Effective Date


The Effective Date clause sets the date when the rights and obligations under the agreement become operational. The Effective Date need not be the same as the execution date. In the absence of an effective date, the terms of the agreement become operational upon execution.

Standard and Alternative Language

Standard

The standard approach is to include the effective date in the openning paragraph. For example, "This agreement is made and entered into on [DATE] by [PARTIES]."

Openning

1. Effective Date

This agreement is effective as of the date shown at the top of the first page, even if any signatures are made after that date.

Signatures

1. Effective Date

This agreement shall be binding and deemed effective when executed by all parties (the "Effective Date").


Analysis

The Employment clause is optional. It is included in 5% of sampled EGDAR documents.

1. Effective Date is the Same as the Execution Date

Ken Adams of Koncision argues that in this circumstance, it is clearer to include the agreement date in the introductory clause and refer to this date as "the date of this agreement." For example:

"This agreement is made and entered into on [DATE] by [PARTIES]." Ken asserts: "Why inflict an unnecessary defined term on the reader?" "Effective Date", July 2007.

2. Future Date as the Effective Date

The Effective Date may be used to refer to a date in the future. This is frequently used in employment agreements that tie the effective date to the day the employee start works. But as Ken Adams points out: "[I]t's misleading to tie effectiveness of the agreement to the date the employee starts work, as the agreement is effective once the parties have signed it." While this is not strictly true--an agreement can defer the parties rights and obligations until a future--it may not be in best interests of the parties to an employment agreement to defer all rights and obligations, but rather define the employment term and set the period of performance and payment.

3. Past Date as the Effective Date

The parties may set an effective date as occurring prior to the execution of the agreement. For example, to collect royalties or payments retroactive to an past date. Again, Ken argues that it is clearer to use the concept of the 'date of the agreement' and specifically define the periods of any rights and obligations that differ from such date. Practically, it can be more convenient to set the operational date for all rights and obligations, rather than set each individually.