Top 6 Legal Risks of Electronic Signatures and E-Transactions

The legal risks of electronic signatures usually do not come from the fact that the signature is electronic.

In the United States, the federal ESIGN Act says a signature, contract, or record relating to a covered transaction cannot be denied legal effect solely because it is electronic. The same principle applies to a contract formed using electronic records or signatures. Legal Information Institute↗

That does not mean every electronically signed document is automatically enforceable.

Problems can still arise because:

• the underlying agreement is invalid
• the wrong person signed
• the signer lacked authority
• the transaction required additional formalities
• identity evidence is weak
• records cannot be reproduced later
• fraud or coercion occurred
• another jurisdiction or regulatory framework applies

The useful question is therefore not:

“Are electronic signatures legal?”

It is:

“Does this particular transaction have the evidence, authority, process, and legal formalities it needs?”

This guide explains six practical legal risks and how to reduce them before sending or signing electronically.

At a glance

Risk 1: The Electronic Signature Is Valid, but the Agreement Is Not Enforceable

An electronic signature does not cure problems with the underlying contract.

A contract can still fail because of:

• illegality
• fraud
• lack of capacity
• lack of authority
• duress
• missing required terms
• failure to comply with another statute
• another contract-formation defect

ESIGN preserves these underlying legal requirements. It prevents electronic form itself from being the reason a covered contract is rejected, but it does not eliminate the other rules governing the transaction. Legal Information Institute↗

Electronic signature vs enforceable contract

These are different questions.

You can therefore have strong electronic-signature evidence attached to an agreement that still has another legal defect.

A sophisticated signing platform can document how an agreement was executed. It cannot make an unlawful or otherwise unenforceable agreement valid.

ESIGN Exceptions Need Careful Interpretation

The original article says several excluded documents simply “cannot be signed electronically” and that an electronic signature on them is “void.” Pasted text

That goes too far.

15 U.S.C. § 7003 says ESIGN's general validity provisions do not apply to records governed by laws concerning areas such as:

• wills, codicils, and testamentary trusts
• adoption, divorce, and other family-law matters
• certain Uniform Commercial Code matters
• court orders, notices, and official court documents required in court proceedings
• certain utility termination notices
• certain foreclosure, repossession, default, and eviction notices involving a primary residence
• specified health and life insurance benefit notices
• certain product recall and hazardous-material notices Legal Information Institute↗

That does not necessarily mean every record in one of those categories must always use ink.

Another applicable state or federal law may independently authorize electronic execution.

Electronic wills are a good example. States can adopt legislation specifically authorizing electronic wills even though wills fall outside ESIGN's general rule.

Practical approach

Before electronically executing an unusual or highly formal document, check:

1. the specific document type
2. the governing jurisdiction
3. any required witnesses or notarization
4. the receiving authority's rules
5. any transaction-specific statute

Do not rely on a generic “never e-sign these documents” list.

Risk 2: You Cannot Reliably Attribute the Signature to the Intended Person

A signature that visually says John Smith does not automatically prove John Smith personally signed.

This problem exists with paper signatures too, but remote transactions change the available evidence.

Different authentication methods provide different assurance

A signing process might rely on:

• possession of an email inbox
• an access code
• SMS verification
• account login
• multifactor authentication
• knowledge-based authentication
• government ID verification
• certificate-based identity
• organizational single sign-on

There is no universal rule that every contract needs the strongest available method.

The authentication method should match the risk of the transaction.

Email access is evidence, not perfect identity proof

If a signing invitation goes to a particular email address, that can help connect the transaction to the intended recipient.

But email access alone does not conclusively prove the named individual personally clicked the button.

Someone else might have:

• access to the inbox
• access to an unlocked device
• stolen credentials
• forwarded access to the signing link

That does not automatically invalidate the signature.

It simply affects the evidence available if attribution is later disputed.

Authority Matters Too

Identity and authority are different.

Imagine a vendor contract signed by:

Alex Smith, Marketing Coordinator

The system may provide excellent evidence that Alex signed.

That still does not answer whether Alex had authority to bind the company.

For business contracts, check:

• who the legal parties are
• who is signing
• the person's title
• whether they have signing authority
• whether internal approval requirements were satisfied

Risk 3: The Signing Evidence Is Too Weak to Resolve a Later Dispute

An audit trail can be valuable evidence.

But the original article goes too far by suggesting that a signature without a complete platform audit trail is almost impossible to prove. Pasted text

Courts can consider many kinds of evidence.

Depending on the circumstances, that could include:

• emails
• account records
• authentication events
• text messages
• witness testimony
• payment
• subsequent performance
• timestamps
• signing logs
• document metadata
• business records
• platform audit records

ESIGN's actual retention rule

Where another law requires a contract or record to be retained, ESIGN allows an electronic record to satisfy that requirement when it:

• accurately reflects the information in the original record
• remains accessible for the required period
• can be accurately reproduced for later reference Legal Information Institute↗

That is more precise than saying:

Every valid e-signature requires an IP address, document hash, certificate of completion, and full audit trail.

Those features can strengthen evidence, but they are not one universal federal validity checklist.

What a Useful Transaction Record May Include

Depending on the platform and transaction:

Do not assume every service records all of these.

If transaction evidence matters, check what the platform actually preserves before adopting it.

Record availability matters too

Ask:

• Who can retrieve the final contract?
• How long will it remain available?
• Can the signing evidence be exported?
• Will the company retain it after changing plans?
• Can the record be reproduced accurately later?

Evidence you cannot retrieve when a dispute occurs provides little practical benefit.

Risk 4: Fraud, Coercion, or Unauthorized Signing Can Still Occur

Electronic signing does not eliminate traditional contract risks.

Credential theft

Someone can sign after obtaining unauthorized access to:

• email
• phone
• account credentials
• company systems

Stronger authentication can make this harder, but no signing method is completely immune to misuse.

Coercion

Technology may show that a person completed a signing process.

It generally cannot determine whether the person signed freely.

A person may still claim:

• duress
• undue influence
• fraud
• misrepresentation

Those disputes depend on facts beyond the visual signature.

Unauthorized use of a saved signature

A stored signature appearance or image can be misused if another person gains access to it.

Again, the real question is not simply what the signature looks like.

It is what evidence surrounds its use.

Red Flags Before Signing

Slow down when:

• the agreement arrives unexpectedly
• the sender's identity is unclear
• there is pressure to sign immediately
• the document differs from prior negotiations
• blank fields remain
• attachments are missing
• someone asks you to sign for another person
• the signing link was forwarded from an unknown source

No technical signing method replaces reading the agreement and confirming that the transaction itself is legitimate.

Risk 5: Cross-Border Transactions Can Involve Different Signature Rules

The original article says ESIGN and UETA “stop at the border.” Pasted text

That is incorrect.

ESIGN's general rule expressly applies to transactions in or affecting interstate or foreign commerce. Legal Information Institute↗

The real problem is different.

A cross-border contract may involve:

• US federal law
• state contract law
• the law where the counterparty is located
• a governing-law clause
• forum-selection provisions
• foreign electronic-signature requirements
• public filing or regulatory requirements

European Union

The EU uses the eIDAS framework.

Under eIDAS Article 25:

• an electronic signature cannot be denied legal effect or admissibility solely because it is electronic
• a qualified electronic signature has the equivalent legal effect of a handwritten signature
• a QES based on a qualified certificate issued in one EU Member State must be recognized as a QES in other Member States Eur-Lex↗

AES and QES are not universal global tiers

The original FAQ says “most laws” recognize simple, advanced, and qualified electronic signatures. Pasted text

That should be removed.

SES, AES, and QES terminology comes from the European eIDAS framework.

US ESIGN and UETA do not divide electronic signatures into those same three statutory levels.

Cross-border checklist

Before signing internationally, check:

1. governing law
2. dispute forum
3. required signature method
4. whether public filing is involved
5. whether local certification is required
6. whether notarization or witnessing applies

Risk 6: Industry-Specific Rules Can Apply on Top of General E-Signature Law

This was one of the most factually problematic parts of the draft.

It treats HIPAA, securities regulation, and FDA Part 11 as though each imposes one generic set of signature requirements. Pasted text

They do not.

Healthcare and HIPAA

HIPAA's Security Rule does not require electronic or digital signatures.

HHS states:

“No, the Security Rule does not require the use of electronic or digital signatures.”

Electronic or digital signatures can be used as a security measure where a covered entity determines that doing so is reasonable and appropriate. HHS.gov↗

Healthcare organizations still need to assess other relevant:

• privacy requirements
• security safeguards
• state consent laws
• record requirements
• transaction-specific rules

So do not claim:

“HIPAA requires a certain type of e-signature.”

That is inaccurate.

Broker-Dealer Recordkeeping

The draft says FINRA rules require records to be stored in a non-rewriteable, non-erasable format.

That is outdated as a universal statement.

SEC amendments effective in 2023 allow broker-dealers using electronic recordkeeping systems to comply through either:

• the traditional WORM format, or
• an audit-trail alternative that permits reconstruction of the original record when records are modified or deleted SEC↗

The audit-trail option requires a complete time-stamped record of specified changes and other information necessary to maintain authenticity and reliability. SEC↗

That is a recordkeeping rule, not simply an electronic-signature requirement.

FDA 21 CFR Part 11

Part 11 can apply when regulated electronic records and electronic signatures are used in circumstances covered by FDA predicate rules.

FDA guidance makes clear that the analysis is broader than simply asking whether a tool offers an audit trail.

Relevant controls can include:

• authorized system access
• authority checks
• operational checks
• appropriate system documentation
• accountability policies
• signature controls
• signature linkage
• electronic-record requirements U.S. Food and Drug Administration↗

FDA also says Part 11 does not prescribe one universal method for creating a valid electronic signature.

Examples can include:

• ID cards
• biometrics
• digital signatures
• username/password combinations U.S. Food and Drug Administration↗

For identity verification, FDA likewise does not prescribe one single method. Possible methods can include government ID, security questions, strong login credentials with MFA, or video observation. U.S. Food and Drug Administration↗

Important nuance about audit trails

FDA's 2003 guidance says the agency exercises enforcement discretion regarding certain Part 11 audit-trail requirements while still enforcing applicable predicate rules and other Part 11 provisions. U.S. Food and Drug Administration↗

That is far more nuanced than:

“Part 11 always requires exactly one audit-trail configuration.”

Electronic vs Wet-Ink Signatures: Risk Comparison

Neither method is automatically superior in every respect.

Avoid claims such as:

Wet ink requires physical presence.

Someone can sign a paper document alone and mail it.

Likewise, avoid implying electronic signatures automatically provide stronger evidence.

The strength depends on the process.

Legal Risks of Electronic Signatures: Step-by-Step Risk Check

Before sending an agreement electronically:

1. Identify the document type. Check whether any special execution rules apply.
2. Confirm the governing jurisdiction. This is particularly important for cross-border transactions.
3. Identify the correct signers. Verify names, entities, titles, and authority.
4. Choose appropriate authentication. Match identity assurance to the transaction's risk.
5. Make the full document available for review. Do not hide or omit incorporated terms.
6. Check electronic-consent requirements where applicable. Consumer disclosures can trigger additional ESIGN requirements. Legal Information Institute↗
7. Confirm record retention. Make sure the completed record can be accurately reproduced later when required.
8. Preserve useful transaction evidence. Keep the final agreement and supporting signing records.
9. Check industry-specific requirements. Healthcare, finance, government, and FDA-regulated workflows can require additional analysis.
10. Escalate unusual transactions. Get qualified legal advice where the risk justifies it.

Consumer Transactions Need Extra Attention

ESIGN has additional provisions where another law requires information to be provided to a consumer in writing.

In those situations, electronic delivery can require:

• affirmative consumer consent
• clear disclosures about paper copies
• information about withdrawal of consent
• information about hardware and software requirements Legal Information Institute↗

That means the statement:

“Intent to sign is enough for every US transaction.”

is incomplete.

The transaction type matters.

Do Courts Require an Audit Trail?

There is no universal rule saying a court will reject an electronic signature if a commercial platform did not generate a specific certificate of completion.

A dispute is an evidence question.

Possible evidence can include:

• platform records
• authentication records
• emails
• testimony
• contract performance
• IP information
• device records
• payment
• business records
• document metadata

A detailed signing log can be extremely useful.

It is still one form of evidence rather than a universal statutory prerequisite.

Practical Pre-Signing Checklist

Document

• Is this the final version?
• Have all attachments been included?
• Is the document eligible for this signing method?
• Are any witnesses or notarization required?

Parties

• Are the legal names correct?
• Is the signer the intended person?
• Does a company representative have authority?

Signing process

• Can every party review the complete document?
• Is authentication appropriate to the risk?
• Are recipients clearly told that they are signing?

Records

• Will you receive the final executed copy?
• Can transaction records be retained?
• Can the completed contract be accurately reproduced later?

Jurisdiction

• What law governs?
• Is another country involved?
• Does the transaction require a specialized signature level?

Industry

• Do separate regulatory or recordkeeping requirements apply?
• Does your organization need specific system controls or agreements?

How LoreSign Fits

LoreSign can help manage the execution portion of an electronic agreement workflow.

A sender can:

• prepare or upload the final document
• add recipients
• place signing fields
• send signing requests
• monitor completion
• retain the completed agreement

Those capabilities can provide useful transaction evidence and reduce manual signing administration.

They do not eliminate:

• contract-law requirements
• document-specific formalities
• identity fraud
• coercion
• authority questions
• industry-specific compliance
• cross-border legal analysis

No e-signature platform should be positioned as making every electronically signed agreement automatically enforceable.

Frequently Asked Questions

What are the main legal risks of electronic signatures?

The main risks involve the underlying agreement, signer identity and authority, weak transaction evidence, fraud or coercion, cross-border legal differences, and transaction-specific regulatory requirements.

Do electronic signatures hold up in court?

They can. In the United States, ESIGN prevents covered contracts and signatures from being denied legal effect solely because they are electronic. Whether a particular agreement is enforceable still depends on the underlying transaction and evidence. Legal Information Institute↗

What documents cannot be electronically signed?

ESIGN excludes several categories from its general rule, including wills, certain family-law matters, court documents, and certain notices. That does not necessarily mean every such document must use paper under every applicable law. Separate state or federal laws may authorize electronic execution. Legal Information Institute↗

What are SES, AES, and QES?

These are primarily European eIDAS concepts. A qualified electronic signature has the equivalent legal effect of a handwritten signature under eIDAS, while an advanced electronic signature must satisfy the requirements in Article 26. US ESIGN does not use the same three-tier structure. Eur-Lex↗

Does HIPAA require a special electronic signature?

No. HHS states that the HIPAA Security Rule does not require electronic or digital signatures. They may be used as a security measure when a covered entity determines they are reasonable and appropriate. Other healthcare requirements can still apply. HHS.gov↗

Are electronic signatures valid for international contracts?

They can be, but cross-border transactions may involve more than one legal framework. ESIGN applies to transactions affecting interstate or foreign commerce, while other jurisdictions can impose their own signature and formal-document rules. Check the governing law, document type, and relevant local requirements. Legal Information Institute↗

The Bottom Line

The legal risks of electronic signatures are manageable, but electronic form alone does not answer every legal question.

Before relying on an electronically signed agreement:

• Confirm that the document can be executed electronically under the applicable rules.
• Verify the identity and authority of the people signing.
• Use authentication that matches the transaction's level of risk.
• Make sure everyone can review the complete final document before signing.
• Retain the executed agreement and useful supporting transaction records.
• Check for consumer, cross-border, industry, notarization, witness, or filing requirements.
• Treat e-signature software as an execution tool, not a substitute for legal judgment.

Sources and Further Reading

15 U.S.C. § 7001, ESIGN Act
General federal rule recognizing electronic signatures and records and preserving underlying legal requirements. Legal Information Institute↗

15 U.S.C. § 7003, ESIGN Exceptions
Lists categories excluded from ESIGN's general validity provisions. Legal Information Institute↗

EUR-Lex, eIDAS Articles 25 and 26
EU rules covering electronic, advanced, and qualified electronic signatures. Eur-Lex↗

HHS, HIPAA Security Rule Electronic Signature FAQ
Confirms that HIPAA's Security Rule does not require electronic or digital signatures. HHS.gov↗

SEC, Electronic Recordkeeping Requirements for Broker-Dealers
Explains the current WORM and audit-trail alternatives under Rule 17a-4. SEC↗

FDA, Part 11 Electronic Records and Electronic Signatures
Guidance covering Part 11 scope, electronic-signature controls, validation, audit trails, and predicate rules. U.S. Food and Drug Administration↗

About LoreSign

LoreSign helps individuals and businesses prepare, send, sign, and track documents online. Add recipients and signing fields, send the document for signature, monitor completion, and retain the completed agreement.