Electronic signatures have been around for a number of years and have been applied to a variety of documents which previously required a physical or ‘wet ink’ signature.
But can an electronic signature alone be relied upon to process all corporate documentation? We will take a look below at some of the legalities and practicalities of signing company documents electronically.
What is an electronic signature?
Historically, most legally binding documents have relied on wet ink signatures as evidence of acceptance of the terms of a contract, authorisation for a transaction, or proof of intent in creating a deed. However, in recent years electronic signatures have become increasingly popular in a variety of business and consumer transactions.
Perhaps the most common form of electronic signature is the humble ‘click-wrap’ method, which is routinely used to accept the terms and conditions of using an online service, installing software, purchasing goods online, providing permission for cookies, etc. In this case, the ‘signature’ is the mere clicking of an acceptance box in a form.
B2B agreements and formal private contracts (e.g. tenancy agreements) will normally seek to obtain a more explicit form of e-signature. Either a scan of a physical wet ink signature which is then pasted into the document, or else by using an electronic signature platform (see more below) which may be integrated into the contract formation procedure.
More complex e-signatures involve the use of distributed ledger technology (commonly known as blockchain) and smart contracts. Although this is a developing area, the UK government is already looking into potential uses for blockchain in signing agreements in the property market.
How is an electronic signature defined?
A practice note from the Law Society explains that electronic signatures can take a number of different forms, including:
“(a) a person typing his or her name into a contract or into an email containing the terms of a contract;
(b) a person electronically pasting his or her signature (e.g. in the form of an image) into an electronic (ie soft copy) version of the contract in the appropriate place (e.g. next to the relevant party’s signature block);
(c) a person accessing a contract through a web-based e-signature platform and clicking to have his or her name in a typed or handwriting font automatically inserted into the contract in the appropriate place (e.g. next to the relevant party’s signature block); and
(d) a person using a finger, light pen or stylus and a touchscreen to write his or her name electronically in the appropriate place (e.g. next to the relevant party’s signature block) in the contract.”
See also this statement of the law from the Law Commission on the execution of documents with an electronic signature, which notes that courts have held the following to amount to valid signatures:
“(a) a name typed at the bottom of an email;
(b) clicking an “I accept” tick box on a website;
(c) the header of a SWIFT message.”
So the legal definition of a signature is given a rather broad meaning, even in the absence of more specific legislation.
What is an electronic signature platform?
Electronic signature platforms are essentially online services which help to ensure the authenticity and integrity of electronic signatures.
They will often take steps to verify the identity of any signatories and prevent unauthorised use of signatures, as well as providing an audit trail. These tools can generally be integrated with digital contracts and documents, enabling seamless online transactions and agreements.
What is the law on electronic signatures?
The primary piece of legislation in the UK in respect of e-signatures is section 7 of the Electronic Communications Act 2000 which essentially provides that electronic signatures are admissible as evidence in legal proceedings:
“In any legal proceedings … an electronic signature incorporated into or logically associated with a particular electronic communication or particular electronic data … shall each be admissible in evidence in relation to any question as to the authenticity of the communication or data or as to the integrity of the communication or data.”
This was based on Directive 1999/93/EC on a Community framework for electronic signatures (known as the Electronic Signatures Directive).
Further EU legislation updated the existing law, in the guise of Regulation (EU) No 910/2014 on electronic identification and trust services for electronic transactions in the internal market (known as the eIDAS Regulation). This was implemented into UK law by the Electronic Identification and Trust Services for Electronic Transactions Regulations 2016.
Aside from providing a cross-border framework across the EU, the eIDAS Regulation clarified electronic signatures by splitting them into three broad types:
Electronic signature “means data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign” – this includes scanned signatures and tick-box declarations (e.g. those used in click-wrap licenses).
Advanced electronic signature “means an electronic signature which” is “(a) is uniquely linked to the signatory; (b) is capable of identifying the signatory; (c) is created using electronic signature creation data that the signatory can, with a high level of confidence, use under his sole control; and (d) is linked to the data signed therewith in such a way that any subsequent change in the data is detectable” – this basically uses encryption technology to prove the authenticity of the signatory and to avoid tampering/misuse.
Qualified electronic signature “means an advanced electronic signature that is created by a qualified electronic signature creation device, and which is based on a qualified certificate for electronic signatures” – this is the most secure of these three types of e-signature, which needs to be backed up with a certificate issued by a ‘trust service provider’ that is certified by an EU member state. This is the only type of signature in the EU which is considered to be the legal equivalent of a wet ink signature.
Can I sign company documents electronically?
The vast majority of legal documents – including company documents – can now be signed electronically. The main two exceptions to this rule are wills and property deeds which need to be registered with the Land Registry.
Most corporate documents can be signed electronically, including board meeting minutes and shareholder resolutions. But wet ink signatures are still required for documents where stamp duty is payable on a document, e.g. stock transfer forms.
Also, executing company deeds may require extra steps to be taken to fulfil requirements for witnessing signatures (see below).
It is possible for a company’s Articles of Association or Shareholders’ Agreement to preclude the use of electronic signatures – so these documents should be checked and updated if necessary.
Section 2.65 of the Law Commission report into the electronic execution of documents notes that documents which need to be filed with the registrar of companies can generally use e-signatures: “Companies House … operate an online filing service which allows most forms, notices and statements to be both signed and delivered to Companies House electronically”.
Should I use an electronic signature platform for company documents?
There is no requirement to use specific e-signature software in respect of corporate documents. However, many of the platforms meet the requirements for ‘advanced signatures’ which means that they can help to ensure that electronic signatures are more likely to be authentic and less likely to be forged/hacked.
Furthermore, they generally provide some audit trail, such as recording the IP address of a device which was used to sign a document. As such, the use of an e-signature platform can provide more evidentiary weight to the validity of an electronic signature, should a dispute end up in court.
Can company deeds be signed electronically?
The Companies Act 2006 requires that company deeds are signed by:
- two directors; or
- one director and the company secretary; or
- one director, who must sign the document in the presence of a witness who attests the director’s signature.
In the case of (1) and (2) it is possible for the company officers to sign the documents in counterpart (i.e. they can both electronically sign a version of the same document).
But in the case of (3) where a witness is required, it is the view of the Law Commission “that the requirement under the current law that a deed must be signed ‘in the presence of a witness’ requires the physical presence of that witness. This is the case even where both the person executing the deed and the witness are executing / attesting the document using an electronic signature.”
However, one of their recommendations is that an “industry working group should consider potential solutions to the practical and technical obstacles to video witnessing of electronic signatures on deeds and attestation. Following the work of the industry working group, Government should consider legislative reform to allow for video witnessing.”
The emergence of the Coronavirus pandemic has brought this issue of physical witnessing of signatures into the limelight, and accordingly the Law Society has provided an update on its previous guidance.
The law society have acknowledged that a shift towards a form of witnessing of signatures which does not require physical presence may be required:
“It’s the position of the Law Society that it remains best practice for the witness to be physically present when the signatory signs, rather than witnessing through a live televisual medium.
However, it’s accepted that, with COVID-19 public health restrictions in place, it will not be possible to follow such best practice and therefore it will be necessary to modify practice to suit the current circumstances.”
Although no endorsement has yet been given to witnessing signatures by videoconference, new best practice methods may soon emerge.