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Electronic Signatures and the Law: What You Need to Know

business.com editorial staff
business.com editorial staff

What are the laws and best practices surrounding e-signature software?

  • E-signatures are a fast and effective way to get signatures through email or other digital messaging media.
  • E-signatures are officially recognized by the FDIC as an acceptable method of signing a contract as long as they adhere to protocol.
  • There are several easy-to-use programs on the market that facilitate electronic signatures of documents.

Electronic signatures have created a whole new level of convenience for businesses that deal with legally binding contracts. What previously took weeks – shipping a contract to the signee, who then mailed it back with their signature – now happens instantly. It's also much more efficient than faxing a document to be returned with a signature, or emailing a document and scanning the signed paper back into the computer.

There are numerous applications and services for electronic signing – such as DocuSign, Adobe Sign and OneSpan – that allow you to send requests and receive signatures for business purposes. Different signature programs can collect signatures in different ways, such as the user signing with their finger on a touchpad interface, typing their name, entering a designated PIN code or even just clicking a checkbox. But does an electronically signed contract hold the same legal weight as a physically signed one, and what is the proper way to implement this technology?

Electronic signature history and the law

The Electronic Signatures in Global and National Commerce (ESIGN) Act was made law in 2000, establishing the validity of electronic records and signatures for matters affecting interstate or foreign commerce, according to the Federal Deposit Insurance Corporation. The Uniform Electronic Transactions Act was a unilateral state-level law to accept electronic signatures that was adopted by most states. The remaining states have their own laws that accept e-signatures. Internationally, most industrialized countries have laws to accept e-signatures.

 

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E-signatures have become commonplace across the internet, e-commerce and the online financial industry. When used correctly, an electronically signed document and one signed with pen and ink hold the same legal standing. However, there are a few differences between the two, with rules that companies must follow when drafting a contract that's meant to be signed electronically.

Requirements of an electronic signature

When preparing a contract or other legally binding document to be signed electronically, according to Adobe Sign, these are the rules you must meet for the signature to be valid:

  • Intent to sign: The signer must show clear intention to sign the document. This intent is shown through the action of drawing their signatures electronically, typing their name or clicking an acceptance box.

  • Consent to do business electronically: The agreement must include a clause that indicates all parties involved are consenting to have the transaction occur electronically.

  • Record retention: The agreement must remain accessible to both parties and retained in the form it was when signed. This requirement is easily covered by the next rule.

  • Signed copies: Both parties should receive a copy of the signed document. Most e-signature applications send them automatically.

  • Opt-out clause: The signer must always have the option to decline to sign electronically and instead receive a physical copy to sign in person and send back. Companies should be prepared for this occurrence.

Security and privacy with e-signatures

Reputable electronic signature software contains security measures to ensure the legitimacy of an agreement and prevent fraud. Different programs offer different forms of authentication to make sure the signer is who they say they are. For the best security, pick a program that allows multiple forms of authentication. Another common security measure is the implementation of a digital signature along with the electronic one.

"Based on public/private key cryptography, digital signatures are used in a variety of security, e-business and e-commerce applications," said Rahim Kaba, vice president of product marketing at OneSpan. "When used within an electronic signing application, digital signature encryption secures the e-signed data. If an e-signed document is modified or tampered with in any way, digital signature technology will detect it and invalidate the document."

While digital signatures are used to prevent tampering, audit trails can be used to confirm a document's legitimacy. Audit trails are logs embedded in the documents with information on who signed, in what order, when and where. 

E-sign software options

DocuSign

DocuSign is simple yet effective e-sign software with many different applications. Users can input their electronic signature at the beginning of the document and replicate it wherever necessary.

The software also allows you to store a certain number of documents in the cloud, giving you access to anything you need at a moment's notice. You can email documents to the necessary parties through DocuSign, and it also has a Gmail add-on for an easy way to send and receive documents. You can require SMS or email verification for sensitive documents.

DocuSign is a great solution for simple contracts that don't need to be notarized or signed in person. It's among the most popular e-sign software on the market, boasting a clean, powerful interface that is great for various scenarios. 

Adobe Sign

Adobe Sign makes signing official documents quick and painless. It supports two different types of signatures that can be effective for different purposes: electronic signatures and digital signatures.

Electronic signatures are more casual. They are good for basic contracts and allow quick verification through a generated signature. Digital signatures feature heavier encryption and require the signer to go through an identity authentication process. They are better for documents that need an extra level of security.

Adobe is easy to use and effective at generating trustworthy electronic signatures. The UI is a bit rigid compared to DocuSign, but Adobe is better for important documents that need extra care.

Digital signatures are timesavers and approved by the law as long as you follow the requirements and guidelines for usage. The top e-signature brands help you follow these rules and keep your contracts and other documents secure.

"Document and signature security are at the heart of any electronically signed contract or document," said Kaba.

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