From IPO Day to Lockup Expiration: A Planning Timeline for Employees
Going public is a milestone, but the six months that follow are when employee shareholders make the decisions that matter most.
An initial public offering transforms illiquid startup equity into a tradable security, yet for most employees the IPO itself changes little on day one. Underwriter lockup agreements typically prohibit sales for roughly 180 days, according to the SEC's investor guide to IPO lockup agreements, and company blackout policies and securities rules add further constraints. Using that period to prepare, rather than simply waiting, can make the eventual selling decisions far less stressful.
Understand your constraints
Three separate sets of rules govern when and how you can sell.
Lockup agreements. These are contractual restrictions between shareholders and the underwriters. They commonly last 180 days, though some companies now use staggered releases tied to earnings announcements or price thresholds. Your equity plan administrator can confirm your specific release dates.
Company insider trading policies. Even after the lockup ends, most companies impose quarterly blackout periods around earnings and require pre-clearance for certain employees. If you are an officer or director, a Rule 10b5-1 plan may be the practical route to regular selling; the SEC's fact sheet on the 2022 amendments outlines the cooling-off periods and other conditions.
Rule 144. Shares acquired in private placements are "restricted securities," and shares held by affiliates (generally directors, executive officers, and large holders) are "control securities." The SEC's compliance guide to Rule 144 explains that restricted securities of a reporting company must be held at least six months before resale, and affiliates must also comply with volume limits, manner-of-sale requirements, and Form 144 filings when sales exceed 5,000 shares or $50,000 in any three-month period. Non-affiliates who have held shares beyond the applicable period can generally sell freely.
Use the lockup period to prepare
While you cannot sell, you can plan. Useful steps during the lockup include:
Inventory every lot. List each grant, exercise, and vest with its date, share count, and cost basis. Distinguish ISO shares, NSO shares, RSU shares, and ESPP shares; each has different tax treatment.
Map the tax character. ISO shares need to satisfy the two-year-from-grant and one-year-from-exercise tests described in IRS Topic 427 for full capital gains treatment. RSU shares that vested at IPO have a basis equal to the value at vest, so a sale soon after produces little additional gain or loss.
Model the tax bill. Federal long-term capital gains rates for 2026 top out at 20% above $545,500 for single filers and $613,700 for joint filers, per Kiplinger, plus the 3.8% net investment income tax where applicable. California taxes gains as ordinary income at rates up to 13.3%.
Decide on a target. Determine what percentage of your net worth you are comfortable keeping in company stock once you are able to sell, and how quickly you want to reach it.
Prepare for volatility. Lockup expirations often coincide with heavy selling as many holders become eligible at once. Deciding in advance how you will respond to a lower price avoids reactive choices.
RSUs that settle at IPO
Many private companies grant "double-trigger" RSUs that vest only upon a liquidity event. At IPO, a large number of shares may vest at once, generating substantial ordinary income and withholding in a single year. Because employers withhold at the flat supplemental rates described in IRS Publication 15, 22% federally up to $1 million and 37% above, the withholding may not match your actual marginal rate. Reviewing your projected liability early in the year can prevent an unpleasant surprise.
After the lockup
Once you can sell, the decision framework is the same as for any concentrated position: diversify in a way that balances tax cost against risk. Staged sales across tax years, specific lot identification, charitable gifts of appreciated shares, and, for insiders, a 10b5-1 plan are all common tools. What matters most is that the decisions are made deliberately, according to a plan set before the emotion of the moment.
This article is for educational purposes only and does not constitute investment, tax, or legal advice. Please consult your company's counsel and qualified professionals regarding your specific circumstances.
Important Disclosures
Important Disclosures: Propulsion Capital Management is an investment adviser registered with the State of California Department of Financial Protection and Innovation. Registration does not imply a certain level of skill or training. This article is provided for general informational and educational purposes only and does not constitute investment, tax, legal, or accounting advice, nor an offer or solicitation to buy or sell any security or to adopt any particular investment strategy. The information is believed to be accurate as of the date of publication but is subject to change without notice; tax laws and regulations change frequently, and their application depends on individual facts and circumstances. Nothing herein should be relied upon as a substitute for personalized advice from a qualified professional. Investing involves risk, including the possible loss of principal, and past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss. Any examples are hypothetical, are for illustrative purposes only, and do not reflect the experience of any client. Links to third-party websites are provided for convenience; Propulsion Capital Management does not endorse, and is not responsible for, the content of third-party sites. Propulsion Capital Management does not provide tax or legal advice; please consult your tax adviser or attorney regarding your specific situation.
