Many small business owners believe that traditional ink signatures are the only way to go when it comes to legal documents—but that’s not the case anymore.
Electronic signatures (e-signatures) have been legal in the United States for over 20 years now. Once considered a luxury to use, e-signatures are now considered the standard way to authenticate business and legal documents. E-signatures and electronic records carry the same legal weight as their pen-and-paper counterparts. In fact, if an e-signature were challenged in court, it would be easier to authenticate than a written signature due to its digital audit trail. The data captured with an e-signature, such as IP address, location, date, and time, would all serve as concrete evidence to establish the signer’s authenticity. As a result, many consider e-signatures to be more secure than ink signatures.
E-signatures are a valuable business tool that more businesses are harnessing as remote work increases in popularity. Although more people are working from home, e-signatures have made it possible for businesses to continue their operations as normal.
E-signatures have significantly simplified and accelerated signing legal documents, such as employee agreements, leases, mortgage contracts, financial documents, non-disclosure agreements, consent forms, and more. Business owners can also include electronically signed documents in their corporate records. With e-signatures, virtual collaborations are more feasible and efficient, allowing businesses to form successful partnerships that help them thrive.
What are Electronic Signatures?
An electronic signature (e-signature) is a legally binding way to sign and approve legal documents virtually. Signers can simply check agreement boxes, type their full name, provide their email address, or use a stylus on a touch screen to mimic their handwritten signature. E-signatures can replace and fulfill a handwritten signature for virtually all signature requirements. In 2000, the E-SIGN Act assigned e-signatures the same legal status as handwritten signatures in the United States and all of its governing territories. It defined an electronic signature as:
“Any electronic sound, symbol, process that is attached to or somehow associated with a record or contract and executed by a party with intention to sign.”
The E-SIGN Act allows for any signature requirements to be fulfilled by e-signatures. Specific exceptions include: wills, codicils, and trusts, family law matters like divorce, certain court orders like eviction or foreclosure notices, product recalls, and documents accompanying the transport of hazardous materials.
E-signatures can be presented as evidence in court and their legal validity cannot be denied solely because of their digital form. In addition, e-signatures can still take place even when a notary is required. Remote online notarization (RON) is legally authorized in all states by E-SIGN. In states that permit RON, the signer appears before the notary via online audio-visual technology to satisfy the notarization.
E-signatures carry the full legal weight of traditional wet signatures. However, for an e-signature to be considered legally binding, it must meet certain conditions.
What Makes Electronic Signatures Legally Binding?
Intent to Sign
Intent to sign refers to the signer’s intention to enter into a legal agreement, and it is traditionally signified by the traditional pen and paper signature to be legally binding. E-signatures to be legally binding, signers must show the same willingness to enter into a legal agreement. Signers can fulfill this by checking agreement boxes on electronic forms, typing their full name and email address, or drawing their signature with a computer mouse or a stylus on a touch screen. Any of these would clearly show a signer’s intent to accept the terms of a contract and could be used as evidence in court.
Identification of Parties
For e-signatures to be secure and legally binding, the identity of the signing parties must be known and proven. E-signatures can satisfy this step by asking the signing party to confirm their email address or by requiring the signing party to login to an existing system. A more secure but tedious method to authenticate the signer’s identity would be requiring the signer to obtain a digital certificate, which is essentially an electronic credential acquired from a trusted service provider.
Disclosure and Consent
Before completing an e-signature, signers must be clearly informed of the contract’s terms, conditions, and intended use. In most cases, there is an appropriate notice disclosing this information and a “click to accept” checkbox for signers to show their consent to the agreement’s terms. If dealing with international parties, it may be necessary to provide disclosure language in multiple languages.
After accepting the terms of agreement, the e-signature system must provide an “electronic sound, symbol [or] process” that unmistakably attaches the signer to the agreement. Normally, signers will type in their full name and email address or mimic their handwritten signature with a stylus or computer mouse.
Agreement & Data Secure from Tampering
The digital system used to sign the contract electronically must have security measures and technology in place that encrypts the data and secures it from tampering. In addition, any tampering that may occur must be detectable by the system and apparent to the signers.
Record Retention and Signed Copies
Finally, the signed document must be retained and available to all involved parties. Usually, this is achieved by emailing the electronically signed document and allowing each individual to save the electronic document in their preferred method.
Why Do People Use Electronic Signatures?
E-signatures are more convenient and less time-consuming than traditional pen and paper contracts. Coordinating and faxing handwritten signatures for legal documents can quickly become a tedious, back-and-forth process. If clients or business partners are unable to meet in person, e-signatures make it easy to complete dealings in one place—without the need to synchronize schedules or handle physical documents. Employing e-signatures is also a cost-effective way to reduce paper use and to reduce overall clutter. In addition, electronic access to signed documents makes it easy to find and access relevant documents in the future.
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*Janelle Peyton is the CEO and Managing Partner of Peyton Law, a leading boutique law firm designed to provide the highest quality branding, business, and legal services to companies via quarterly subscription called Strategic Legal Solution. Peyton Law offers brand building strategies through corporate and intellectual property law, including business entity formation, buy+sell, contracts, joint ventures, trademarks, patents, licensing, and other growth-related transactions.