Tender Offers and Lock-Up Periods

Word has gone around that your company is running a tender offer, and maybe that an IPO is somewhere down the road after it — two separate events that each change what you can do with your shares and what you owe on them. This article walks through what a tender offer actually is, how the proceeds are taxed, how to think about whether to participate at all, and what a lock-up period after a public listing does and does not restrict, so you can plan the decision and the tax bill together instead of being surprised by either.

What is a tender offer and why is my company running one?

A tender offer is an offer, usually from the company itself or from an investor, to buy shares from existing holders at a set price, during a defined window of time. For a private, pre-IPO company, running one is usually about liquidity: employees and early investors are sitting on paper wealth they cannot otherwise sell, since there is no public market for the stock, and a tender offer lets some of them cash out a portion of their position without waiting for an IPO or an acquisition. It is also often a signal of investor demand — a later-stage investor willing to buy shares at a set price is implicitly putting a valuation on the company, which is part of why these offers tend to show up as a company matures and attracts more institutional interest. None of this makes participation mandatory: a tender offer is an invitation extended to eligible holders, not a forced sale, and you can choose to sell none, some, or, subject to the terms of the specific offer, all of your eligible shares. The offer will specify who is eligible, how many shares each holder may tender, the price, and the window during which shares can be submitted — details that live in the offer documents themselves rather than in any general rule, so the specific terms of your company's offer are what actually govern.

How is the money I get from a tender offer taxed?

Selling shares into a tender offer is a sale like any other: you owe capital gains tax on the difference between the price you are paid and your cost basis in the shares, not ordinary income tax on the full proceeds. Whether that gain is long-term or short-term depends on how long you have held the shares — from the date you acquired them, whether that was an option exercise, an RSU vest, or a direct purchase — up to the date of the sale, using the same holding-period test as any other capital-asset sale. One detail catches people off guard: a sale is generally not subject to the automatic tax withholding you may be used to from an RSU vest or an NSO exercise, because withholding rules apply to compensation income, and a sale of already-owned shares is investment income, not compensation. That means the cash that lands in your account from a tender offer is not net of tax the way a paycheck is — the full amount is yours to receive, and the tax on the gain is your responsibility to set aside and pay, typically through an estimated payment rather than a withholding line you can just check. If the shares you are tendering came from an ISO exercise, there is an additional wrinkle covered later in this article, because selling them before certain holding periods changes how the gain is taxed.

Should I sell some shares into the tender?

Underneath the mechanics, this is a concentration and liquidity question, not really a tax question: how much of your net worth do you want tied up in one private company's stock, and how much of that would you rather convert to cash while a buyer is actually offering to pay for it. Our article on concentrated employer stock and our 10% rule covers how we think about that ceiling and how a position gets brought under it once shares are public and liquid — the same logic for why concentration is risky applies before an IPO, even though the mechanics of selling are different while the company is still private. The one thing worth being careful about is treating the tender offer's price as a number you can rely on later: a private company's valuation is set by whoever is willing to buy at that moment, under terms that may not repeat, and it can move in either direction by the time — or if — an IPO actually happens. Selling into a tender offer locks in today's price and today's liquidity in exchange for giving up any further upside in the shares you sell; holding instead keeps that upside but leaves you fully exposed if the next valuation event is lower, or if an IPO does not happen on the timeline you are picturing. Neither choice is free of risk, which is exactly why this deserves a real conversation about your specific concentration and cash needs rather than a rule of thumb about how much of a tender offer employees typically sell.

What does a lock-up period stop me from doing?

A lock-up period is a contractual restriction, not a tax rule: as part of taking a company public, the underwriters require company insiders and large holders to sign an agreement not to sell their shares for a period set by that agreement, so a wave of insider selling does not flood the market right after the IPO prices. The restriction comes entirely from the underwriting agreement — there is no provision of the tax code that requires or defines a lock-up, and it applies regardless of how long you have held your shares or what your holding period looks like for tax purposes. Because a lock-up is set by the terms your company and its underwriters negotiated, its exact length is whatever that agreement says — most run around 180 days, but it is worth reading rather than assuming that figure applies to yours. What a lock-up does not do is delay your tax bill: if your shares came from an already-completed exercise or vest, any tax from that event is already fixed on its own schedule regardless of when you are allowed to sell, and if you plan to sell once the lock-up lifts, the resulting capital gain is taxed in the year you actually sell, whatever the stock is doing on that date. The useful way to spend a lock-up period is not waiting — it is planning the sale schedule you intend to follow once it lifts, and setting aside cash or preparing an estimated payment for the tax that sale will trigger, so the lock-up's end date does not arrive as a second surprise on top of the first.

What happens to my ISOs in a tender offer?

If the shares you are tendering came from exercising incentive stock options, selling them into the tender can trigger a disqualifying disposition if you have not yet held them long enough — the same two holding-period clocks that govern any ISO sale, covered in our article on how ISOs and NSOs are taxed, apply here with no exception for a tender offer. A disqualifying disposition turns some or all of what would have been favorable capital-gains treatment on the exercise spread into ordinary compensation income in the year of the sale, on top of whatever capital gain or loss applies to the rest of the proceeds — which can make the actual tax bill on a tender sale meaningfully higher than it first looks. A related decision shows up when a tender offer creates a reason to exercise ISOs you have not yet exercised, specifically so you have shares to tender: exercising creates its own potential AMT liability in the year of exercise, a separate and non-trivial cost we cover in our article on AMT after an ISO exercise rather than repeating here. Between the disqualifying- disposition risk on shares you already hold and the AMT exposure on shares you would need to newly exercise, a tender offer involving ISOs is one of the cases where running the actual numbers before you decide matters more than usual — the headline tender price is not the number that determines what you keep.

Key numbers (2026)

• Minimum tender offer period — an issuer tender offer must remain open for at least 20 business days from the date it begins (17 CFR 240.13e-4(f)).
• ISO holding periods — selling ISO shares before two years from grant and one year from exercise have both passed is a disqualifying disposition (IRC §422(a)(1)).
• Long-term capital gains holding period — a sale qualifies for long-term treatment once you have held the shares for more than one year (IRS Topic No. 409).
• Net Investment Income Tax — a 3.8% surtax applies to net investment income above $200,000 of modified adjusted gross income for single filers and $250,000 for joint filers; unlike most tax thresholds, these amounts are fixed by statute and are not adjusted for inflation (Instructions for Form 8960; IRC §1411).

Current as of 2026-09

Sources

• 17 CFR 240.13e-4, Tender offers by issuers — https://www.law.cornell.edu/cfr/text/17/240.13e-4
• SEC Investor.gov, "Initial Public Offerings: Lockup Agreements" — https://www.investor.gov/introduction-investing/investing-basics/glossary/initial-public-offerings-lockup-agreements
• IRS Publication 525, Taxable and Nontaxable Income — https://www.irs.gov/publications/p525
• IRS Topic No. 409, Capital Gains and Losses — https://www.irs.gov/taxtopics/tc409
• Instructions for Form 8960, Net Investment Income Tax — https://www.irs.gov/instructions/i8960

Sample content for demonstration purposes — not financial advice.