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Electronic signatures – how do they work?

26th May 2017

The purpose of this article is to provide greater clarity on the methods of signing an agreement electronically, so that (where appropriate and with further guidance) companies can use electronic signatures with confidence. Companies should establish their own protocols to ensure that signatures are correctly authorised.

The different methods for signing an agreement electronically are often confusing, particularly as English law imposes restrictions for various types of agreements. This can be a source of frustration (and risk) for parties as electronic signatures offer an attractive means of expediting the execution of documents.

Whether an agreement that has been electronically signed is valid or not will depend on the type of agreement and how it has been electronically signed. Please note that this article only sets out the different ways of signing an agreement electronically. There are many different factors that need to be taken into account when determining whether an agreement is binding on the relevant parties.

The law

Regulation (EU) No. 910/2014 (the “Regulation”) sets out the validity of electronic signatures in the EU, including the UK. It established the principle that an electronic signature should not be invalid just because it is in an electronic form. The Regulation came into force on 1st July 2016 and is incorporated into English law. Since the Regulation merely prohibits the restriction of electronic signatures, it is up to each EU Member State to determine what agreement types can be signed electronically. As at the date of this article, English law does allow for the electronic execution of agreements, subject to compliance with certain legal requirements.

Below is a table of each type of agreement under English law and a brief example of the practical methods that can be used to help validly execute the agreement by electronic means.

Different methods to electronically sign an agreement

Agreement

Method to use

Agreements that are not subject to specific statutory requirements (such as an agreement to purchase a product from an online shop)

These agreements can be formed orally or in writing and are not subject to specific statutory requirements. This means they only require an offer, an acceptance, a transfer of money (or something of value) and an intention to create an agreement.

These agreements can be signed by clicking an acceptance box when presented with the terms & conditions on a website. For more bespoke contracts,  a person can sign by typing their name at the end of an acceptance email after presented with the terms & conditions, or by pasting their name into the signature section of an electronic copy of the agreement.

Contracts that are subject to statutory requirements (such as stock transfer forms).

These agreements would be in a written document (as opposed to in a form on a website), which may need to be in a specific form. They can be executed via an acceptance email or a pasted signature (as explained above), whichever is most appropriate. 

Deeds (such as leases and powers of attorney).

Deeds must be signed by the parties, witnessed by an independent adult, and signed by that witness. They must also be in writing.

As with the other two types of agreements explained above, the parties can paste signatures into an electronic version of the agreement. However, the witness requirement means that the witness should be physically present when the parties paste their signatures, and the witness’ signature should be pasted immediately following the parties’ signatures.

Company secretarial documents (such as a change of director form).

Companies House has an online portal which permits the electronic submission of many Companies House forms. The forms that are not hosted on the portal must be signed using wet-ink as Companies House will not accept an electronic signature. 


The above table is only a snapshot of such methods as the practicalities are often complex and require a great deal of planning. Please contact Howard White, Associate in the corporate team for further information.  

 

The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2017.

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