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Considering investing in a dedicated eSignature solution or a contract lifecycle management platform with digital signing capabilities built in?

Then you’ve probably got one big burning question to answer first:

Are electronic signatures legal?

Short answer: Yes.

Long answer: Yes—so long as a few standards are met, which can vary between different jurisdictions.

For the most part, using a quality eSignature software platform is going to set you right, and ensure you’re doing things by the book.

However, if you’re keen to dive a little deeper into the details and understand the true ins and outs of when and where electronic signatures are legal, keep reading. 

What are electronic signatures? 

Before we examine the legality of electronic signatures, it's helpful to understand what they even are.

An electronic signature is a fast and easy way to sign digital documents. It is legally binding and is used to signal acceptance of a document such as an employment or sales contract.

Also read: A Quick Introduction to eSignatures

While most electronic signatures look similar to our wet signatures (traditional, handwritten signatures), they don’t have to take this form in order to be considered electronic signatures.

Other commonly accepted forms include the following:

  • The typed-out name of the signer
  • A unique PIN or password
  • Biometrics (such as Face ID)
  • A symbol, sound, or voiceprint 
  • Clicking “I Agree” (or similar wording) 

In the United States, the Electronic Signatures in Global and National Commerce Act defines a legally-binding electronic signature as “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” 

What this essentially means is that two important things need to be in place:

  • The electronic action (such as typing in your name) is intended to function as a signature
  • The person signing has the intent to agree

While this is sufficiently secure for most organizations, you might object that the “intent to sign” component creates a bit of a grey area.

Imagine, for instance, that you get into a contract dispute with a client that ends up in a court of law.

Also read: Finding Common Ground: How to Resolve Contract Disputes

With your electronically signed agreement in hand, how can you prove that the person in question had the intent to sign and that it wasn't accidentally clicked by the client’s child while their iPad was open?

That’s where digital signatures come in.

Digital signatures are a specific form of electronic signature that is encrypted and embedded with critical information such as identifying details of the device and account used to sign a document and the date and time of the signature taking place.

When using a digital signature, you have a bit more protection and proof of intent when it comes to making your case in a court of law.

“At fast-growing companies, most work gets done in the eleventh hour. The management tends to be extremely pushy, and therefore, the legal team is expected to come up with ad-hoc solutions. Enterprises, however, are more structured as they want the legal team to envisage disputes and develop solutions that would work in the long run.” 

~ Sandeep Chowdhury, Group GC, HCC Ltd.

Transforming the Legal Function at a Large Enterprise 

However, both digital signatures and standard electronic signatures are considered legally binding as long as the relevant requirements are met.

What are the benefits of using electronic signatures? 

Aside from the fact that electronic signatures are legally binding (provided you meet the right requirements), what other benefits are in store from shifting over from traditional, hand-signed documents?

Benefits of using electronic signatures

1. Faster contract approvals

The biggest benefit of electronic signatures is the ability to cut down on how long your contract approval workflows take.

Also read: How to Set Up an Efficient Contract Approval Process (+Template & Examples)

With the pen and paper model, signing is cumbersome.

Your prospect needs to print the document, read it over, sign it, scan it, and send it back, only for you to let them know they missed a couple of spots where their initial is required.

Where contract redlining is concerned, things get even more cumbersome.

But when using electronic signatures—facilitated by a good eSignature platform—prospects are digitally guided through the signing process and can literally have the signed or redlined document back to your inbox within minutes.

“We are able to draft and redline contracts inside the CLM tool. Therefore, we no longer need to rely exclusively on tools such as MS Word and Google Docs. Now, all stakeholders can view and access just one true version of the contract.”

~ Igor Poroger, Director of Legal, EMEA, Vectra AI

How CLMs Empower Legal Teams in B2B SaaS Companies
 

2. Traceable signing history

If your contract signing solution has the ability to embed data—such as who signed a document and when—you benefit from enhanced security and proof of agreement in the event of a dispute.

In your CLM platform, an audit trail provides evidence of when documents were edited, sent, received, and signed without having to dig through piles of emails.

Also read: How to Buy a Contract Lifecycle Management (CLM) Platform that Actually Works for you

3. Reduced costs

Electronic signatures are simply cheaper than traditional agreements.

If you’re only handling a few agreements, you can potentially get away with a free eSigning solution like Adobe Acrobat or Preview on MacOS.

But even when considering the cost of a more powerful eSignature solution, you’re saving money on paper and ink, and the associated cost of all that would be wasted time chasing up agreements and amendments.

4. Compatible with modern work 

Lastly, electronic signatures are much more compatible with the state of modern work, where teams are often remote and, therefore, not within range of a printer (or maybe even a pen).

By providing employees and clients with the ability to sign electronically, you make it such that they never need to leave their computer, tablet, or phone. They can sign as soon they receive the contract without having to leave their desired device. 

Also read: From Paper to Pixels: Persuading Clients to Embrace E-Contract Signatures

What are the laws or standards for electronic signature compliance? 

In the United States, electronic signatures are considered legally binding so long as they abide by a few important criteria:

  • Intent to sign: All parties need to intend to agree to the contract (nobody can trick the other into signing)
  • Consent to electronic transaction: All parties must agree to use electronic means to sign the agreement
  • Association of electronic signature with the contract: The signatures must be directly associated with the agreement being signed
  • Clear attribution: It should be clear that the signature is attributable to the person who created it
  • Retention of electronic records: All parties must have access to the contract on an ongoing basis

These requirements are governed by two sets of laws in the United States:

  1. Electronic Signature in Global and National Commerce (ESIGN) Act: This is the federal law that sets the standard nationwide.
  2. Uniform Electronic Transactions Act (UETA): A law that states can use a model to pass their own electronic signature legislation.

New York is the only state that hasn’t adopted UETA. However, it uses its own electronic signature legislation—Electronic Signatures and Records Act (ESRA)—to achieve the same ends.

All three of these legislations recognize the validity of electronic signatures as legally binding, and the ESIGN Act sets out and governs the requirements for what constitutes an electronic signature, as discussed above.

It's worth noting that neither act covers wills, estates, trusts, and other family matters, so these may still require a wet signature in order to be legally valid. 

Across the world, countries have adopted their own versions of electronic signature legislation. Here are a few of the most widely used:

Additionally, a handful of countries have specific laws that prescribe which technical methods must be used to legally sign documents electronically. Examples include Brazil, Israel, Malaysia, and India.

Also read: Execute simple, secure, and compliant contracts using Aadhaar eSign

What documents can use electronic signatures? 

So, with all of this in mind, what specific kinds of documents allow the use of electronic signatures?

Here is a list of the most common options (remember, this is only the case if the signing satisfies federal government and state laws as outlined above):

  • Employee contracts, offer letters, and policy updates
  • Sales agreements, statements of work, and master service agreements
  • Non-disclosure agreements
  • Investment agreements
  • Real estate transactions 
  • Patient intake forms
  • Purchase orders
  • Account opening paperwork
  • Insurance policy applications, agreements, and claims

The National Telecommunications Information Administration (NTIA) also provides some guidance and what kinds of documents are not legally valid when signed electronically (though it’s possible this will change in the future):

  • Wills and trusts
  • Official court documents and court orders
  • State statutes related to family law, divorce, or adoption
  • Notice of cancellation of utility services
  • Notice of default or foreclosure
  • Notice of eviction for a primary residence of an individual
  • Notice of termination for health or life insurance policies
  • Recall notices for products that create significant health or safety risk
  • Documents legally required for the transportation of hazardous materials, pesticides, or toxic substances

Remember, while legal enforceability exists regardless of which kind of electronic signature solution you use, those that have the ability to embed data related to the signer’s identity provide better security and support in the event of a contract dispute.

Also read: Basics of Contract Management Software - Your Go-to Guide

Are electronic signatures legal? 

In sum, yes.

Electronic signatures are just as legal as traditional handwritten ones, provided they meet a few criteria (which are pretty much the same as the criteria that determine what a legally-binding signature is anyway).

In some regions, you must use a specific technology to capture electronic signatures (for example, Aadhaar eSign in India). However, by and large, an electronic signature is still legally binding even if simply attached using a PDF editor.

For a more secure and effective method of capturing digital signatures, we recommend opting for a contract lifecycle management platform with built-in encryption and data embedding, like SpotDraft.

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