How Contracts and Electronic Signatures Impact Small Business?

Answer 1

The rapid advances in technology have ultimately led to electronic signatures replacing a printed copy of a contract. Before the Electronic Signatures in Global and National Commerce Act (ESIGN) was passed, the authority of an electronic signature could be challenged. Now, two parties can have enforceable and valid legal rights held within a contract without meeting in person to seal the deal. Small businesses that have an increasing presence on the internet are huge beneficiaries of this law. Business to business contracts such as supplies and services are streamlined with a much faster system. The cost of faxing or using mail services could be eliminated by conducting business online.

Nearly all states in the U.S. have adopted the Uniform Electronic Transactions Act (UETA), which provides intrastate protections for businesses and consumers. ESIGN provides interstate protections.

How Electronic Signatures Work

A business creates and transmits a contract in electronic form to a business partner or consumer. A typical form of an electronic contract is user agreements for software applications. The person clicks 'I Agree' and the license to use the software is official.

There are other options for attaching an electronic signature to an online contract. These options depend on how the contract is formatted to accept an electronic signature. Initials of the signor will suffice for some contracts. Others may choose to scan an original signature and paste the image on the signature line of the contract.

Methods for Electronic Signatures

One method for including an electronic signature on a contract is through the science of cryptography, where information from the sender is scrambled and unscrambled by the receiver. The most popular cryptographic signature method is public key infrastructure (PKI) which makes electronic documents accessible and viewable for authorized users. Guidelines for the XML electronic signature method was developed by the Worldwide Web Consortium.

Does Electronic Signatures Make Paper Contracts Irrelevant?

Situations still exist where paper contracts are needed, particularly for consumer protections. Notices regarding foreclosure, eviction or repossession require paper notification. Utility companies must send notices of termination in paper format. Additionally, businesses should not send notices regarding life or health insurance benefits electronically.

Prior to receiving consent from a consumer for electronic contracts and signatures, ESIGN requires businesses to notify a consumer that alternative paper copies of the documents are available. The law also gives consumers the option of switching from electronic to paper contracts at a later date. Since paper copies are more expensive, businesses must notify consumers of any related fees or penalties.