Every Vietnamese founder planning a Nasdaq, NYSE or Singapore listing meets the same document late in the process: the lock-up agreement. It is short, heavily negotiated and easy to underestimate. A lock-up agreement stops insiders from selling for a fixed period after pricing, protecting the aftermarket from a sudden flood of supply, yet it also decides when founders and early investors can finally realise value.
For Vietnamese issuers, the analysis does not stop at New York law, because Vietnamese transfer restrictions and State Bank of Vietnam (SBV) foreign exchange rules sit underneath the contract. This article explains how to structure and negotiate it.
Contents
- What a Lock-Up Agreement Does in an Overseas IPO
- Customary Terms: 90 to 180 Days
- Who Is Locked Up
- Staggered, Early-Release and Performance-Based Structures
- Rule 144 and Regulation S Resale Limits
- Share Overhang and Price Dynamics
- Lock-Up Waivers and Leak-Out Agreements
- Interaction with Vietnamese Law
- Negotiation Points for Issuer Counsel
- Frequently Asked Questions
What a Lock-Up Agreement Does in an Overseas IPO
A lock-up agreement is a contractual undertaking, given to the underwriters, not to offer, sell, pledge, lend or otherwise dispose of shares (or securities convertible into shares) for a defined period after the IPO prospectus becomes effective. It usually also covers short sales, hedging, derivatives that transfer the economic risk of ownership, and any public announcement of an intention to do any of those things.
Why underwriters require it
Underwriters price an IPO on the assumption that the float is stable. If founders and pre-IPO investors, who often hold more than 70 percent of the equity, could sell immediately, the market would price in that supply and book-building would suffer. Investors in the offering therefore expect a lock-up agreement as a condition of participation. Each locked-up holder signs a separate letter in a form attached to the underwriting agreement, and the issuer gives a parallel undertaking.
For a Vietnamese issuer the structure is almost always an offshore holding company, commonly incorporated in the Cayman Islands, Singapore or the British Virgin Islands, holding the Vietnamese operating companies. The lock-up agreement binds holders of the offshore shares. It does not, by itself, address what happens at the onshore level, which is why Vietnam-specific diligence matters.
Customary Terms: 90 to 180 Days
The market convention for a US-style IPO is a 180-day lock-up agreement for directors, officers and significant pre-IPO holders. Shorter 90-day periods appear in follow-on offerings and for some large issuers, while Asian and European listings vary between 90, 120 and 180 days.
The calendar clock normally starts on the date of the final prospectus or the underwriting agreement, not on the first trading day. Key drafting points follow.
- Scope of securities. Ordinary shares, ADSs, options, warrants and anything exercisable or convertible. Shares acquired in the directed share programme or in the open market after the IPO are often carved out.
- Permitted transfers. Gifts to family, transfers to trusts and affiliates, and transfers by operation of law are usually allowed if the transferee signs a joinder agreeing to the same restrictions.
- Exercise and tax withholding. Employees need to exercise options and sell enough shares to pay withholding taxes, so exercise (and net settlement) must be carved out.
- Representatives’ discretion. The lead underwriter normally holds the sole right to release shares, which is where lock-up waiver practice begins.
Who Is Locked Up
Underwriters aim to lock up essentially all pre-IPO holders, typically covering 90 to 100 percent of outstanding shares. The exact reach depends on the holder category.
Founders and controlling shareholders
Founders and directors always sign the lock-up agreement. They are the most credible sellers, so the underwriters insist on the full period and the widest definition of restricted securities. Founders who hold through personal vehicles must ensure the holding companies are bound, and any pledge of locked-up shares to Vietnamese banks must be disclosed and carved out or prohibited.
Pre-IPO investors
Private equity, venture and strategic investors normally sign a lock-up agreement, though they negotiate harder than founders. Funds often seek shorter periods, most-favoured-nation protection (release pro rata if any holder is released) and the right to distribute shares in kind to limited partners who accept the same restrictions.
ESOP holders
Employee shareholders create the practical gap in any lock-up agreement. Hundreds of employees holding small stakes through an employee stock ownership plan will not each sign a letter, so the issuer typically binds them through the plan terms, the award agreements and a market stand-off clause, and by holding shares through an employee benefit trust or nominee. Underwriters generally ask for a representation that all holders are bound, covering 100 percent of the outstanding shares.
A missed ESOP cohort can quietly become a source of share overhang.
Staggered, Early-Release and Performance-Based Structures
A flat 180-day lock-up agreement is the starting point, not the end point. Increasingly, issuers negotiate release structures that reduce the single-date cliff.
Staggered release
Under a staggered release, tranches unlock on a schedule, for example 25 percent at 90 days, a further 25 percent at 135 days and the remainder at 180 days. This spreads supply across several windows and reduces the risk of a single post-expiry price drop.
Earnings-based and price-based release
Recent US IPOs have often included early-release triggers linked to events. Common triggers are the first earnings release after the IPO (releasing a portion of shares after one full trading day following that release), or the share price closing above a stated multiple of the IPO price (often 25 to 33 percent above) for a specified number of trading days.
These performance-based provisions should be drafted with precision, including how the price test is measured, whether the trigger works once or repeatedly, and whether all holders benefit or only selected holders.
| Structure | Typical mechanics | Advantage | Main risk |
|---|---|---|---|
| Flat 180-day lock-up agreement | All shares released on one date | Simple, underwriter-friendly | Concentrated supply and a cliff effect on expiry |
| Staggered release | Tranches at, for example, 90, 135 and 180 days | Spreads share overhang over several windows | Multiple overhang dates keep the stock under pressure |
| Earnings-based release | Partial release after the first earnings report | Liquidity once new information is public | Selling around earnings can be read as a negative signal |
| Price-based release | Release if the stock trades above a set threshold | Rewards strong performance | Measurement disputes and manipulation concerns |
| Leak-out agreement | Daily or weekly volume cap on sales after release | Controlled supply into the market | Monitoring burden on the issuer and holders |
Rule 144 and Regulation S Resale Limits
The lock-up agreement is only one layer. US securities law imposes its own limits that persist after the contract expires, and a Vietnamese issuer listing in the United States must model both layers together.
Rule 144 holding periods and affiliate limits
Pre-IPO shares are typically restricted securities, acquired in private placements. Rule 144 under the Securities Act provides a safe harbour for resale. For restricted securities of a reporting issuer, the holding period is six months; for a non-reporting issuer it is one year. Because a newly listed company must have been subject to reporting requirements for at least 90 days before the shorter period applies, a 180-day lock-up agreement usually expires after the Rule 144 holding period has been satisfied for most holders.
Affiliates, meaning directors, officers and large holders, face further conditions even after the holding period. These include current public information, the manner-of-sale requirement, a Form 144 filing when sales exceed set thresholds, and a volume limit: in any three-month period, the greater of one percent of the outstanding shares or the average weekly trading volume over the preceding four weeks.
For a thinly traded newly listed stock this ceiling can be far below what a founder wants to sell, so a registration rights agreement with demand and piggyback rights, and a shelf registration, are often the real exit route. Rule 144 is also restricted for former shell companies, relevant where a Vietnamese company reached the market through a special purpose acquisition company merger.
Regulation S distribution compliance
Regulation S provides a safe harbour for offshore offers and sales. Foreign issuers with no substantial US market interest in their securities are in the lowest category and generally face no distribution compliance period, whereas issuers in higher categories, and affiliates, face restrictions of 40 days to one year and limits on resales into the United States. Counsel must confirm each holder’s legends, category and whether a non-US resale remains possible. These resale limits are independent of the lock-up agreement and must be diligenced separately.
Share Overhang and Price Dynamics
Share overhang is the market’s anticipation of the supply that will become tradable when restrictions lapse. It is measured as locked-up shares relative to the free float. A Vietnamese issuer that floats 10 to 15 percent of its equity while 85 percent or more is locked up has an overhang several times the size of the float, so investors discount for it.
Empirical studies of US IPOs have generally found an average negative abnormal return of around one to three percent around lock-up expiry, larger where venture capital backing is present, where the stock has risen sharply since the IPO and where the expiring volume is large relative to trading liquidity. The effect is weaker where expiry is staggered or where the issuer has pre-announced the information. These are averages, not predictions.
For issuer counsel, practical implications follow.
- Publish the expiry calendar in the prospectus so that the market can price share overhang in advance.
- Coordinate the first earnings release and any follow-on offering with expiry dates.
Lock-Up Waivers and Leak-Out Agreements
A lock-up waiver is the underwriter’s consent to release some or all shares before expiry. Waivers are discretionary, typically granted for a stated purpose (a secondary sale, a gift, a pledge default) and often priced into a managed follow-on offering. Under FINRA Rule 5131, where a waiver is granted for an officer or director, the lead book-runner must announce it through a major news service at least two business days before the release takes effect, and the underwriting agreement must say so.
A leak-out agreement is the quantitative alternative to a hard lock-up agreement. After the main lock-up agreement ends, or from the day of a partial release, the holder may sell only up to a cap, usually expressed as a percentage of daily trading volume or as a number of shares per week, through a designated broker and often only in orderly transactions.
A leak-out agreement is especially useful for pre-IPO investors who want liquidity but accept that a block sale would disturb the stock. Issuer counsel should confirm that leak-out sales also comply with Rule 144 and insider-trading policy.
Interaction with Vietnamese Law
A New York or English-law lock-up agreement does not suspend Vietnamese regulation. Three Vietnamese-law layers need attention.
Founding-shareholder restriction under the Law on Enterprises 2020
Under Article 120(3) of the Law on Enterprises 2020, for three years from the date the joint stock company obtains its enterprise registration certificate, a founding shareholder’s ordinary shares may be freely transferred to other founding shareholders but may be transferred to a non-founder only with approval of the general meeting of shareholders, and the transferring shareholder has no vote on that approval.
The restriction does not apply to shares acquired after registration or to shares already transferred to non-founders. The rule applies to Vietnamese joint stock companies, so a Vietnamese opco that is still within its first three years, or an onshore holdco that is a joint stock company, needs analysis. It does not directly bind shares of an offshore Cayman parent, but it affects any pre-IPO reorganisation, such as a share swap into the offshore vehicle.
Verify against the current consolidated text, as the Law on Enterprises has been amended.
ESOP rules also matter. For public companies, Decree 155/2020/ND-CP deals with employee share issuance, and the transfer restriction on ESOP shares (commonly a minimum one-year period) is a statutory floor for the relevant onshore plan.
Where the plan is run by an offshore parent, the plan’s own terms and the lock-up agreement will govern, but employees who are Vietnamese tax residents face personal income tax questions on vesting and on sale that interact with the timing of the lock-up. Confirm the current period before relying on it.
SBV foreign exchange and outbound-investment reporting
Vietnamese residents who hold offshore shares may be treated as making outbound investments under the Law on Investment 2020 and Decree 31/2021/ND-CP, and the capital account, repatriation and reporting obligations of the SBV foreign exchange regime (the Ordinance on Foreign Exchange as amended, and the SBV circulars on outbound investment, including Circular 12/2016/TT-NHNN as amended) can apply. Sale proceeds on release from a lock-up agreement must generally be repatriated and handled through the registered account.
Disposals, restructurings and proceeds therefore have reporting consequences. A founder’s liquidity plan should be agreed with the Vietnamese compliance workstream before any waiver is requested.
Negotiation Points for Issuer Counsel
Underwriters draft the first lock-up agreement, but almost every term is negotiable, and the issuer’s counsel should concentrate on those that affect value and compliance.
Lock-up agreement checklist
- Length and trigger. Aim for 90 to 120 days in the lock-up agreement with staggered or earnings-based release; fix the start date and avoid automatic extensions tied to earnings announcements.
- Release parity. Insist on pro rata release if the underwriters release any major holder, and on written notice of all waivers.
- Carve-outs. Preserve permitted transfers, option exercises, tax-withholding sales, pledges disclosed in the prospectus, in-kind distributions and transfers under the Vietnamese reorganisation.
- Waiver discretion. Limit the underwriters’ sole discretion with reasonable-consent standards and a defined process for founders.
- Leak-out terms. Seek a leak-out agreement for post-expiry sales, with volume caps that are workable for a thinly traded stock.
- Registration rights. Align the lock-up agreement with the registration rights agreement so that demand rights do not arise only after expiry.
- Vietnam compliance. Check founder, ESOP and SBV requirements before signing, and add a covenant that the issuer will cooperate on onshore approvals.
The pattern behind these points is simple: treat the lock-up agreement as a liquidity and compliance plan, not as boilerplate, and negotiate it alongside valuation and allocation. Further guidance is available from our capital markets team and from our corporate and commercial practice, which supports the onshore reorganisation.
Request a Confidential Preliminary Consultation
If you are preparing an overseas listing and want to review how a lock-up agreement, Rule 144 and Vietnamese transfer limits fit your cap table, IVLF Advisors LLC offers a confidential preliminary consultation from our Ho Chi Minh City and Hanoi offices. Contact us through our website to arrange a discussion.
Frequently Asked Questions
How long is a typical lock-up agreement in an overseas IPO?
180 days is the usual period for directors, officers and large pre-IPO holders in US-style IPOs. Shorter 90-day periods, staggered releases and earnings-based early releases are negotiated increasingly, especially for strong issuers and institutional investors.
Does a lock-up agreement end my Rule 144 limits?
No. Expiry only removes the contractual restriction. Affiliates remain subject to Rule 144 conditions, including the volume limit, manner-of-sale rules and Form 144 filings, and Regulation S restrictions may also continue.
What is a leak-out agreement?
It is a contract allowing a holder to sell a limited number of shares, often a percentage of daily volume, after release. It gives liquidity while controlling the supply that creates price pressure.
Does the three-year founder restriction apply to offshore shares?
Article 120(3) of the Law on Enterprises 2020 applies to Vietnamese joint stock companies, not directly to a foreign parent. It can still affect onshore reorganisations, so verify against the current text.
Can the underwriters waive a lock-up agreement early?
Yes, usually at the lead underwriter’s discretion. For officers and directors, FINRA Rule 5131 requires announcement through a major news service at least two business days before release.
Next step: send us your draft term sheet and cap table, and we will map every locked-up holder against Rule 144, Regulation S and the Vietnamese transfer limits before you sign.
This article provides general information only and is not legal, tax or financial advice. Please consult qualified advisers about your specific circumstances before acting.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
