Reviewed by Sep 30, 2020| Updated on
Lockdown is defined as the period for which an investor is not allowed to sell his or her shares. This is typically applicable to initial investors, executives, and founders.
Generally, lockdown would be in place when the company is going public through its Initial Public Offering (IPO). The founders and executives might be tempted to sell their shares for money, and this does not reflect well on the company. The company might not perform well in its IPO if founders are selling their shares. Hence, a lockdown will be in place.
The holders of stocks of a company are not allowed to exit when there is a lockdown prior to going public.
Typical lockdown period ranges from 90 days to 180 days.
A short period post-lockdown may result in volatility as the old investors may exit and new investors might take some time to settle.