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Electronic signing solution for corporate transactions

With staff unable to access the office, companies are looking at electronic signing of documents as a solution. This short note examines the viability of electronic signing for companies incorporated in the UK executing documents under the laws of England and Wales.

Electronic Signing

Q: Do you need to sign a contract for it to be binding?

A: As a general rule, in English law a contract is formed through offer, acceptance, consideration, an intention to create legal relations and certainty of terms. Technically, for some contracts, no signature of the parties is required. However, for most - particularly commercial agreements - the parties usually choose to sign a document as evidence of the terms agreed between them. Additionally, some contracts are required by legislation to be signed.

Q: Can we use electronic signatures to enter into contracts?

A: Yes, sometimes. For a simple contract (i.e. an agreement that does not have special requirements and is not structured as a deed) an electronic signature will usually be sufficient to conclude a contract as long as:
• the signature is applied with the intention of forming a legal relationship and by someone with the appropriate authority;
• there are no restrictions on the use of electronic signatures in the constitutional documents of the company;
• for an overseas company, the law of the place of its incorporation permits electronic signatures; and
• the contractual terms themselves do not prevent the use of electronic signatures.

Q: What documents cannot be signed by way of electronic signature?

A: There are a number of documents where “wet-ink” signatures are required, these include:

  • documents relating to an interest in real property;
  • documents required to be filed with certain registries and government bodies (at the time of writing HMRC has relaxed its requirements for stock transfer forms to be signed in “wet-ink” but Companies House and HM Land Registry are still requiring a number of documents to be signed in this way); and
  • a document where its terms preclude the use of electronic signatures.

Q: What are the execution requirements for a deed?

A: Where an individual is executing a deed the relevant party must sign the deed in the presence of a witness who must attest the witnessing by signing the deed as well (please see below for more information on witnessing).

Where a corporate entity is executing a deed:

  • its directors can affix the entity’s seal (if it has one) to the document. This method relatively rare, as many companies do not have a seal.
  • two directors or a director and the company secretary can sign it. In this case the view is that the directors/director and secretary must be together and may not sign separate counterparts of the same agreement; or
  • the signature of one director in the presence of a witness who attests the director’s signature is usually sufficient for valid execution provided that there is no prohibition under the company’s articles of association.

Q: Can a deed be executed electronically?

A: There has been no court decision and there is no clear statutory authority that will guarantee the validity of deeds executed electronically. Therefore, some parties to a deed, such as banks, may be unwilling to accept execution in this way. However, many legal advisers are of the opinion that, as long as the other formalities required for a deed (such as witnessing (see below) and delivery) are complied with, there is no reason why electronic signatures could not be used satisfactorily to execute a deed - this is a view backed by both the Law Commission and the Lord Chancellor.

In relation to the witnessing of a deed, the witness must be physically present and see the signing party execute the deed – it is not possible for the witnessing to take place via video link or other such technological solutions. In times when parties are isolating and following stay at home measures this can present a practical issue and it is worth noting that, other than in respect of Wills or documents in which the witness is also a party or has an interest, there is no legislation or common law rule which prevents a family member from witnessing a party’s signature to a document. An independent (i.e., non-related) witness remains best practice for evidential purposes if execution of the document is called into question but, during any lockdown, best practice may be impossible.

Q: What is an electronic signature?

A: The courts have held that a variety of actions have constituted a valid electronic signature but, due to concern over evidencing an intention to create legal relations and also certainty, the following are the most commonly used methods:

  1. a wet-ink signature on a document that has been scanned;
  2. a signature inserted via use of an e-signing platform;
  3. a biodynamic version of a manual signature (i.e. using a special pen to sign a screen or digital pad);
  4. a name typed into a contract; and
  5. manually inserting an auto-generated signature into the contract.

Each of the above methods present different challenges and it is important to seek advice on best practice for using them to minimise risk of challenge.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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