Free Enterprise - The FindLaw Small Business Law Blog

Are Electronic Signatures Valid?

Businesses enter into contracts on a daily business. Small business owners may wonder just what electronic signatures are. Are these valid signatures?

The short answer is that yes, most electronic signatures are valid if done properly.

And electronic signatures are growing increasingly more important, considering the vast number of contracts that are now digitized. The federal government recognized the growing number of electronic documents and passed the Electronic Signatures in Global and National Commerce Act (ESIGN) in 2000.

With this in mind, here are some electronic signature basics:

Electronic contracts are digitized.

Electronic signatures can be valid for electronic contracts. Electronic contracts are those that are created, transmitted and signed in an electronic form. There is no paper used in this process.

There are different types of electronic signatures.

There are various ways to "sign" a document electronically. You can initial a contract or type in a full name where the contract indicates. Alternatively, you can click an "I Agree" box. Another valid way to sign an electronic document would be to scan and paste in an image of a person's real signature.

ESIGN does not work for all contracts.

Electronic contracts are not valid for all types of agreements. Certain contracts must be paper-based. These include termination of health or life insurance benefits, product recalls, foreclosure notices, court notices, utility termination notices, wills, and many family law-related documents.

Consumers must be informed of paper options.

The law mandates that businesses give consumers notice about whether or not a paper copy of the contract is available before obtaining an electronic signature. Consumers can also opt to switch to paper documents at any time if they are available.

What does this mean for businesses? In short, most of the time electronic signatures are valid signatures. But, sometimes electronic contracts just don't work. Businesses should be cautious and consult a business attorney if they need clarification on what laws apply to which contracts.