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ESIGN Act: everything you need to know

ESIGN Act: everything you need to know

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.”

Electronic signatures are now a normal way to conduct business transactions and sign documents. In fact, conducting business electronically is the best way to speed up your sales cycle and close deals more quickly.

Electronic signatures make it possible for you to send a document to a client. That person can then sign the document and send it back to you 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 somewhere.

The widespread adoption of eSignatures means that there need 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. In the early days of eSignature adoption, they were sometimes seen as less secure or reliable than handwritten signatures.

For that reason, there needed to be a way to standardize all electronic signatures. This would allow businesses to collect electronic signatures knowing that they are legally valid and will hold up in court.

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. 

Electronic signatures in global and national commerce

The Electronic Signatures in Global and National Commerce Act (E-Sign 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 an electronic signatures must meet to ensure it is legally binding:

  • Intent to sign: An electronic signature is legally binding if both users demonstrate a clear intent to sign the document.  
  • Consent to do business electronically: Intent to sign isn’t enough on its own; both users must also demonstrate their consent to conducting business electronically. 
  • Association of the signature with the record: All electronic signatures must be connected to the document being signed. 
  • Attribution to the person signing: The software you use to collect electronic signatures must clearly indicate who signed the document. 
  • Provide a written record: And finally, you must have an electronic record of all digital transactions. This electronic form must be available for both users to access at any time.

Important exclusions to note

One of the important things to understand about the ESIGN Act is that it applies to commercial transactions. The Act 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 on 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:

  • Gave 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 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. Every contract you sign with our software also comes with a digital signing certificate so you have an electronic record of the transaction. 

How to 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 offers a Free eSign Plan that provides unlimited electronic signatures and business documents. 

Legal vocabulary

Record retentionRecord retention refers to the storage of documents and records that are no longer active. This can refer to paper documents or electronic documents. 
Consumer consentConsumer consent means that the consumer either agrees to the terms laid out in the document or opts out of the agreement. 
Audit trailAn audit trail is any system that can track any changes and updates made to an electronic record.
Alex Lamachenka

Alex Lamachenka Sr DemandGen Manager at PandaDoc

Alex is the Sr. Demand Generation Manager (formerly) at PandaDoc who handles content and crowd marketing. His background covers sales, project management, and design. In his free time, you can find him traveling, hiking or tasting local foods.

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