The date at which a contract or legal agreement becomes effective. In other words, an effective date marks a point in time at which a contract officially comes into effect and becomes binding on the parties involved.
An effective date may differ from the date on which a contract is signed or initiated (contract date), as not all contracts commence at the date of signing or entering into a contract. Certain contracts include a clause specifying a future date marking the contract’s effective date (actual initiation). An effective date is essential in each and every contract as it clearly defines the point in time each party will officially assume responsibility for its respective obligations towards the counterparty, including certain tasks and promises that will be performed, and the time other contractual terms and conditions would come into effect.
Effective date is also known as a contract’s commencement date.
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