractually from selling the shares they own.

Generally, this period of contractual obligation ranges from 90 days to 180 days. However, there may also be companies that postulate a longer IPO lockup period. After this initial period is over, shareholders of the company may be able to sell their stocks. However, doing so prior to the lapse of this period will result in legal action against the individual and thus must be avoided.

References

  1. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-6803.2001.tb00826.x
  2. https://www.sciencedirect.com/science/article/pii/S0165410114000299
x
How Long After Protein Shake To Eat Meal