ShmoopTube

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Finance allah shmoop what is ah lock up agreement Okay

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You invested your dough in the original round of this

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venture capital like investment or you're a founder whose entire

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network lives in the form of stock in your hot

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little new company Dot com you sold a portion of

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it to the public earlier in your aipo raising a

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big fat pot of money for you to go spend

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opening new sales channels in china Uzbekistanian and somalia Yeah

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good luck with that So now you're desperate to sell

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some percentage of your holdings You've been dying to buy

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that new tesla suv with the gullwing doors and you

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know self make upping feature But you can't buy it

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Why Well because your locked up and it's nothing prunes

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will solve You signed a contractual agreement when you did

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the original handshake with the investment bankers who were taking

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you public You agreed that you would follow what are

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called the one forty four a laws which restrict insiders

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from selling any shares until to quarters and change have

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fast during which a company is newly public Well why

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do these laws even exist Well because a bunch of

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scummy city slickers screwed over a bunch of uneducated farmers

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in a bygone era such that the government had to

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step in and make everyone play fair and square like

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they dumped their shares the minute the company was public

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on unsuspecting farmers who paid eighty seven dollars share only

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to watch the stock trade down to eighty seven cents

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a share two years later or even less Yeah that

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happened right Well the general idea here is that if

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a company can show professionally audited public Numbers 4:6 months

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and change of being a public company well then they

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wouldn't have been able to hide something deep dark fraud

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like elements about their business that it was all kind

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of a shell game against those poor farmers Well everyone

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would be playing then on the same level playing field

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and it would be fair upon public notice for insiders

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to sell some limited percentage of their total holdings and

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get liquid well in practice all kinds of restrictions exist

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against freeform insider selling so a maximum total percentage owned

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per month recorder per year is out there their maximum

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ceilings against which total volume can't be certain passed in

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a given day like if a million shares trade in

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a day you can't sell more than five percent or

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fifty thousand shares in a day And a bunch of

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other restrictions exist that are designed to mitigate the spread

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between information held by insiders and information held by outsiders 00:02:40.645 --> [endTime] Yeah other outsiders

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