What is an electronic contract? Basic concepts and how to create one

For modern businesses, paper contracts can feel slow and like relics of the past. For decades, pen-and-paper agreements served as the foundation of business dealings. The digital revolution has caused a transformative shift toward electronic contracts, also known as e-contracts and electronic agreements, ushering in a new era of business contract practices.

While traditional contracts are cumbersome, prone to getting lost, and not environmentally friendly, electronic contracts offer a secure and efficient alternative that makes approaching business transactions cost-effective, time-saving, and much easier to manage.

Main takeaways from this article:

• Electronic contracts provide greater speed and efficiency compared to traditional paper contracts, facilitating faster negotiations and finalizations.
• E-contracts are cost-effective by eliminating paper and mailing costs and reducing administrative burdens.
• Enhanced security measures ensure the integrity and confidentiality of electronic contracts, protecting sensitive information.
• Using electronic contracts contributes to a positive environmental impact by reducing paper waste and conserving resources.

Understanding electronic contracts

An electronic contract, or an e-contract, is a legally binding agreement formed electronically. It functions similarly to a traditional paper contract, outlining the rights and obligations of the involved parties. However, instead of physical signatures and paper copies, e-contracts utilize digital signatures and secure online storage.

How e-contracts work

The process of e-contracts typically involves the following steps:

1. Drafting: The contract terms are drafted electronically, often leveraging pre-built templates or contract creation software.
2. Negotiation: Parties can use online platforms to collaborate to review, propose revisions, and finalize the contract terms.
3. Signing: Electronic signatures, which hold the same legal weight as traditional signatures, are used by all parties involved.
4. Storage and management: Secure e-storage platforms ensure safe and readily accessible copies of the contract for future reference.

Benefits of electronic contracts

E-contracts offer several significant advantages over paper-based agreements, making them a preferred choice for businesses today. Let's explore some key benefits here.

Increased speed and efficiency

With e-contracts, you can ditch the snail mail and embrace unparalleled speed and convenience. There's no need for physical signatures or traditional delivery methods, which can slow down the contracting process. Negotiations and approvals happen in real-time, meaning you can get through the process way faster than you would manually.

Greater cost-effectiveness

E-contracts offer substantial cost savings for businesses by eliminating expenses related to printing, postage, and document storage.

Automated workflows of e-signature platforms translate to increased operational efficiency as they are designed to minimize the time employees spend on administrative tasks associated with contract management.

Enhanced security measures

Electronic contracts offer superior security features compared to paper counterparts. Contrary to popular belief, e-signatures are tamper-proof, as they can track signed electronic contracts to check who signed them and when, making it easier to detect fraud and ensure the integrity of your documents.

Online platforms like DocJuris maintain robust audit trails, providing a clear history of changes made.

Positive environmental impact

By eliminating paper and physical materials, e-contracts contribute to a more sustainable business operation as it shrinks your paper footprint. This contributes to reduced paper consumption and deforestation, aligning with the growing emphasis on environmentally responsible practices in companies.

How to create an electronic contract

Drawing up a secure and legally binding e-contract requires following specific steps. Here's detailed guidance on creating one:

1. Determine the contract's purpose

When creating an electronic contract, the most important step is to clearly define its purpose. This means understanding what goals the agreement aims to achieve. Whether it is a sales agreement, service contract, or non-disclosure agreement, each type of contract serves a unique purpose and lays the groundwork for a successful deal or partnership.

Consider the following key questions when determining the contract's purpose:

• What is the primary goal of the contract?
• Who are the parties involved, and what are their roles?
• What goods or services are being exchanged or agreed upon?
• Are there specific conditions or obligations that must be met?
• What are the desired outcomes or results of this agreement?

By addressing these questions and clearly defining the purpose, you ensure that the contract is tailored to meet the specific needs and circumstances of the transaction and that everyone understands what's expected of them.

2. Use a reliable template or tool

Transitioning to electronic contracts involves more than swapping paper for pixels. It also involves adopting a comprehensive system that redefines how agreements are approached. Using a template or a reliable system ensures consistency and compliance in every contract you create.

Several online platforms and software solutions like DocJuris offer pre-built e-contract templates. These templates often cover various common contract types and can save considerable time compared to drafting from scratch.

3. Incorporate essential elements

A legally binding e-contract requires certain essential elements to be valid. These elements ensure that the agreement is clear, enforceable, and protects the interests of all parties involved.

Here are the 13 key elements to include in your e-contract:

1. Identification of parties: Clearly state the names and addresses of all stakeholders involved, including any relevant business entities or legal structures.
2. Recitals: Provide a brief overview of the contract's background and purpose.
3. Definitions: Define any technical terms or jargon used in the contract.
4. Terms and conditions: Outline each party's rights, obligations, and responsibilities, including performance requirements, payment terms, intellectual property, confidentiality, and dispute resolution.
5. Representations and warranties: Specify statements of fact made by each party and any guarantees or assurances.
6. Covenants: Establish ongoing obligations for the parties to fulfill during the contract.
7. Term and termination: Define the contract's duration and termination conditions.
8. Governing law and jurisdiction: Specify the governing laws and jurisdiction for resolving disputes.
9. Force majeure: Address unforeseen events that could prevent a party from fulfilling obligations.
10. Entire agreement clause: State that the contract constitutes the entire agreement.
11. Notices: Establish communication methods and addresses.
12. Counterparts: Allow for multiple copies of the contract.
13. Signatures: Require each party to sign the contract, using electronic signatures if applicable.

4. Select an e-signature solution

Choosing a reliable e-signature solution ensures the legal validity and security of electronic contracts. When selecting an e-signature provider, make sure that:

• The provider adheres to relevant electronic signature laws and regulations, such as the ESIGN Act and UETA in the United States.
• They offer strong security measures, including encryption, authentication mechanisms, and audit trails to protect your sensitive data.
• Your chosen e-signature solution is user-friendly and integrates seamlessly with your existing workflow.
• Features like advanced authentication options and bulk signing capabilities are included.
• The provider is responsive and offers customer support to assist you with any questions or issues.

By carefully evaluating these factors, you can select an e-signature solution that meets your specific needs and ensures the integrity of your electronic contracts.

5. Securely store and manage the contract

You must securely store and manage your electronic contracts throughout their lifecycle. Digital storage offers benefits like easy access, better organization, and strong security. Choose a reliable cloud platform with advanced encryption to keep data safe from unauthorized access. You can also use permission settings to ensure that only the necessary people can access your contracts, adding another layer of protection.

Systematic management includes tracking contract versions and changes, which increases clarity and accountability. Automated workflows and reminders help keep everyone aware of important deadlines and events, reducing the risk of missed details. By securely storing and managing your contracts, you improve your operational efficiency while ensuring the safety and privacy of all your agreements.

6. Regularly review and update

Regularly reviewing and updating your electronic contracts is key to keeping them current and effective. Contract terms can quickly become outdated or misaligned with new regulations or company goals, so by reviewing contracts regularly, you ensure they still align with your objectives. This process also helps you catch and fix any issues before they become big problems.

Having set a schedule for updates ensures all changes are documented, which increases transparency and accountability. Using digital platforms with version control makes reviewing contracts easier, as they let you track changes and ensure everyone agrees to any updates. This approach reduces the chance of disputes and strengthens the trustworthiness of your electronic contracts.

Are electronic contracts legally binding?

The legality of electronic contracts has been a subject of debate in the past, but today, they are widely recognized as legally binding in many jurisdictions. The following legal frameworks have solidified the acceptance of e-contracts in the U.S.

• Uniform Electronic Transactions Act (UETA): The Uniform Electronic Transactions Act (UETA) is a law that provides a legal framework for electronic contracts. Most states have adopted the UETA, which establishes that electronic records and signatures are generally admissible in court as evidence, ensuring the legal enforceability of e-contracts. The UETA also addresses other issues related to electronic transactions, such as the formation and validity of electronic contracts and the preservation of electronic records.
• Electronic Signature in Global and International Commerce Act (ESIGN Act): The ESIGN Act is a federal law that specifically addresses electronic signatures. This law makes electronic contracts equally enforceable as paper contracts, stating that they are valid as long as they meet certain requirements, such as being adopted, executed, and attached to a record with the intent to sign. This act has significantly strengthened the legal standing of e-contracts in the U.S.

Many countries have enacted similar laws or guidelines recognizing the legal validity of electronic contracts and signatures. This international consensus has further solidified the acceptance of e-contracts in the global business landscape.

Types of electronic signatures

E-signatures vary in their level of security and legal weight. Here are the three primary types:

Simple electronic signatures (SES)

SES is the most basic form of e-signature, typically using a typed name or a click-to-sign button. All you need to do is sign your name or use a stylus to sign on a digital device. While SES is generally accepted as legally binding in many jurisdictions, it offers the lowest level of security.

Advanced electronic signatures (AES)

These provide a higher level of security than SES, requiring unique identifiers. They often require additional authentication factors, such as passwords, PINs, or biometric data. AES are considered legally equivalent to handwritten signatures in many jurisdictions.

Qualified electronic signatures (QES)

QES is the most secure type of e-signature. It requires a high level of authentication and is issued by a trusted third party. QES is often used in high-stakes transactions where the highest level of security is required.

Optimize the electronic contract process with DocJuris

Manually drafting, negotiating, and signing contracts can be time-consuming and prone to errors. With the right tools, creating and managing electronic contracts is easier. Here's where DocJuris comes into play, optimizing your e-contract journey.

Our powerful contract management software, designed to revolutionize your electronic contracting experience, offers advanced features like:

• Automated execution process: DocJuris automates repetitive tasks involved in contract execution, significantly reducing the time and effort required to complete agreements.
• Error prevention: Built-in checks identify and prevent common errors during the contract creation process. These checks ensure accuracy in key details like dates, parties involved, and terms, minimizing the risk of misunderstandings or legal disputes later.
• Real-time collaboration: DocJuris facilitates collaboration between multiple parties on the same contract. This allows for efficient negotiation, faster review cycles, and real-time edits, streamlining the agreement process for all involved.
• Legal compliance: DocJuris provides access to pre-built, legally compliant templates that cover various contract types. This ensures your agreements adhere to relevant regulations and legal requirements, offering peace of mind.
• Progress tracking: With DocJuris, you can track the progress of your e-contracts in real time. Monitor the current statuses, identify bottlenecks, and stay informed about the agreement's lifecycle, ensuring efficient project management.

DocJuris can help businesses save time, minimize errors, and achieve a smoother, more secure way of managing electronic contracts. Ready to experience the benefits of a streamlined e-contract process?

Request a demo now!

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