Legal Definitions - lockup

The term "lockup" has two primary meanings in legal and financial contexts:

• Temporary Detention Facility: This refers to a facility, often located within a police station, courthouse, or other law enforcement building, where individuals are held for a short period. This detention is typically after an arrest, while awaiting questioning, processing, or transfer to a more permanent correctional facility. It is designed for short-term custody rather than long-term incarceration.
  • Example 1: After being arrested for a minor traffic offense, Ms. Chen was taken to the local precinct's lockup for fingerprinting and to await the processing of her bail.

    Explanation: This illustrates "lockup" as a temporary holding area within a police station where an individual is processed and detained briefly after an arrest, before formal charges or release.

  • Example 2: During a major public event, authorities established a temporary lockup at a nearby community center to quickly process individuals arrested for disorderly conduct before they could be transferred to the main county jail.

    Explanation: Here, "lockup" refers to a provisional holding area used for the short-term processing of multiple detainees, emphasizing its temporary and often immediate nature following an arrest.

• Securities Lockup (or Lockup Agreement): In the financial world, a "lockup" refers to a contractual restriction that prevents certain shareholders, such as company founders, executives, and early investors, from selling their shares for a specified period after an Initial Public Offering (IPO). This measure is put in place to prevent a sudden flood of shares onto the market, which could depress the stock price and destabilize the company's valuation shortly after going public.
  • Example 1: When "Quantum Innovations Inc." launched its IPO, its venture capital investors and senior management were subject to a 180-day lockup period, meaning they were legally prohibited from selling any of their company stock for six months after the shares began trading publicly.

    Explanation: This demonstrates a "lockup" as a mandatory waiting period imposed on specific shareholders to prevent them from selling their shares immediately after a company's stock market debut, aiming to stabilize the market.

  • Example 2: An employee who received a significant number of stock options as part of their compensation package at a successful startup found that even after the company's IPO, their ability to sell those shares was restricted by a one-year lockup agreement, preventing them from cashing out their equity immediately.

    Explanation: This example shows how a "lockup" can apply to employees with stock, limiting their ability to sell shares for a set duration post-IPO to maintain market stability and investor confidence.