An electronic signature is defined as, “…an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”
Digital signatures have become a customary method for conducting business transactions and signing documents in the world of e-commerce.
The electronic format of signatures lets you send your documents to your clients no matter where they are.
This saves you time and money because you don’t have to worry about printing off and storing these documents at physical locations.
The widespread adoption of eSignatures means that there needs to be safeguards in place to ensure that digital transactions are conducted fairly.
Most countries have their own laws in place regulating how electronic signatures can be collected.
And if you live in the United States, you’ll want to familiarize yourself with the ESIGN Act.
Why are eSignature laws necessary?
Before we get into talking about what the ESIGN Act is, let’s look at why electronic signature laws are so important.
During the early 2000s, the growth of electronic commerce in the U.S. required establishing a well-defined legal framework for electronic contracts.
In order to standardize regulations, individual states started a unified set of rules known as the Uniform Commercial Code, which subsequently evolved into the Uniform Electronic Transaction Act (UETA).
Worldwide, many countries have adopted electronic signature laws.
In Europe, eIDAS regulations standardized electronic signature laws for countries in the European Union. And the U.S. passed the UETA and ESIGN Act.
|Record retention||Record retention refers to the storage of documents and records that are no longer active. This can refer to paper forms or electronic documents.|
|Consumer consent||Consumer consent involves the consumer either expressing agreement to the terms presented in the document or exercising the option to decline the agreement, as outlined in the consumer disclosure.|
|Audit trail||An audit trail is any system that can track changes and updates made to an electronic record.|
Electronic signatures in global and national commerce
The Electronic Signatures in Global and National Commerce Act (ESIGN Act) is a federal law passed by Congress on June 30, 2000. It ensures the validity and legality of electronic signatures.
The ESIGN Act provides guidelines that standardized electronic signatures across the U.S.
Electronic signatures that comply with ESIGN guidelines are given the same legal weight as handwritten signatures.
The 5 main requirements of the ESIGN Act
Here are the five main requirements eSignatures must meet to ensure they are legally binding:
Intent to sign
A digital signature is legally binding if both signers demonstrate a clear intent to approve the document.
Consent to do business electronically: Intent to sign isn’t enough on its own; both users must also demonstrate their consent provision to conduct business electronically.
Association of the signature with the record
To prove the link between an electronic signature and the signed document, you must provide the details of the transaction (contact details of the signatory, date and time, data, documents attesting to the authentication process, etc.).
Attribution to the person signing
The software you use to collect electronic signatures must clearly indicate who signed the document.
Provide a written record
Finally, you must have an electronic record of all digital transactions.
In terms of consumer protection, you are required by law to provide a copy of the transaction’s record in an electronic and non-electronic form (paper document).
Important exclusions to note
One of the important things to understand about the ESIGN Act is that it applies to commercial transactions.
It does specify that certain types of transactions are excluded under the ESIGN Act.
The following documents are excluded under the ESIGN provisions:
- Divorce paperwork
- Wills and testamentary trusts
- Court notices, such as briefs, pleadings, and other writings
- Notice of the termination of life insurance or health insurance benefits
- Notice of the termination of utility services
- Notice of eviction or foreclosure
- Notice of repossession or default
- Adoption paperwork
- Recall notices for a product
- Documents required to accompany the transport or handling of hazardous materials
ESIGN Act vs. UETA
The ESIGN Act is not the only law regarding electronic signatures in the U.S. The Uniform Electronic Transactions Act (UETA) actually came first; it was passed by the National Conference of Commissioners on Uniform State Laws in 1999.
The UETA also provides a framework for legally accepting electronic signatures in the U.S. However, the ESIGN Act is a federal regulation whereas the UETA is enacted at the state level.
Currently, 47 states in the U.S. have enacted the UETA, along with the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
New York, Illinois, and Washington haven’t enacted the UETA but have adopted similar legislation regarding eSignatures.
Here are some of the ways that the UETA and ESIGN Act work together to provide a legal framework regarding electronic signatures:
Give eSignatures legal validity
Both the UETA and ESIGN Act ensure that eSignatures are given the same legal weight as handwritten signatures.
These acts state that electronic signatures cannot be considered invalid simply for being electronic.
Require consumers to provide consent
One of the important aspects of both acts is that they require consumers to provide consent.
And consumers must also be informed that they have a right to withdraw such consent at any time.
Require a written record of the transaction
Both acts require businesses to maintain a written record of the transaction.
If the legitimacy of the document is questioned at some point, this written record can help resolve these issues.
Prevent conflicts across different states
The ESIGN Act and UETA work together to resolve conflicts at the state and federal level.
It is normal to conduct business transactions with consumers or businesses in other states. These acts help prevent conflicts from arising in interstate commerce.
Is PandaDoc software compliant with the ESIGN Act?
Yes, PandaDoc software is legally binding and 100% UETA and ESIGN compliant.
Our software not only provides you with digital signing certificates for every electronic contract but also ensures the use of electronic records, enabling you to securely store and access transaction details.
This certifies that you have reliable and transferable records of each transaction at your fingertips.
How do I get started with electronic signatures?
Electronic signature laws like the ESIGN Act make it easier for businesses to accept eSignatures from clients and customers.
Not only can you conduct business transactions faster, but you can do so knowing that they will stand up in court.
The best way to ensure that your documents and contracts meet ESIGN and UETA requirements is to find the right electronic signature software.
PandaDoc, as one of the best electronic signature software options available, offers a variety of plans that provide unlimited electronic signatures and business documents.
Originally published June 4, 2020, updated June 13, 2023