Electronic Signature – A “New” Way of Doing Business

Along with the development of e-commerce, more and more people are becoming more accustomed to signing an online contract with other parties. Due to the pandemic, companies now frequently carry out smart business through online meetings or documents. The electronic signature, as a necessary element of an online contract, plays an important role in protecting each party’s rights and interests.


  1. What is an electronic signature?


An electronic signature, as the name suggests, is a signature in electronic form. According to Chinese Law, it is the data included and attached for the use of identifying the signatory and for verifying that the signatory has acknowledged the content therein. Although the electronic signature is shown as a graph, its true essence is contained within the electronic data as the signature graph we see on the electronic contract is only part of the electronic signature.


  1. Is an electronic signature reliable?


Law on Electronic Signatures was first promulgated in 2014, and then was amended in 2015 and 2019. Since the signature is electronic data, some companies may be afraid that a signature or a contract may be easily forged, therefore, electronic signatures have still yet to be widely accepted.  In fact, according to the express regulation of the Law, only when an electronic signature is reliable will it have the same legal effect as a signature by hand.


In order to be reliable, the signature must meet the following four requirements: 1) The signature is exclusively owned by the signatory; 2) The data made by the signature is controlled only by the signatory; 3) Any alteration to the electronic signature, after signing, can be determined; and 4) Any alteration to the contents and form of any electronic data can be determined after signing.


In order to ensure that the signature can fulfill the four requirements and be reliable, the parties will generally make a request to a legally established electronic certification service provider to certify the signature. Currently, there are more than 40 third-party companies providing the service of signature certification. In 2018, the market scale of third-party electronic signatures has reached more than RMB 13 million. In addition, certain local governments also provide such electronic signature services. For example, in Shanghai, companies or individuals can directly apply for an electronic signature on the government website and verify the authenticity of any electronic document.


  1. How to use an electronic signature correctly?


1) Limitation of Use

Generally, without express rejection to an electronic signature, contracts or documents with an electronic signature are effective. However, to avoid further disputes, the party who wishes to use electronic signature should firstly negotiate with the counterparty. In addition, for documents regarding personal relations, such as marriage, adoption and succession, or regarding public-utility services, such as water, heat and gas supplies, electronically signed documents will not have legal effect.


2) Certificated Service Provider

In areas where only third-party private service providers are available, it is important for users to check whether the provider is qualified to certify the signature. Otherwise, should a dispute arise in the future, it will be hard to prove that the contract exists.


3) Safekeeping

After obtaining an electronic signature from a service provider, the company shall appropriately safekeep it, at least to the same extent as a company would safekeep a traditional company chop. If the signatory knows that any data made by an electronic signature has revealed official secrets, or may reveal official secrets, it needs to notify the relevant parties, terminate the use of the data and take other necessary actions in case of further loss.


4) Confirmation of the Counterparty

When signing an electronic contract, both parties generally will not meet in person. Therefore, there may be a risk that one party may be replaced by someone else. To ensure that the contract is signed with the correct party, it is advisable for the company to have a phone or video call with the counterparty signatory to receive confirmation.


As a new way of business operation, the electronic signature, along with the influence of the pandemic, has played an important role in recent months, as an increasing number of people have altered their notions towards this technology. If you need more information or have any doubts, please contact info@dandreapartners.com.