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Electronic Signatures and the Law: What You Need to Know

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

Electronic signatures created a whole new level of convenience for businesses everywhere that dealt with legally binding contracts. What previously took weeks of shipping a contract to the signee then returning it signed, now happens instantly. It’s also much more efficient than faxing documents and returning them signed, or emailing documents, printing them and scanning the signed papers back into the computer.

There are numerous applications and services for electronic signing such as DocuSign and Adobe Sign that allow you to send requests and receive signatures for business purposes. Different signature programs can collect signatures through a touchpad interface, typing a name, using a designated pin code or even just clicking a checkbox. Does an electronically signed contract hold the same legal weight that one signed physically does, and what is the proper way to implement this technology?

Electronic Signature History and Law

The Electronic Signatures in Global and National Commerce (ESIGN) Act was made law in 2000 and established 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 (UETA) 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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To surmise, e-signatures have become commonplace among the internet, e-commerce and the online financial industry. When done 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. There are 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 it 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 somehow drawing their signatures electronically, typing their name or clicking an accept box.
  • Consent to Do Business Electronically – Part of 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 solved by the next rule.
  • Signed Copies – Both parties should receive a copy of the signed document. Most e-signature applications can do this automatically.
  • Opt-out Clause – The signer must always have the option to decline to sign electronically and can instead receive a physical copy to sign in-person and send back. Companies should be prepared for this occurrence.

Security and Privacy

Trusted electronic signature software contains security measures to ensure the legitimacy of an agreement and prevent fraud. Different programs offer different forms of authentication used to make sure the signer is who they say they are. For the best security, pick programs that allow for multiple forms of authentication to be used. 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,” according to Rahim Kaba, director of product marketing for eSignLive.  “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 that include information on who signed, in what order, when and where.

Summary

Digital signatures are time savers and are approved by the law as long as you follow the requirements and guidelines for correct usage. The top e-signature brands help you follow these rules and keep your contracts and other documents secure. Kaba says “document and signature security are at the heart of any electronically signed contract or document.”

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