Are electronic signatures legally binding?

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Are electronic signatures legally binding?

Almost everything in today's business world is going digital. With the rise of electronic signatures, or e-signatures, processes that were previously only possible in person can now be performed remotely. In just five years, e-signature transactions have increased from $89 million to $754 million.

Despite this rapid adoption, some businesses remain concerned about electronic signatures and the security implications they entail. Most notably, one is frequently unsure whether they are legally binding. In short, e-signatures are legally binding in some situations but not in others.

Why Should You Use E-Signatures?

Before delving into the legality of e-signatures, it's important to understand why you'd want to use them. These tools, like many digital alternatives to in-person processes, provide numerous efficiency and monetary advantages over their traditional counterparts. One of the most obvious of these benefits is speed.

Signing documents electronically eliminates the need to print them or travel to sign them. These savings may appear insignificant at first, but they add up to significant improvements. The state of Vermont, for example, reduced contract approval times by 75% by implementing e-signatures.

Requirements for Legally Binding E-Signatures

While they may appear less formal, e-signatures are as legally binding in most cases as traditional signing. However, unlike traditional signatures, they must meet a number of requirements in order to be legally enforceable. These requirements are outlined in the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA). These regulations require five core principles to be included in legal e-signatures:

  • Signing intent
  • Acceptance of doing business electronically
  • Retention of records
  • Copies with signatures
  • Opt-out provision

Intent to sign means that the signees intend to sign the document in question. This is frequently accomplished by typing their name, clicking a "Accept" box, or electronically drawing their signature. "Consent to do business electronically" means that everyone must agree to use e-signatures.

Both parties must also be able to keep a record of the document in its original form. The following rule, signed copies, addresses this issue by requiring each party to receive a copy of the signed document.

Finally, an opt-out clause must be included that allows signees to request a physical copy to sign instead. This should include detailed instructions on how to use manual signatures.

In almost all cases, handwritten signatures are required on certain documents, such as birth, marriage, or death certificates. However, e-signatures that meet these requirements are generally applicable to all standard business transactions.

Digital Signatures vs. E-Signatures

You may come across the term "digital signature" when researching e-signatures. As similar as this sounds to electronic signatures, it is not the same thing. All digital signatures are e-signatures, but not all e-signatures are digital signatures. The difference is a matter of security.

To ensure that signees are who they say they are, digital signatures include a form of certificate-based authentication. 

Some e-signature tools employ digital signatures to add an extra layer of security. These aren't legally required in many cases, but they may be under some state laws and can help strengthen the validity of e-signatures.

Legality of E-Signatures Around the World

Companies that conduct international business should consider the e-signature laws of other countries. E-signatures are legally binding in most countries, but different countries may have different standards that must be met in order to be enforced.

The European Union, for example, defines various types of e-signatures, some of which have more legal weight than others. Simple Electronic Signatures, the lowest tier, has no security requirements and thus may not be applicable in all cases. The highest level, Qualified Electronic Signatures, includes authentication measures and tamper detection and is as valid in all cases as handwritten signatures.

In general, the higher the legal value of your e-signature platform, the more secure it is. Before using e-signatures for official transactions, always check regional laws and regulations.

E-Signatures Can Be a Beneficial and Legal Option

E-signatures are a legal and frequently useful alternative to physical signing as long as they meet these requirements. Whatever the reason for the signature, an e-signature is likely to be accepted.