e-Signatures in corporate transactions – what you need to know
12 December 2022
In 2019 we published an article called “Dotted lines are disappearing but the Law Commission has joined the dots on electronic signatures”. The article predicted a shift towards more widespread adoption of e-signatures, especially following the publication of a Law Commission report aimed at helping “users of e-signatures to proceed with confidence.”
Well, it’s safe to say that the dotted lines continue to fade and electronic signatures are here to stay. We have therefore prepared a brief guide on when to use electronic signatures and the key Dos and Don’ts, particularly in the context of signing and closing corporate transactions virtually.
But before we get into the detail, the overarching message is clear. In the context of UK corporate transactions, DO use electronic signatures. There has previously been uncertainty around the validity of e-signatures, but especially post-pandemic, when e-signatures became a necessity, these doubts have largely been dispelled. In October this year, for example, the Law Society reiterated the validity of electronic signatures by updating its 2016 practice note on electronic execution of documents. This further reinforced the Law Commission’s position in 2019 that an electronic signature is capable of being used to execute a document. The courts themselves have held various electronic forms of signature to be valid as well, ranging from a name typed at the bottom of an email to clicking an “I accept” tick box on a website.
So, here are some things to bear in mind in relation to e-signatures.
To “e” or not to “e” (sign)?
On corporate deals, e-signatures can generally be used in the following cases:
- Simple contracts. In the absence of any contractual requirements, these may be concluded using an e-signature.
- Contracts required to be “in writing” / “signed” / “under hand”. In the absence of any contractual requirements, a contract signed electronically, and which is itself in electronic form, would satisfy the requirements (as long as there is no requirement for “wet ink” or handwritten signatures (see below).
- Deeds. In the absence of any contractual requirements, these may be executed using an e-signature as long as all formalities (including witnessing) are satisfied. A common pitfall is to confuse e-signing and remote witnessing. Witnesses may sign deeds electronically (e.g. using DocuSign) but they must still be physically present to actually witness the signature. They cannot witness the signature remotely (e.g., using a video call or video-conference).
- Directors’ and shareholders’ resolutions. Minutes of a directors’ meeting may be e-signed and under the Model Articles and the 1985 Table A, directors may e-sign directors’ written resolutions. Shareholders’ written resolutions and minutes of a shareholders’ meeting may be e-signed.
- Stock Transfer Forms. Post-Covid, Stock Transfer Forms no longer need to be signed in wet ink and may be signed using an e-signature.
Think twice in the following scenarios:
There are of course certain circumstances in which e-signatures are not acceptable, or at least in which you should not assume that e-signatures are acceptable and obtain legal advice. Factors including the following may mean that an e-signature should not be used:
- Contractual requirements. Where a contract expressly specifies that handwritten / wet ink signatures are necessary or that electronic signatures are not permitted, e-signatures will not be valid.
- Statutory requirements.
- The practices of bodies such as HMRC and the Land Registry. Wills and dispositions of land under the Land Registration Act 2002 have generally fallen outside the scope of most guidance on electronic signatures. It’s worth noting though that there has been some relaxation of the rules:
- the Land Registry now accepts certain documents that have been signed electronically provided certain requirements are met. Those requirements may include dual factor authentication via the texting of one-time passwords.
- As noted above, where stamp duty is payable on a document, since July 2021, HMRC has permanently adopted some of its COVID measures and so the requirement to sign stock transfer forms in wet ink and physically stamp documents has been removed. This gives the option of electronic notification over email under which HMRC issues a confirmation letter (also over email) rather than physically stamping the document.
- Cross-border transactions. Following Brexit, there are certain types of contract which may not benefit from protective provisions supporting the validity of electronic signatures. For cross-border transactions involving non-English law governed documents or execution by overseas companies, parties should take advice as to whether local law supports the signature of contracts by electronic means, especially in relation to:
- contracts that create or transfer rights in real estate, except for rental rights;
- contracts requiring by law the involvement of courts, public authorities or professions exercising public authority; and
- contracts governed by family law or by the law of succession.
Do’s and don’ts for using e-signatures
If you do decide to use e-signatures:
DO use e-signing platforms. The use of e-signing platforms such as DocuSign is increasingly common and accepted as a valid form of e-signature. In fact, the The Law Society acknowledged this year that adhering to the Mercury Procedures when arranging a virtual signing or closing is actually more straightforward through DocuSign as the entire final version of a document is uploaded for signature and all the signatories sign that same version.
DO still get consent from signatories when arranging a virtual signing or closing of a transaction. Those organising the signing process should still take appropriate authorisations from signatories to implement the dating and delivery of the relevant documents (and as relevant, the affixing of signature pages to the final agreed form of document).
DO ensure you are still fulfilling any necessary signing formalities. Deeds, for example, still need to be witnessed whether or not signatures are handwritten or electronic.
DO NOT witness e-signatures remotely. Witnesses cannot use Teams, Skype or any other kind of video-call or conference to witness e-signatures (or handwritten signatures, for that matter). They must be physically present with the signatory to witness their e-signature, even if they also then use DocuSign to sign the witness signature block. If it helps, spouses can now be used as valid witnesses, provided they are not otherwise involved in the transaction or a party to any of the transaction documents (another Covid concession).