Founder IPO planning

An IPO doesn't make your stock liquid. It starts a 180-day countdown — and launches a new set of permanent restrictions as an affiliate.

For most founders, the IPO is the first moment the company's equity has a real public price. But the IPO itself changes almost nothing about your ability to sell. You have agreed to a lockup — typically 180 days — during which you cannot sell or hedge your position. After that, your status as an affiliate (a director, officer, or large shareholder) subjects you to ongoing volume limits and reporting requirements under Rule 144. The planning that matters happens before the S-1 is filed and early in the lockup — not the week before shares unlock.

How the IPO planning timeline actually works

The pre-IPO planning window: your last chance to act before shares are public

Once the S-1 registration statement is public, you are in a quiet period with restricted communications — and once the stock is publicly traded, certain planning strategies close permanently. The 12–18 months before the expected IPO filing is the most valuable planning window.

State residency

If you are a California resident, the year you recognize gain from selling post-lockup shares, California will tax that gain at 13.3% — with no long-term capital gains preference. Unlike a one-time acquisition where you might change residency before a single closing date, IPO proceeds are typically realized across multiple trading windows and calendar years. A genuine domicile change to a no-income-tax state before your first major sale year can reduce the state tax load on post-lockup selling significantly. California's Franchise Tax Board scrutinizes founders who claim residency changes after an IPO is announced; the standard requires substantive ties to be severed — not just a change of driver's license. Engage a multi-state tax attorney well in advance, not the month the lockup expires.

ISO exercise analysis

If you hold incentive stock options (ISOs) that you have not yet exercised, the approaching IPO creates a timing decision. The spread between the exercise price and the stock's fair market value at exercise is an Alternative Minimum Tax (AMT) adjustment — it is added to your alternative minimum taxable income even though no cash was received from the appreciation. Exercising ISOs before the IPO, when the stock's value is still tied to a lower 409A valuation, typically produces a much smaller AMT adjustment than exercising post-IPO at a higher market price.

In 2026, the AMT exemption is $90,100 for single filers and $140,200 for married filing jointly, with phaseout beginning at $500,000 (single) or $1,000,000 (MFJ).¹ A large ISO exercise spread can push alternative minimum taxable income well above the exemption, creating a current-year AMT bill. The AMT credit generated carries forward to offset regular tax in future years — but only when regular tax exceeds the AMT, creating a timing mismatch that can persist for years. Pre-IPO ISO exercise decisions are highly fact-specific; model both scenarios with a CPA before the IPO date is set.

QSBS verification

If your shares were issued to you by the company when its gross assets were below $75M, and you have held them for at least five years, your stock may qualify for the Section 1202 federal exclusion — up to $15M in gain excluded (100% exclusion at the five-year tier, per OBBBA-updated rules). Post-IPO sales of shares originally issued to you by the company pre-IPO can still qualify; the exclusion tests are applied at the time of issuance, not at the time of sale.² Confirm qualification with tax counsel before the first post-lockup trading window. California does not conform — state tax applies to QSBS-excluded federal gain regardless.

Estate planning at low valuations

The period before an IPO is often when the company's 409A valuation is meaningfully below where the public market will price it. Gifting shares now — to family members, irrevocable trusts, or grantor-retained annuity trusts — uses a gift tax valuation substantially below the post-IPO price. Because the $15M QSBS exclusion cap applies per taxpayer, distributing shares to multiple family members before the IPO can multiply the available exclusion across recipients. These transfers require board consent and careful review of transfer restrictions in your equity agreements.

Charitable giving before the IPO

Donating appreciated shares to a donor-advised fund while the stock is still private — valued at a 409A that may be well below the expected IPO price — removes future appreciation from your taxable estate and generates a charitable deduction at the current fair market value. Many DAFs accept private equity; check each DAF's procedures and valuation requirements before approaching the IPO filing date. As with acquisitions, donations made after a binding IPO commitment may receive more IRS scrutiny on valuation.

The lockup period: what it is and what it isn't

A lockup agreement is a contract between the company's underwriters and all significant pre-IPO stockholders. It is not a SEC rule — there is no securities law mandate requiring a lockup. Lockup terms are negotiated for each IPO; the standard length is 180 days from the IPO pricing date.³ Some transactions use 90-day lockups; certain holders (like larger institutional investors or latecomers in the round) sometimes have different terms.

What a standard lockup covers

• All pre-IPO shares you own, directly or through entities you control
• Options, warrants, and convertible securities you hold
• Any securities acquired in a defined pre-IPO window (typically 90 days prior)
• Hedging transactions that are economically equivalent to selling — including collars, puts, short sales, and equity swaps

The lockup generally does not cover shares purchased in the open market after the IPO (though affiliate status still subjects those purchases to Rule 144 and Section 16 reporting).

Early release and blackout periods

Some lockup agreements include an early release provision allowing selling if the stock trades above a specified price for a set number of consecutive trading days, or if the underwriter grants consent. These terms are negotiated at the time of the IPO; founders with leverage should discuss them with company counsel before the lockup agreement is signed.

Separately, as an insider you are subject to the company's trading policy, which typically imposes blackout windows around earnings announcements — usually beginning 30 days before each quarterly release and ending 48 hours after the announcement. If the lockup expiration falls inside a blackout period, your first actual sell window may be several weeks later than the calendar date. Plan with this in mind; do not set financial expectations based on the lockup expiration date alone.

Setting up a 10b5-1 plan during the lockup

A 10b5-1 plan is a pre-arranged, written trading plan that establishes a systematic schedule for selling shares. Once adopted, trades execute automatically through your broker according to the plan's parameters — without you making real-time decisions. The legal protection of a 10b5-1 plan: trades made pursuant to a properly adopted plan are presumed not to be based on material nonpublic information, providing a strong defense against insider trading claims.

Why you must adopt the plan during the lockup, not at expiration

The SEC's 2023 amendments to Rule 10b5-1 impose a mandatory cooling-off period before any plan's first trade can execute.⁴ For directors and Section 16 reporting officers, the cooling-off period is the later of:

• 90 days after the plan adoption date, or
• Two business days after the company's financial results are disclosed in a Form 10-Q or 10-K for the fiscal quarter in which the plan was adopted

In practice, a plan adopted on day 1 of the lockup cannot execute trades until at least day 90 — which can be designed to align precisely with the end of the 180-day lockup. A founder who waits until the lockup expires before thinking about a 10b5-1 plan will face an additional 90-day wait before any sales can occur under plan protection. Adopt the plan early in the lockup period, during an open trading window. (The lockup is a contractual restriction on selling — it is not a blackout period that prevents adopting a plan.)

Plan structures

A valid plan must specify, at adoption time, one of: (a) the amount, price, and timing of transactions; (b) a formula or algorithm for determining these; or (c) discretion delegated entirely to the broker within defined parameters. Common structures:

• Fixed-schedule: sell X shares on a specific calendar date each month regardless of price
• Limit-order schedule: sell up to X shares per month if the stock price is above a specified floor
• Percentage-of-volume: sell up to Y% of each day's reported trading volume

Once the plan is live, you generally cannot modify it or cancel specific scheduled trades without potentially voiding the safe harbor for the entire remaining sequence. Single-trade plans (sell a fixed block on one date) are permitted but limited to once per 12-month period for Section 16 insiders under the 2023 rules.

Rule 144 restrictions for affiliate sellers

After the lockup expires, the lockup contract no longer restricts your selling. But if you are an affiliate — defined by the SEC as a director, officer, or holder of 10% or more of the company's outstanding voting shares — Rule 144 imposes ongoing restrictions on volume, reporting, and manner of sale.⁵

Volume limitations

In any three-month period, an affiliate may sell no more than the greater of:

• 1% of the total outstanding shares of the same class, or
• The average reported weekly trading volume during the four calendar weeks preceding the filing of a Form 144 notice

Example: a company with 100 million shares outstanding. The 1% cap allows up to 1 million shares per quarter. A founder holding 10 million post-IPO shares — assuming no other selling — needs roughly 10 quarters (2.5 years) to exit the entire position under this limit alone. If average weekly trading volume is higher than 250,000 shares, the volume-based cap may allow faster selling. The limits reset each quarter.

Form 144 filing requirement

If you plan to sell more than 5,000 shares or shares worth more than $50,000 in any three-month period, you must file a Form 144 with the SEC concurrently with placing the sell order (or within one business day for exchange-listed stock). Form 144 is a public filing — your planned sale amount, the number of shares, and the expected price range become public at the time of filing.

Manner-of-sale and Section 16 requirements

Affiliate sales under Rule 144 must be made through a broker or directly to a market maker — you cannot rely on the Rule 144 safe harbor for negotiated private transactions. Additionally, as a director or officer, every transaction is subject to Section 16: Form 4 must be filed with the SEC within two business days of any purchase or sale. The Section 16(b) short-swing profit rule requires disgorgement of any profit on a purchase and sale (or sale and purchase) of company securities within any six-month window — this is separate from Rule 144 and applies regardless of whether you used a 10b5-1 plan.

Tax planning at lockup expiration

Lockup expiration typically marks the first opportunity to recognize substantial post-IPO gains. Model the full federal and state tax stack before deciding how much to sell in the first window.

Federal long-term capital gains rates in 2026

Most founder shares qualify for long-term capital gains treatment — the holding period runs from the date of original acquisition (or the date of an 83(b) election for restricted stock), not from the IPO pricing date. The 2026 LTCG rates by taxable income:⁶

• 0%: up to $49,450 (single) / $98,900 (MFJ)
• 15%: $49,451–$545,500 (single) / $98,901–$613,700 (MFJ)
• 20%: above $545,501 (single) / $613,701 (MFJ)

The 3.8% Net Investment Income Tax (NIIT) applies to the lesser of your net investment income or the amount your MAGI exceeds $200,000 (single) / $250,000 (MFJ).⁷ Combined federal maximum rate: 23.8%. A California resident adds 13.3% — for a combined rate of approximately 37.1% on gain above all brackets.

Spreading sales across tax years

The Rule 144 volume limits naturally spread selling across quarters. Coordinating sales to straddle a December 31 year-end can further reduce the tax impact. A founder who sells $15M in late December and $15M in early January splits a $30M realized gain across two tax years — reducing the annual MAGI for NIIT and potentially keeping each year's gain at the 15% rate rather than the 20% rate. Plan this in advance; the window between the earnings blackout ending and December 31 can be narrow.

Estimated tax payments

Large capital gains in any quarter create an immediate estimated tax obligation. The quarterly deadlines — April 15, June 15, September 15, and January 15 — apply to the year the gain is recognized. Missing the first quarter's payment when a sale closes in Q1 triggers underpayment penalties even if the full year's tax is paid by April of the following year. If prior-year AGI exceeded $150,000, the safe harbor requires paying 110% of the prior year's total tax. Engage a CPA to model payment schedules before and after each trading window opens.

QSBS interaction with post-IPO sales

If your shares were issued to you by the company when gross assets were below $75M and you have held them for five or more years, the Section 1202 exclusion may apply to post-IPO sales. The OBBBA raised the per-taxpayer per-company cap to $15M (100% exclusion for stock issued after July 4, 2025 with a five-year hold; earlier issuances follow prior law tiers).² Verify qualification with a tax attorney before the first post-lockup sale. Shares purchased on the open market after the IPO do not qualify.

Managing concentration after the lockup

The Rule 144 volume caps constrain exit speed for most founders. The central post-IPO financial planning challenge is managing a concentrated, pace-illiquid position in a single public stock — while navigating blackout periods, 10b5-1 compliance, and tax timing.

Hedging strategies available post-lockup

After the lockup expires, publicly traded shares can be hedged in ways unavailable during lockup or on private shares. Commonly used tools:

• Protective puts: purchase the right to sell at a specified price; costs the option premium but establishes a downside floor without triggering a sale
• Zero-cost collars: simultaneously buy a put and sell a call; caps upside but floors downside; structured to net roughly zero in premium cost. Check that the collar does not violate any remaining lockup terms or the company's hedging policy.
• Exchange funds: contribute shares to a pool with other concentrated single-stock holders; receive a diversified interest after a seven-year holding period; no immediate tax event at contribution
• Variable prepaid forwards: receive an advance (loan-like) against future share delivery; can provide liquidity while deferring gain recognition; complex securities law and tax structure — requires counsel

Hedging transactions may be restricted by the company's insider trading policy even after the lockup expires. Review the policy before structuring any hedge, and confirm with the company's general counsel that the transaction does not implicate the lockup or any trading-window restrictions.

Pre-IPO and lockup-period checklist

1. Model the after-tax outcome at two or three expected IPO price scenarios — including QSBS exclusion if applicable, NIIT, and state taxes
2. Confirm QSBS qualification for any shares you intend to sell in the first post-lockup window
3. Analyze ISO exercise timing: compare AMT cost at current 409A vs. post-IPO market price
4. Consider estate gifting of shares at pre-IPO 409A valuations, subject to transfer restrictions
5. If California-based, engage a multi-state tax attorney to evaluate residency change before the IPO year begins
6. Set up custody and investment policy before the lockup expires — don't make investment decisions when proceeds arrive
7. Adopt a 10b5-1 plan early in the lockup (day 1 if possible) so the 90-day cooling-off elapses before unlock
8. Map out the post-lockup trading window calendar — earnings blackouts can delay the first sell window by weeks
9. Engage a CPA to model estimated tax payment schedules before the first trading window opens
10. Coordinate with legal counsel on Form 144 filing procedures and Section 16 Form 4 obligations