Electronic signatures – ever evolving

The way we complete transactions and sign documents has fundamentally changed since March 2020.

The sudden onset of the COVID-19 pandemic forced everyone to think about how M&A, investments and many other corporate law transactions could complete when documents could no longer be physically signed (either in one location or by signing and scanning and sending by email).

There was already appetite in the legal industry for 100% remote signings using web-based platforms (rather than post, e-mail, scanners and “real” meetings).  However, English law hadn’t quite caught up with virtual capabilities and there was uncertainty as to how far you could go with electronic signings.

The pandemic positively drove and accelerated market practice, legal interpretation and software development for remote signings. These strides have led to easier and quicker processes reducing the time dealing with signing logistics when all parties are “waiting on the lawyers” to get a transaction done.

However, there are still elements of the electronic signing process where caution needs to be taken. From an English law perspective these include the following and are well worth being aware of at an early stage in your transaction:

• A witness must still be physically present and genuinely observe the signatory signing – current law does not allow witnessing through a screen, for example video conference.  This can be difficult depending on the location of signatories and the timings of signing.
• A witness should ideally be independent of the signatory - to limit subsequent issues relating to identity or undue influence. However, if there is no other option, a spouse, partner, co-habitee or family member can act as a witness as long as they are not a party to, or a beneficiary under the terms of, the document being signed. Be mindful too of any specific policy requirements of the parties to the documents being signed. For example, some lenders may require an independent witness.  Ideally any witness should be over the age of 18.
• It’s not recommended that Companies Act companies or LLPs apply their common seal electronically to execute documents. The position may be different for corporations not formed under the Companies Acts (e.g. local authorities, public bodies, charities and educational establishments) but that requires a bespoke analysis for each such entity.
• In international transactions with overseas parties, you need to ensure that documents are being executed in a way which ensures their recognition, registration or enforcement in other jurisdictions, so local law advice will be needed.  
• If notarisation is involved, double-check what the notary will or will not be able to accept by way of signatures – the exact requirements will depend on the purpose of the notarisation and what specific requirements are imposed by the laws of the overseas jurisdiction requiring the relevant document to be notarised.  Generally, a notary will need to witness the signature of a document physically in order to notarise the document.
• Check what public registries will accept – Companies House now accepts the vast majority of its filings electronically.  HM Land Registry has also adapted to the needs of its users over the past two years but still has very prescribed requirements for registrable documents (more detail can be found here).  If registration is required for international registries, expect requirements to be different.
• Although physical stamping of stock transfer forms (and other relevant corporate documents) has gone, you should retain a copy of the HMRC letter which confirms electronic stamping has taken place (ideally keep this with the relevant company’s statutory registers).
• And, even if you can satisfy all of the above, you must check that there are no contractual restrictions (e.g. under a company’s constitution) which prohibit the use of electronic signatures.

The law on electronic signatures keeps adapting to support market needs and ongoing corporate activity, so the specifics of the above may change over time.  However, the above will still be useful as a checklist of points to discuss at an early stage when signing logistics are being coordinated.  It can take time to align everybody’s expectations, requirements and locations.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.