Effective Date

What Is Effective Date?

In contract law, the effective date is the date that an agreement or transaction between or among signatories becomes binding. For a initial public offering (IPO), it is the date when shares can first be traded on an exchange.

The two players to a contract usually need to settle on an effective date before a contract is signed.

Understanding Effective Dates

Business agreements and transactions are recorded with effective dates, which are the times when parties to the contract start their obligations to perform under the contract. These contracts can be as employment agreements, credit or loan agreements, or commercial transaction deals. As far as the effective "date" is concerned, the parties will conclude whether the contract should formally start on the date of signing, out on the town that has previously passed (backdating), or on a future date.

For a company that wants to open up to the world, the effective date occurs in no less than 30 days after the security is registered with the Securities and Exchange Commission (SEC), giving time for the SEC to audit the Form S-1 registration for completeness of disclosure so that prospective investors can pursue informed choices. During this audit period, the SEC can ask questions, request clarifications or instruct the company to fill or change certain sections of the filing.

Examples of Effective Dates

The IPO process is firmly controlled by the SEC. Twilio Inc. filed for an IPO on May 26, 2016. Shortly later, the company submitted an amended filing, taking care to print on the cover page of the prospectus the accompanying:

The Registrant thus amends this registration statement on such date or dates as might be necessary to defer its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall from there on become effective as per Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may decide.

The effective date ended up being June 23, 2016. Twilio's shares started trading that day.

On websites, effective dates are many times found in the terms and conditions and privacy policies. Unless a company makes a special work to make an individual agreement with an exceptionally specialized end-user or group of end-users, terms and conditions (or terms of use) and a privacy policy will apply to all users of a given website or internet platform.

Users are usually required to acknowledge the terms and conditions when they download an associated app or sign on to a website. Those terms should not be not the same as terms given to and read by some other use at some other time unless those terms are refreshed and all users are asked to approve the revised terms.

In such situations, the effective date for terms and conditions and privacy policy agreements is not when the user agrees to it, however when the terms were last refreshed. For these types of agreements, these dates are not indicated by "effective date" yet "last revision" or "last refreshed."

Highlights

• An effective date can be a date in the past (backdating) or later on.
• Effective dates are the times when parties to a contract start their obligations to perform under the contract.