Company Chops: Things to Know About Doing Business in China (I)

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Company Chops: Things to Know About Doing Business in China (I)

November 12
12:08 2021
In China, every company has company chops. Some foreign investors might ask “Is company chop necessary in China?”. The answer is definitely “yes”. Unlike companies in Western countries where emphasis the signature of the authorized signatory, companies in China usually express their will by stamping the company chop. This article introduces common issues related to company chops so that readers can understand the important role of company chops in Chinese business market.

Q1. What are company chops in China? How to use company chops in China?

A: As mentioned above, company chops (also referred to as seals or stamps) are important tools for doing business in China. There are five main types of company chops commonly used by companies in China.

(1) Official Company Chop: This is the most widely used and important chop by companies. An official company chop is used for signing various important documents. Moreover, it is also required for administrative procedures in relevant government departments. Therefore, the official company chop is a mandatory chop for every company in China. Documents stamped with the official company chop will legally bind the company.

Official Company Chop in China

(2) Financial Chop: This is commonly used for the bank procedure, such as opening bank accounts, issuing checks.

(3) Contract Chop: Some companies prefer to use a separate contract chop rather than an official company chop for signing contracts with other parties. Having a contract chop is not a statutory requirement, but depends on whether the company needs for its management.

(4) Legal Representative’s Chop: This is a personal chop owned by the legal representative of the company. The legal representative is the responsible person of the company, who acts on behalf of the company in performing civil activities. Since the legal representative may not always be available to sign different documents at the company, the legal representative’s chop can be used in place of a signature.

(5) Invoice (Fapiao) Chop: The invoice in China (fapiao) usually refers to the legal receipt as proof of purchases and sales of goods, provision or acceptance of services and in other business activities. Such fapiao is required to be stamped with the fapiao chop.

Q2: How does foreign-invested enterprises have the official company chop?

A: In the past, companies usually needed to file the record of official company chop to the Public Security Bureau with the required documents (e.g. copy of business license, ID card of legal representative) first, and then went to the designated carving chops store to engrave the chop. Nowadays, many local Administration of Market Regulation have issued measures to facilitate the opening of foreign-invested enterprise (FIE). When the local Administration of Market Regulation decides to issue a business license to the new FIE, the information will be synchronized to the Public Security Bureau. The new FIE may directly go to the designated carving chops store to engrave the chop.

Q3: What if the official company chop is stolen, robbed or lost?

A: If the official company chop is stolen (robbed), it is less likely that the company will be liable for disputes arising from the use of the chop, provided that the relevant evidence is available. However, in a few cases, if bona fide third parties believe the document with this stolen (robbed) chop was authorized to sign, the company may be liable for the responsibility. Therefore, the company should still treat the loss of the chop as a serious issue.

First of all, it is important to report the loss to the local police station as soon as possible. Such report usually requires certain documents, such as the original copy and the photocopy of the business license. The police station usually issues a statement to certify the loss of the chop.

Secondly, it is necessary to publish a statement on the newspaper. Different area requires different types of newspaper. It is advisable to consult with the police station or the related authority.

Thirdly, after the newspaper published the statement for certain numbers of required days, company can apply for engraving a new chop. Please kindly note that the new chop should be different from the previous lost one.

If any disputes arise from the loss of the chop, please feel free to contact us (China Business Lawyers) for advice.

Q4: Is it possible to use only the official company chop without other chops?

A: No. The law has mandatory regulations on what kind of chop should be used under certain circumstances. For example, Article 22 of Administrative Measures of the People’s Republic of China for Invoices (Revised in 2019) specifies that the invoice (fapiao) can only be stamped with the invoice (fapiao) chop.

Q5: What is an electronic company chop?

A: After the implementation of Law of the People’s Republic of China on Electronic Signatures, the electronic signature (including electronic chop) has a legal status. The so-called electronic company chop is not the image of the physical chop, but the data contained in the electronic form in the data message, attached for the identification of the company’s identity and indicates that the company approves the content of the data. In other words, an electronic company chop is an electronic data key that identifies the specific company.

Q6: Under what circumstances does the law provide for the use of electronic company chops?

A: According to Law of the People’s Republic of China on Electronic Signatures, the parties may stipulate the use, or non-use, of electronic company chops in a contract or other documents. The legal effect of any document that uses electronic company chops, as stipulated by the parties, shall not be denied simply because it takes the form of an electronic company chops.

In a few cases, where laws and regulations provide otherwise, electronic chops cannot be used. For example, in cases involving the termination of water, heat, gas or other public-utility services.

Q7: Previously, the case of co-founders from a well-known Chinese e-commerce grabbing the official company chop from each other has attracted widespread attention. Based on the importance of an official company chop, how can companies minimize such risk?

A: It is advisable to take the following measures to decrease risks of losing the control of company chops.

(1) During the daily operation, the company or shareholders shall establish strict internal regulations to clarify the custodianship, use process of company chops (especially the official company chop) to prevent misuse of company chops by others. If necessary, the custody system of the official company chop may be set forth in the articles of incorporation, resolutions of the shareholders’ meeting and resolutions of the board of directors. When handing over company chops, a detailed list shall be made to indicate the contents of the handover.

(2) When a dispute over the official company chop appears (for example, the other party begins to refuse to return the official company chop for various reasons), it is advisable to collect and preserve related evidence (e.g. written communication between the parties) immediately in case of subsequent litigation. Company might also consider to send a lawyer’s letter to require the return of the official company chop.

(3) In the event of an official company chop dispute, the company may try to apply for property preservation in order to avoid misuse of the official company chop by the defendant. We note that there are cases of successful property preservation in practice, in which various types of company chops involved in the lawsuit were seized and sequestered. In such cases of property preservation, the company should try to provide clues of the storage of the related chop in order to facilitate the smooth seizure and attachment of the chop by the court. Please kindly note that in China, the party applying for property preservation is required to provide the guarantee (e.g. deposit in the bank). Most of our clients usually engage guarantee companies to provide a guarantee letter.

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