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Electronic signing: is the pen still mightier than the keyboard?

30 November 2016

Chances are you use an electronic signature (e-signature) every day. Typing in a pin number or using a bank security token to create an identifying code are both forms of e-signature used by businesses and consumers on a daily basis.

Conversely, when it comes to business-to-business transactions - especially high value transactions - e-signatures, although familiar to many businesses and facilitated by readily downloadable software, are still not the norm. Despite being eager to benefit from the time and cost savings that e-signatures offer, businesses have been deterred by a lack of legal certainty in this area.

Recognising this, a joint working party of company and finance lawyers (the JWP) has produced a note, approved by leading counsel, Mark Hapgood QC, offering a robust endorsement of the use of e-signatures in a variety of commercial circumstances. We have summarised that note, published in July 2016, in this article.

Although the note offers trenchant support, its limitations should be acknowledged. Its scope is restricted to the position under English law and to commercial contracts and other documents, in a business context. Additionally, it is just an opinion. The courts may take a different view.

Examples of e-signature

The ways in which individuals may e-sign a contract include:

  1. typing their name into the contract or email containing the terms of the contract;
  2. pasting their signature into an electronic version of the contract;
  3. accessing the contract through an e-signature platform and clicking to have their name inserted; and
  4. using a touch screen to write their name in the appropriate place in the contract.

Which English law commercial documents can be e-signed?

The note considers the following different types of document and evaluates in each case whether an e-signature is sufficient.

A. Simple contracts ✓

    In the absence of any (usually statutory) requirement …

    •  these may be concluded using an e-signature.

    B. Deeds ✓

    • may be signed using an e-signature;
    • any witness can e-sign. Best practice requires the witness to be physically present rather than witnessing the e-signature through video link; and
    • the parties should address when delivery takes place.

    C. Companies Act 2006 minutes and resolutions ✓

    • Shareholders can e-sign a shareholders’ written resolution.
    • Minutes of a shareholders’ meeting can be e-signed.
    • Minutes of a directors’ meeting can be e-signed.
    • Under the Model Articles and the 1985 Table A, directors can e-sign directors’ written resolutions.

    D. Contracts required to be “in writing” / “signed” / “under hand” ✓

    In the opinion of leading counsel and the JWP, a contract signed electronically, and which is itself in electronic form, would satisfy the requirements that it is “in writing”, “signed” or “under hand”.

    Caution: when to think twice before using an e-signature

    • If the document is going to be filed with an authority or registry. Each of HMRC (in the case of stock transfer forms) and the Land Registry require hard copy documents with “wet ink” signatures.
    • Where the governing law is not English law.

    Recordkeeping: what to create and keep when using an e-signature

    • Where a document has been e-signed, even if it is in electronic form, it will be an original and there is no need for a wetink version to be created.
    • If one party has used an e-signature and another a wet ink signature, then a composite version may be created.

    To what extent can we rely on this note?

    The note represents the opinion of the JWP and leading counsel and has been published by The Law Society as a “practice note”. It thus represents The Law Society’s view of good practice. However it does include a disclaimer that its aim “is to make suggestions only and not to give advice”.

    To read the full version of the note, click here.

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Whether you are a start-up setting out and looking to expand, an ambitious growth business preparing to float, or a multinational enterprise undertaking major acquisitions, complex corporate law issues span the entire lifecycle of any business.

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