Issue date definition is the day on which a company issues an agreement or contract, such as an insurance policy. However, the issue date is not always the same as the contract's effective date, which is the day when it comes into force.

Issue Date Versus Effective Date

The date on which a contract comes into force, the effective date, is sometimes included in one of the agreement's clauses to differentiate between the issue and the effective dates. Alternatively, the parties to the contract may date their signatures and agree that the effective date will be the date on which the last party signs.

Parties to a contract can agree to an effective date that is different from the issue date or the date when the agreement was signed. This can be done by:

  • Backdating the effective date, for example by stating that the effective date is January 1, 2018, although the signing date is March 5, 2018
  • Choosing a future effective date, such as by agreeing that a contract signed in January 2018 will take effect at the beginning of the next financial year

Your company may have a good reason for choosing a past or future effective date on a contract. One instance where this may be necessary is a situation in which the parties to the contract sign it on different days. Even in such a case, however, you may find it easier to describe the situation in the contract rather than backdating the agreement.

Contract Obligations

Choosing to backdate a contract comes with certain risks that you should consider. One potential problem is that you could find yourself in breach of some of the contract's terms immediately when you sign it. For example, your company may decide to sign an agreement that requires monthly reports to be provided to the other party. If your company signs the contract in June 2018 but backdates it to January 2018, you would be in breach of the requirement to deliver monthly reports.

Two ways to avoid this problem are:

  • Only agree to backdate a contract when you have already met its obligations or can meet them retroactively
  • Specify the terms that you want to backdate and the terms that only apply after signing

One contractual obligation that can cause you major challenges in backdated agreements is confidentiality. This is because you could find yourself in a position where your company was subject to confidentiality requirements before your employees were even aware of them. To avoid this danger, you may want to specify that the confidentiality clause only comes into force after the contract is signed.

Criminal Activity

Since some jurisdictions prohibit including an earlier effective date on a contract, your backdated agreement may not be considered legal. In addition, some legal systems may require a public official to be present for the signing of the contract.

Under US tax law, people who backdate contracts to save money on taxes or distort their income are deemed to have committed an offense. Regulations against conspiracy also state that even if the relevant tax law isn't violated, a court could find a person criminally liable for conspiracy for backdating documents.

If a court finds that one or both of the parties to an agreement backdated it with criminal intent, this can result in a charge of fraud. Even if you have no intention of committing such an offense, bear in mind that the very act of backdating an agreement could raise suspicions. This is why it's important for you to decide whether the circumstances related to the backdating could lead to allegations of criminal intent being made.

How to Backdate an Agreement

If you want the effective date of your contract to be different from the issue date or signing date, you can:

  • Include the formulation "[contract] entered into on April 1, 2018 to be effective as of February 1, 2018"
  • Insert the text "[contract] entered into April 1, 2018 (the "signing date") to be effective as of February 1, 2018 (the "effective date")

You should try to avoid simply asserting in the contract that it was agreed to on the backdated effective date. This is because such a statement is untrue and would amount to misrepresentation, since the agreement was only signed at a subsequent date.

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