Electronic Signatures: The Definitive Guide

The modern world uses electronic signatures on a daily basis. Digital agreements are a part of everything we do online and in the most important of our affairs. To sign these online contracts, you need an electronic signature. An effective digital signature can make or break your agreements, and you need the most effective tools to help you get there.

An electronic signature, often abbreviated as e-signature, is a digital representation of a person’s handwritten signature or an indication of their intent to sign a document or record electronically. In essence, it is the electronic equivalent of a traditional pen-and-paper signature used to indicate consent, approval, or authentication in various types of transactions and agreements.

Electronic signatures are used in a wide range of contexts, such as business contracts, legal documents, government forms, financial agreements, and other official or informal records. The use of electronic signatures offers several advantages, including speed, convenience, and reduced reliance on physical paper.

There are different types of electronic signatures, each varying in terms of security, complexity, and legal recognition. Some common types include:

• Simple electronic signatures: These are basic electronic signatures in which a person’s name is typed or selected from a drop-down menu. They can also be represented as an image of a scanned physical signature or a graphic created on a touch-enabled device.
• Biometric signatures: Biometric signatures use unique physical characteristics of an individual, such as a fingerprint or handwritten signature captured on a touch screen, to establish identity and provide a higher level of authentication.
• Digital signatures: Digital signatures use cryptographic technology to provide a higher level of security and integrity. They involve the use of a digital certificate issued by a trusted certification authority (CA) to link the signature to the signer’s identity and the document’s content. Digital signatures also ensure that any alterations to the document after signing are detectable.

Electronic signatures generally provide a modern and efficient way to sign documents and streamline workflows, reducing the need for physical paperwork and allowing for more seamless digital interactions in various sectors.

The modern era has changed the traditional definition of a signature. Many people still associate the word “signature” with pen-to-paper writing. But the reality of what now constitutes a signature is much broader.

In today’s world, a signature manifests a person’s affirmative assent to be bound to an agreement. While this used to be limited to traditional written signatures, the digital era offers many new ways to prove this assent to the contract.

Wet signatures

The usual “signature” most people think of is the wet signature. This occurs when a person or business physically signs a document with a pen on paper. This traditional method still necessitates negotiations by telephone, mail, email, or in person. This is a slow process, especially considering the fast-paced digital world we live in now.

Many companies still require a wet signature, often because leadership believes this is the safer method. In reality, current electronic signature methods are safe and reliable ways of creating an enforceable agreement. Other companies still use wet signatures because “it’s how we’ve always done it.” But with the modernization of digital contracting technology, more effective methods exist, making wet signatures unnecessary.

While a wet signature is an enforceable method, it creates limitations, including:

• Long delays in the agreement negotiation
• Requirements of a physical meeting and scheduling of that meeting
• Physical storage of the original contract

The evolution of signatures

Electronic signature technology has evolved significantly over time. Previous methods of contract acceptance include:

• Wet signature: The wet signature has been around for thousands of years. This used to be the primary method of signing a contract.
• Digital signature devices: The first “digital” signature method was a tablet or signature device that tracked an electronic pen, such as those used on credit card machines.
• Images of a signature: Some contracts utilize a picture of a signature used as the signature for a person or business. This is often copied and pasted into a document.
• Electronic signatures: A valid electronic signature includes clickwrap agreements or embedded signatures. They are far more efficient methods of gaining digital contract acceptance.

Read more about what constitutes a signature

Electronic signatures are widely used in business across various industries and sectors. They offer numerous benefits, including increased efficiency, reduced paperwork, faster processing times, and improved document security.

Here are some common use cases for electronic signatures in business:

1. Contract signing: One of the most common uses of electronic signatures in business is for contract approval. Businesses can create, send, and receive signed contracts electronically, saving time and streamlining the agreement process.

2. Sales and purchase agreements: Sales teams can use electronic signatures to finalize sales and purchase agreements with customers, suppliers, or partners, speeding up the sales cycle and reducing the need for physical paperwork.

3. Employee onboarding: Human resources departments use electronic signatures to onboard new employees. This includes signing employment contracts, policies, and other relevant documents.

4. Non-Disclosure Agreements (NDAs): Companies can use electronic signatures to obtain NDAs from employees, contractors, or business partners to protect sensitive information.

5. Vendor and supplier contracts: Electronic signatures enable businesses to quickly finalize contracts with vendors and suppliers, ensuring smooth procurement processes.

6. Client agreements: Professional services firms, such as consulting, legal, and accounting, use electronic signatures to obtain client agreements and engagement letters.

7. Loan and mortgage applications: Financial institutions can streamline the loan and mortgage application process by using electronic signatures for required documents.

8. Compliance and legal documents: Companies can use electronic signatures for compliance-related documents and approvals, ensuring that necessary regulatory requirements are met.

9. Change orders and amendments: Electronic signatures facilitate the approval of change orders and amendments to existing contracts or projects.

10. Internal approvals: Businesses use electronic signatures for internal approvals, such as budget authorizations, project proposals, and other official documents.

11. Remote work collaboration: In the era of remote work, electronic signatures enable teams to collaborate efficiently, even when team members are in different locations.

12. Vendor and client onboarding: Companies can use electronic signatures to onboard new vendors and clients, reducing manual paperwork and expediting the process.

By adopting electronic signatures, businesses can significantly improve their document management processes, reduce administrative burden, enhance security, and provide a better experience for both employees and customers. It is essential to choose a reputable and secure electronic signature service to ensure legal compliance and protect sensitive information.

There are several useful ways to sign a digital contract. Knowing how to sign a digital contract and what method to use is essential to ensuring enforceable digital contracts. These methods include:

• Clickwrap agreements: A clickwrap agreement is the simplest type of e-signature. All the signor needs to do is check a box or click a button confirming they have read the agreement and agree to its terms.
• Sign-in-wraps: A sign-in-wrap e-signature is like a clickwrap agreement in several ways. A sign-in-wrap requires the user to create an account and use that account to access the agreement.
• Embedded contracts: An embedded contract is a bit more time-consuming. These are called application programming interface (API) signatures because they are embedded into the app or webpage. This makes it easier to gather acceptance and important data within the same software.
• E-signature signing: An electronic signature can be signed with a digital pen, mouse, or another device that makes it looks similar to a written signature. This may also be performed with a digital stamp or the user drawing their signature.

These different methods provide options for your company. In most situations, a clickwrap agreement is the best and easiest option to sign a digital agreement.

Read more about how to sign a digital contract

Both e-signatures and clickwrap belong to the same family of click-to-sign contracts, although they are not necessarily the same. In fact, clickwrap agreements are considered more sophisticated and effective than other e-signatures. Choosing the right signature method for your needs can significantly impact acceptance capture rates and user experience.

E-signatures

Electronic signatures are usable in nearly every situation. E-signatures are useful for many online contracts, including tax returns, sales contracts, and even subscription agreements. E-signatures provide an easier signing method than a traditional wet signature. The entire signature process is considerably faster and can occur entirely online.

The potential downside of an e-signature is that it can be clunky or slow compared to a clickwrap agreement. It requires a separate signature method, such as an envelope-based signature. Envelope-based signatures are sent to a recipient to sign, and they must then send back a separate response with the signature. This often results in substantial delays in securing contract acceptance.

Clickwrap agreements

A clickwrap agreement is a form of single-click signature method. These are very useful in digital contracts and other online agreements. The user clicks a button or checks a box that states, “I agree.”

The clickwrap signature is a collection of data points that make up an audit trail by proving how the user “affirmatively assented” to the terms of the digital contract. The clickwrap then keeps accurate back-end records to prove that this acceptance occurred.

Clickwrap agreements are commonly used in updates to Terms and Conditions, subscription agreement updates, and many other business-to-consumer (B2C) situations. While common in B2C situations, business-to-business (B2B) organizations commonly use these agreements because they are highly enforceable and come with several other benefits.

Benefits of clickwrap agreements include:

• They are easy to sign because the user simply clicks to agree.
• They are versatile because they can be added anywhere in the workflow.
• They are designed to handle high-volume acceptance.
• They automatically create an accurate audit trail.
• They provide a seamless customer experience by making it easy to accept terms and conditions.

Similarities between e-signatures and clickwrap agreements

While they are different, e-signatures and clickwrap agreements do share similarities. Both types of agreements create legally binding contracts. Federal law makes both types of digital agreements legally enforceable. When properly designed and recorded, these digital agreements are just as effective as a written signature. While clickwrap agreements are easier to use, especially for consumers, both types of agreements are legally enforceable.

Businesses use both types of signatures. These methods streamline contract acceptance and decrease turnaround time for capturing that acceptance.

Read more to compare clickwrap with electronic signatures

Electronic signatures are generally considered legally valid in many countries, including the United States, the European Union, Canada, Australia, and many others. These countries have enacted laws and regulations that recognize the legal validity and enforceability of electronic signatures for a wide range of transactions and documents.

The legal recognition of electronic signatures is usually based on two key principles:

1. Intent to sign: For an electronic signature to be legally valid, there must be evidence that the signer intended to sign the document. This can be established through various means, such as clicking an “I Agree” button, typing a name, drawing a signature using a stylus or mouse, or using other authentication methods like a digital certificate.

2. Reliability and authentication: The electronic signature process should be reliable and appropriate for the circumstances. To ensure this, some countries require higher levels of security, such as using digital signature certificates issued by trusted certification authorities (CAs), especially for more critical or sensitive transactions.

It’s important to note that while electronic signatures are generally legally valid, certain types of documents and transactions may have specific requirements or exceptions. For example, some documents like wills, trusts, or real estate deeds may still require physical signatures due to specific legal requirements in certain jurisdictions.

To fully understand the legal implications of electronic signatures in your specific country or region, it is essential to review the relevant laws and regulations. Additionally, it’s advisable to consult with legal professionals to ensure compliance with local laws and to determine the suitability of electronic signatures for your particular use case.

Since the legal landscape is subject to change, it’s a good idea to stay updated on any new developments or legislative changes regarding the recognition of electronic signatures.

Two primary laws govern electronic signatures, their use, and what constitutes a signature in the United States. These laws are complex and have very specific requirements. The right e-signature solution handles these requirements and makes it easy to comply.

The Electronic Signatures in Global and National Commerce Act (ESIGN)

The  ESIGN Act became law on June 30, 2000. It creates rules that govern the enforceability and validity of electronic signatures. This also includes records for transactions that affect interstate or foreign commerce. The ESIGN Act is one of the primary laws making electronic agreements and digital contracts enforceable.

The law outlines the requirements for an electronic signature. Under the act, an electronic signature is defined as “any electronic sound, symbol, or process” that would be “logically associated” with the agreement. This broad definition covers many types of e-signature methods, including clickwrap agreements. Your company’s agreements must comply with the ESIGN ACT requirements to ensure your digital contracts are legal and enforceable.

A company must obtain the user’s prior consent with a clear and conspicuous statement that informs the consumer:

• Of all legal options or rights for the record to be provided or made available in paper or electronic form
• The right to withdraw consent of permissions
• If the legal consent applies only to a specific transaction or instead to different categories of records
• Of any procedures the consumer must utilize to withdraw previous consent
• How the consumer can request a paper copy of a record, and whether any fees apply to requesting that copy

The Uniform Electronic Transactions Act (UETA)

The UETA is a state law rather than a federal law. The National Conference on Uniform State Laws adopted the UETA in 1999, and the act has now been adopted as law by 49/50 states. The UETA actually predates the ESIGN Act and outlines additional obligations for electronic signatures and records not listed in the ESIGN Act.

The UETA gives legal protection for digital signature methods. It includes legal provisions that state:

• A record or signature may not be denied validity or enforceability just because it is in a digital format.
• An agreement may not be denied validity or enforceability just because a record was in an electronic format.
• If a law or regulation requires a document to be in writing to be enforceable, an electronic record satisfies this requirement.
• If a law or regulation requires a signature, a digital signature complies with the law.

Read more about American esignature laws

European signature laws

Sixteen years after the U.S. passed the ESIGN Act, the European Union passed the eIDAS Regulation, which is short for “electronic identification and trust services.” This European regulation created a three-tiered signature rating and formed a service to verify the authenticity of businesses and individuals concerning electronic documents or signatures.

To use electronic signatures within the European Union, a person or company must use one of the following signature types:

• Standard Electronic Signature (SES)
• Advanced Electronic Signature (AES)
• Qualified Electronic Signature (QES)

Read more about European electronic signature laws

E-signature laws in Australia

Australia was an early adopter of electronic signatures, beginning with The Electronic Transactions Act (ETA) passed in 1999. But until COVID-19 prompted the government to act quickly, there was still a long list of restricted transactions that still required a wet signature. Temporary measures allowed more flexibility during lockdown, but once expired, digital contracting began to regress.

Today the country is in a state of flux, working to enact legislation in keeping with the pace of technology and demand.

Read more about Australian esignature laws

Choosing the right e-signature tool can seem challenging or even daunting. You can choose from several options, but not all e-signature options are created equal. C-suite executives and legal teams should choose the appropriate method to meet their needs. To do this, answering five questions can help determine what e-signature tool is best for your situation.

1. Does the e-signature solution integrate easily with other software systems?

Legal, sales, procurement, and numerous other departments use several types of software every day. These organizations need an e-signature solution that integrates easily and well with their existing systems. The e-signature solution should complement these systems and not require significant reconfiguration to get them to work together.

E-signature methods should also make the signature process seamless for users. Signing and capturing that signature in your existing systems should be easy. Users should be able to sign their agreement anywhere—from a laptop, tablet, or even a cell phone.

2. Does the method make signing easy?

The e-signature method should make it easy for the user to sign—no matter what type of device they are using. An effective e-signature method, like a clickwrap agreement, is a simple method that works on nearly any device. Other options, like embedded contracts, similarly make it simple for the user to assent to the terms of the contract.

The e-signature method should also make it simple to capture back-end acceptance records. An agreement means little if you cannot prove it was made. This proof is necessary for the enforceability of the e-signature and the contract.

3. Does the e-signature meet compliance and regulatory needs?

You need an e-signature method that complies with the legislation and regulations governing your business. These will depend on your particular business, practice, or industry.

You should ensure that your e-signature technology complies with all privacy legislation. This includes the California Consumer Privacy Act (CCPA) and the European Union’s General Data Protection Regulation (GDPR). These privacy laws obligate you to process, request, and store users’ personal data and signatures in particular ways.

Businesses must also keep complete and accurate records of who signed what document and when. This task can be difficult for companies with hundreds or thousands of simultaneous active contracts.

The e-signature method should utilize a dynamic contract repository that automatically keeps comprehensive records. It should be a centralized hub that stores records and makes them easily accessible to help comply with regulatory needs and compliance audits.

4. Does the e-signature software permit brand customization?

Your brand should permeate everything your company does, including how it collects affirmative consent to contracts. Your contracts should look like the rest of your company’s materials.

Your e-signature method should allow you to customize it to maintain your brand. Keeping your branding in the signature process increases customer trust and confidence in the signature method.

5. Does it help your company scale?

Your e-signature method should be able to meet your company’s needs at scale. Your company needs to be able to grow, and your e-signature method needs to be able to keep up.

You should consider the following to see if your e-signature method can keep up with your company’s growth:

• Does the solution let you deploy the e-signature behind a firewall or within the cloud?
• Does the solution offer clickwrap agreements or just less sophisticated types of e-signatures?
• Does the e-signature solution offer high-level encryption, security certificates, and other security features?
• Does the e-signature solution offer support in different languages and support access from other countries?

A growing business needs a highly flexible and adaptable solution to help it change and meet new challenges.

Read more about evaluating esignature tools

There are many options for digital signatures. Some of the ones you might have heard of include DocuSign, Adobe Sign, HelloSign, and PandaDoc. These platforms make it easy to sign the document but often lack the back-end capabilities of a more comprehensive contract management solution.

The right choice for digital signatures gives your company the following:

• A tool that makes digital collaboration easy for different departments and counterparties
• DocX native platforms for all digital signature methods
• A workflow designer with a drag-and-drop interface that makes it easy to create digital signatures, contracts, and approval processes
• A centralized contract repository for all digital signatures and agreements
• The ability to handle all contract types
• Pre-built templates to create new and manage existing contracts
• The power to edit contracts in real time

Compare popular e-signature tools

The right contract management software empowers you and your employees to self-manage electronic signature and digital contracts. Your business needs the tools to expedite digital signatures, store them, and create an automatic audit trail so you can comply with federal, state, and international laws on digital signatures and privacy laws.

Digital signatures save you time, money, and frustration compared to outdated signature models. With electronic signatures, you can ensure all parties are on the same page for negotiations, redlining, and acceptance.

Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.