Key Takeaways:

  • Online contracts are legally binding agreements created and signed electronically.
  • They offer convenience, cost savings, and faster execution compared to traditional contracts.
  • Not all agreements can be handled online—some must be made on paper to be valid.
  • Popular types of online contracts include clickwrap, browsewrap, and sign-in-wrap agreements.
  • Electronic signature security varies; businesses should prioritize secure, cryptographic methods.
  • Effective lifecycle management and compliance are key to maintaining enforceability.
  • Numerous platforms support online contract creation and automation.

Online contracts refer to contracts that are created and signed over the Internet. Also referred to as electronic contracts or e-contracts, these contracts provide a fast and convenient way for individuals and organizations to enter into legally-binding agreements with other parties. They are now being used for a wide range of purposes, from consumer and business agreements to government filings.

What is an Electronic Contract?

An electronic contract refers to an agreement that is made and signed electronically, meaning that it does not involve the use of paper or hard copy. For instance, you create a contract on a computer and send it to a business associate via email. Then, the business associate sends it back to you with an electronic signature to indicate acceptance. 

There is also a kind of e-contract called “Click to Agree” contract. Commonly found in downloaded software, it requires a user to click the “I Agree” button at the bottom of a page that contains the software license terms and conditions. The transaction is complete once he or she clicks the button. If a contract is not properly accepted, it is not valid and enforceable by the law.

Common Types of Online Contracts

There are several types of online contracts, each with different implications for enforceability:

  • Clickwrap Agreements: Users must affirmatively click a checkbox or button indicating agreement to terms before proceeding. These are among the most enforceable forms of online contracts.
  • Browsewrap Agreements: Terms are accessible via a link, but users are not required to take explicit action to agree. These can be difficult to enforce unless users are clearly notified and actively engage with the site.
  • Sign-in-wrap Agreements: Terms are tied to the user registration or login process. These fall between clickwrap and browsewrap in terms of enforceability.
  • Shrinkwrap Agreements: Often used with physical goods, these become binding once the product is opened. The online equivalent is less common but still used in some downloadable software models.

Understanding the differences can help businesses choose the appropriate format for specific contexts.

What is an Electronic Signature?

Electronic contracts and signatures are just as legally-binding and enforceable as conventional contracts signed on paper. In 2000, the federal government cleared the doubts that surrounded e-contracts by passing the Electronic Signatures in Global and International Act (ESGICA). With this law in place, e-signatures have become as legally valid as traditional paper contracts. This is good news for companies that do business online, especially those that offer insurance, financial, and household services.   

With a properly-written terms of use agreement and privacy policy, online entrepreneurs can protect themselves against certain legal problems and potential liability. Business-to-business websites (B2Bs) also benefit from the law because it enables them to create enforceable agreements when they order supplies or services. The ESGICA is important to all these companies because it allows them to conduct business entirely online. In addition, it also helps them save a substantial amount of money, which they can pass on to their customers.

Since it is not possible to create a traditional ink signature on an e-contract, a number of methods have been used to indicate signatures electronically, including:

  • Clicking an “I Accept” button
  • Typing the name of the signer into the signature field
  • Pasting a scanned version of the signature onto the signature field
  • Using cryptographic scrambling

Although each of these methods is commonly called “digital signature,” it's becoming a standard practice to refer to the cryptographic signature as a “digital signature” and use the term “electronic signature” for the other methods. While electronic signature methods are expected to be as commonplace and secure as credit cards, there is a concern that identity thieves may be able to intercept signatures that are created with unsecure methods.

Legal Considerations and Enforceability

For an online contract to be enforceable, it must meet the same requirements as traditional contracts:

  • Mutual consent between parties
  • Offer and acceptance
  • Consideration (something of value exchanged)
  • Legal capacity of the parties involved
  • Legality of the agreement’s subject matter

U.S. laws such as the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) confirm that electronic signatures and records are legally valid—provided that both parties consent to conduct the transaction electronically.

Courts may consider the presentation of terms, clarity of acceptance, and authentication of the signer’s identity when determining enforceability. It’s essential to ensure the signer has had a reasonable opportunity to review the terms and has indicated agreement.

Contracts That Must Be Made on Paper

In order to prevent consumers from being potential victims of abuse, electronic versions of certain documents are considered invalid and unenforceable, such as:

  • Wills, codicils, and will trusts
  • Divorce, adoption, and other family-related legal documents
  • Court notices, orders, pleadings, motions, and other court-related documents, Notices of default, repossession, eviction, and foreclosure
  • Notices of termination or cancellation of utility services
  • Notices of termination or cancellation of life and health insurance benefits
  • Documents legally required for the transportation of hazardous materials
  • Notices of product recalls that have an impact on health and safety

Risks and Limitations of Online Contracts

While online contracts offer convenience, there are potential risks to be aware of:

  • Security vulnerabilities: If digital signature tools or storage systems are not secure, sensitive data may be exposed or altered.
  • Enforcement challenges: Ambiguous or improperly presented terms may lead to disputes about whether a valid agreement exists.
  • Jurisdictional issues: When contracting parties are located in different regions or countries, determining which laws apply can be complex.
  • Compliance requirements: Regulated industries such as finance or healthcare may require additional controls for digital agreements.

To mitigate these issues, businesses should ensure they use secure platforms, clearly outline terms, and comply with relevant data protection and electronic transaction laws.

Creating an Online Contract

There are many online tools that you can use to create an online contract, including:

  • Photobiz — This website has a wide selection of contract templates for you to choose from and stores your documents in a systematic and secure manner.
  • Google Form — A free tool that allows you to create easily-shareable contracts and stores your files securely.
  • WordPress Online Contract — With this plug in, you can create, sign, send, manage, and archive a wide variety of contracts. It also offers template creation features, instant notifications, password protection, custom short-codes, and others.
  • Shake — Shake has one of the largest selections of online contracts for businesses. It has contract templates for freelancers, nondisclosure agreement, renting, buy and sell transactions, and loans.

Tools for Managing Online Contract Lifecycles

Managing online contracts goes beyond creation—it includes negotiation, execution, storage, and renewal. Contract lifecycle management (CLM) platforms help streamline this process. Features to look for include:

  • Automated workflows to reduce manual steps
  • Version control for accurate tracking of revisions
  • Audit trails to verify actions taken by each party
  • Reminders and alerts for key milestones or expiration dates
  • Searchable repositories for quick retrieval

Popular CLM and e-signature tools include:

  • DocuSign and Adobe Acrobat Sign – widely recognized for secure electronic signatures.
  • Ironclad – known for advanced workflow automation and compliance features.
  • PandaDoc – offers an all-in-one solution for document generation, negotiation, and e-signature.
  • Malbek – focuses on AI-powered insights and real-time collaboration during contract negotiations.

These tools enhance contract governance and reduce the risk of noncompliance or lost agreements.

Frequently Asked Questions

1. Are online contracts legally enforceable in all states? Yes, online contracts are enforceable across the U.S., provided they meet the general legal requirements of a contract and comply with ESIGN or UETA.

2. What makes an online contract invalid? If there’s a lack of consent, unclear terms, or the contract involves matters like wills or family law documents (which require paper), it may not be valid.

3. Can someone challenge an online contract in court? Yes. If a party claims they didn’t understand or agree to the terms, a court may assess how clearly the agreement was presented and accepted.

4. What’s the safest method of electronic signature? Digital signatures using cryptographic methods are considered the most secure and legally reliable.

5. How long should online contracts be stored? Online contracts should be retained for as long as needed based on the agreement’s terms, applicable laws, or potential disputes—often 7 years or more in business settings.

If you need help with online contracts, you can post your legal need on UpCounsel's Marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.