While the pandemic and resultant adaption of work-from-home protocols have been a catalyst for the next stage of the digital revolution, electronic signatures and their validity have been under scrutiny for a number of years. Not only do electronic signatures allow for the accommodation of a more virtual working environment, but a renewed paperless approach to business bodes well for environmental concerns.
The Legality of Electronic Signatures
Electronic signatures in South Africa are approved under the Electronic Communications and Transactions Act (ECTA) instituted in 2002, and, although they are mostly treated the same as handwritten signatures, there are circumstances when an electronic signature on a document is not acceptable (see more on this below).
It is important to note that signatures, whether handwritten or electronic, are not mandatory to make all contracts valid. Many agreements can be entered into orally between the parties. However the law does require signatures on some contracts to make them valid, most notably on credit agreements, suretyships, powers of attorney and leases exceeding 10 years.
Types of Electronic Signatures
Standard Electronic Signatures
According to the ECTA, a standard electronic signature (SES) is ”data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature.” Types of SES’ include ticking an “I Accept” box online, a name typed on a digital document, a scanned wet-ink signature, or a digital drawing of a signature using an e-pen or finger on a device such as a tablet. SES’ are valid if they identify the signatory and his/her approval of the information contained in the document, as well as a timestamp. SES’ are most commonly used in business documents such as employment contracts, non-disclosure agreements, short-term lease agreements (not exceeding 10 years), invoices, purchase offers, procurement documents and sales agreements, among others.
Advanced Electronic Signatures
Advanced electronic signatures (AES) are signatures that have been verified by an accredited authority. This further verification makes the signature uniquely linked to the signatory in order to identify him/her, under sole control of the signatory, based on face-to-face identification of the signatory, and protected so that any changes made to the data can be tracked. AES’ are required when a law requires a signature on a document and the signature will not be done with wet ink. Where the law requires a signature, a standard electronic signature is not sufficient. An AES can only be authenticated by The Law Trust Party Services and the South African Post Office.
When is a Standard Electronic Signature Not Permissible?
The ECTA outlines the following instances when a standard electronic signature does not indicate appropriate validation:
- Contracts for the transfer or sale of immovable property (sectional titles and mortgage bonds)
- Wills and codicils
- Bills of exchange (such as cheques)
- Long-term leases for a period of more than 10 years
- The license of intellectual property, employee invention agreements, and IP transfers
Which documents require an Advanced Electronic Signature under the Companies Act?
The Companies Act outlines a number of documents which require signing, however it is not clear whether SES’ suffice. For safety’s sake, it is recommended that an AES is used when signing the following:
- Financial statements
- Security certificates (i.e share certificates)
- Shareholder proxy forms
- Written demands for shareholder meetings
- Certification of minutes of a round robin resolution
- Notices of conversion of a close corporation into a company
The Benefits of Electronic Signatures
Electronic signatures offer many benefits in today’s modern workplace, including increased efficiency, less time and expense wasted on couriering documents for handwritten signatures, improved security and transparency, reduced printing and paper cost and less environmental impact.
Abigail Reynolds is the founder and Principal Attorney of Reynolds Attorneys. She is a Corporate & Commercial Law Attorney and Qualified Mediator, and sits on the Company Law Matters Committee of the Law Society of South Africa, as well as the Commercial, Company, Consumer and Tax Law Committee of the Cape Law Society.
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