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Is an electronic signature legal as part of a contract?

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Is an electronic signature legal as part of a contract?


In the days when the Internet was still in its developmental stages of commercial use, many users were not comfortable with using online communications for contractual agreements because of the need for signatures.

In 2000, Congress recognized this growing problem in allowing online communications to suffice as enforceable contracts. The legislative body then passed a law to the effect that electronic signatures can be used as long they satisfy the requirements of a physical signature regarding the rules of an enforceable agreement. The physical personal signature is no longer necessary, and trends seem to indicate that this will be standard operating procedure for all online contracts in the future. Almost all other nations have also adopted the same principle law, which is making the online marketplace a very vibrant economic reality. Indeed, much of the economic growth around the world is stemming from online communications now that international business can be impacted as well. But, while the advantages of personal electronic signatures are obvious, there are still some disadvantages and potential situations where problems can arise.

The Electronic Signatures Act of 2000

Before the year 2000, the validity of electronic signatures with respect to binding agreements was not set in writing. Businesses effectively ran on good faith with respect to online agreements. Even today, many Internet users are still reluctant to use online communications for contractual agreements, especially when they involve financial transfers. The Electronic Signatures Act of 2000 assures businesses that agreements reached online can be validated with electronic signatures when the identity of the contracting agent can be accurately identified and sufficient communication documentation can be supplied, indicating that the transaction occurred and that both parties are aware of the terms of the contract. In addition, a final verification is also added to the documentation verifying the original contract.

With the 2000 legislation, these applications become effective for more than mere commercial agreements, as government agencies such as the Social Security Administration and the Internal Revenue Service can also use the process in government documentation between citizens and the government, including state governments. Governments still do not use electronic signatures for certain communications, but a typical standard document transfer requiring a signature is legally acceptable.

Advantages of Legal Electronic Signatures

The entire United States economy runs on contract law. And, much of the economic growth that the nation now experiences comes from businesses that operate entirely in the digital sphere. They all understand the advantages of immediate communications and contract validation because the number one axiom in business is that time equals money in many instances, and shorter transaction time frames can equal bottom line growth. Many services online also understand that electronic signatures can validate agreements that are often exclusionary, such as being arbitrarily required to sacrifice personal legal rights in return for access to a particular program or website. Regardless of the use of the electronic signature, the fact that they are legal and binding in contractual arrangements is still a very significant positive for the digital age.

Disadvantages of Electronic Signatures

One of the primary disadvantages of the federal electronic signature law is that many legal business disagreements are adjudicated in the state courts. Agreements between signatories in different states can be classified as federal cases, which then presents problems of logistics and expense as well as jurisdiction. One of those potential disadvantages is the possibility that the staff could misplace documentation that is merely held online. This can be very problematic, as it often can result in no actual record of a transaction. In addition, documents can be stored in multiple places and result in other accounting errors, regularly resulting in intellectual property loss as well as financial loss potential. While an electronic signature is in many ways more secure than a personal ink signature because of computer encryption, there is still potential for problems when hackers can pass the encryption layer and access financial records and, in many cases, financial accounts.

Generally, the use of electronic signatures works well for some businesses and not so well for others. Furthermore, it also requires some extra costs associated with business operations, as a cloud service backup of company records is usually absolutely necessary. In addition, conduits for secure financial transfers have service fees as well. From a legal standpoint, if the electronic signature works for your business, it is clearly a viable option; however, it is always a good idea to consult with an intellectual property attorney or a business contract attorney who can help you devise the most secure operational model for your particular business operation.

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