Business Contracts and E-Signatures: Benefits and Risks Explained

A simple electronic signature is currently one of the most widely used forms of digital signature.

As a result, many commercial providers offering simple electronic signature services have entered the Czech market – platforms such as DocuSign, DigiSign, Signi, Signature Factory, and others.

But how safe are these commercial tools for signing business contracts? And what are their practical advantages and limitations?

What Is a “Simple” Electronic Signature?

A signature that does not meet the criteria for a guaranteed or recognized electronic signature is informally referred to as a “simple” electronic signature. This is the most basic form of electronic signature, widely used for everyday business transactions and currently considered equivalent to a handwritten signature. In addition to the definition set out in the eIDAS Regulation, a simple electronic signature must also meet the Civil Code requirements for the written form of a legal act.

According to Section 561(1) of the Civil Code, the signature of the acting party is required for a written legal act to be valid. The signature may be replaced by mechanical means – if accepted. Another provision of the law allows a document to be signed electronically when the legal act is carried out by electronic means. Furthermore, Section 562(1) of the Civil Code states: “The written form is preserved even if a legal act is carried out using electronic or other technical means that enable the content to be recorded and the actor to be identified.”

A simple electronic signature does not require qualified signature creation devices or a qualified certificate issued by an accredited certification authority (such as Czech Post s.p.). In practice, it can be created in many ways – for example:

• Typing a first and last name at the end of an email,
  
• Checking a box or clicking a button labeled “Sign,” “Order,” or “Agree,”
  
• Inserting an image of a handwritten signature into a document,
  
• Entering a PIN code into a web application through which the agreement is concluded.
  

Interestingly, these anonymous elements – such as clicking “I agree” or entering a PIN code – legally satisfy the requirements for an electronic signature, even though they would not be accepted as handwritten signatures in a traditional document.

Practical Use of Simple Electronic Signatures

The reliability of simple electronic signatures provided by commercial organizations depends primarily on the type or level of the electronic signature that the user chooses and pays for. Commercial providers offer both simple electronic signatures that offer a higher level of protection – useful, for example, in the event of litigation – and are therefore more expensive, as well as more basic versions that are cheaper but may not always be reliable in court.

In practice, the simplest and least expensive types of simple electronic signatures are most commonly used. These are typically based on one- or two-factor authentication of the signatory’s identity via phone (SMS) and/or email. In most cases, signing with this type of simple electronic signature involves a process that may vary depending on the chosen provider.

A simple electronic signature is usually applied to a document by sending a link to the email address of each signatory. When the recipient opens the link, a “signature frame” appears on their device. The signatory adds their signature within this frame – using a finger, a stylus, a typed signature, or an uploaded image.

To confirm the identity of the signer, two-factor authentication is typically included. This is usually carried out by sending a verification PIN to the signatory’s phone number, which they must have entered at the time of signing. As a result, in addition to completing the signature in the designated field, the signer also receives an SMS containing a PIN, which helps verify that the individual signing the document is the owner of both the email address and the phone number provided.

What Are the Risks of Using an Electronic Signature?

A potential issue arises when it turns out that the person using the email and phone number is not the individual who was supposed to sign the document. Anyone can, in theory, obtain access to someone else’s phone number and email and use them to impersonate that person. Therefore, when using simple electronic signatures in commercial transactions, there is always a risk that the signatory may be impersonating someone else – something that may only come to light in court, when it’s revealed that the electronic signature in the document is not genuine. The degree of reliability of a simple electronic signature largely depends on the method used to verify the signatory’s identity.

If identity verification is carried out, for example, through bank identification or by submitting scanned identification documents, the risk of forgery is significantly reduced. Still, it’s important to understand that using commercial providers of simple electronic signatures does not automatically guarantee complete security. The same can be said of handwritten signatures – except for officially certified ones, which offer a higher level of verification. In all cases, the security of a simple electronic signature depends heavily on the type and level of service chosen and paid for by the user, and this is where careful attention should be directed.

The use of simple electronic signatures among commercial users has grown significantly in recent years, which is certainly a positive development. While these services may not always be fully secure, they are often sufficiently reliable for everyday business needs. Still, the appropriate type of signature should always be chosen based on the value or legal risk associated with the document.

For instance, in the case of a small loan agreement for five thousand crowns, where the risk is relatively minor, a basic form of electronic signature may be adequate. But for a loan of five hundred thousand crowns, it would make sense to use a more advanced level of signature that includes stronger identity verification. And if the loan amount were five million crowns, the use of a certified handwritten signature might be the more prudent option.

📌 Need help choosing the right type of electronic signature for your business contracts?

Our legal consulting team at 360WEDO is here to guide you. We’ll help you assess the risks, select the appropriate level of security, and ensure your digital signing process complies with Czech law. Contact us through our website to book a consultation – we’ll get in touch with expert support tailored to your business needs.

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