What Is Effective Date?
Let me explain what an effective date means in contract law—it's the date when an agreement or transaction between signatories becomes binding. If we're talking about an initial public offering (IPO), it's the date when shares can first be traded on an exchange.
Important Note
You should know that both parties to a contract usually need to agree on an effective date before the contract is signed.
Understanding Effective Dates
In business agreements and transactions, we document effective dates as the times when parties start their obligations under the contract. These can include employment agreements, credit or loan agreements, or commercial deals. When it comes to the effective date itself, you and the other parties decide if the contract begins on the signing date, a date that's already passed—which is backdating—or on a future date.
If a company is going public, the effective date happens within 30 days after registering the security with the Securities and Exchange Commission (SEC). This gives the SEC time to review the Form S-1 registration for complete disclosure, so prospective investors like you can make informed decisions. During this period, the SEC might ask questions, request clarifications, or tell the company to fill in or amend sections of the filing.
Key Takeaways
- Effective dates are the times when parties to a contract begin their obligations to perform under the contract.
- An effective date can be a date in the past (backdating) or in the future.
Examples of Effective Dates
The IPO process is strictly regulated by the SEC. Take Twilio Inc., which filed for an IPO on May 26, 2016. Soon after, they submitted an amended filing, and on the cover page of the prospectus, they included this statement: 'The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with 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 determine.' The effective date ended up being June 23, 2016, and that's when Twilio's shares started trading.
You'll often see effective dates on websites in the terms and conditions and privacy policies. Unless a company creates a special individual agreement with a very specific end-user or group, these terms and conditions—or terms of use—and privacy policy apply to all users of the website or platform.
Users like you are typically required to accept these terms when downloading an app or logging on to a website. Those terms shouldn't differ from what any other user sees at any other time, unless they're updated and all users are asked to approve the revisions.
In these cases, the effective date for terms and conditions and privacy policy agreements isn't when you agree to them, but when the terms were last updated. For these agreements, we don't usually call it an 'effective date' but rather 'last revision' or 'last updated.'
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