Author: Acclime China

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Chinese company stamp vs signature

Many things in China, such as signing a contract, happen differently than in the investor’s home jurisdiction. For example, an employee within a Chinese company can sign official documents using the company chop. This is because in China a stamp is used to to “sign” documents. When registering a WFOE, the company receives such a Chinese company stamp, among several others with specific functions. Such stamps are the legal representative stamp, financial stamp and contract stamp. Even though signatures can be used to sign documents, often only the stamp makes a document legally binding.

The big difference

So how does the Chinese company stamp or chop compare to a signature? Due to some simple characteristic differences, there is a large difference in how a legal representative should operate with a stamp.

A signature is generally interconnected to a person. A stamp is a piece of machinery handled by a person. The power lies with the operator of that piece of “machinery”. From the janitor right up to the CEO, all can operate a stamp. This is a crucial detail WFOE and joint venture owners overlook. Many of them leave the Chinese company stamp in the hands of an employee.

When a CEO needs to be abroad for most of the year, it is convenient that documents can be stamped by an employee who is locally present. This seems practical; however, this comes with a compliance risk. How much can you trust the employee handling the stamp? He or she is perhaps not responsible for the WFOE and therefore not liable. In the end, the company’s legal representative always bears the responsibility.

How to work with a company stamp

So should you keep the stamp under your control? That is a decision only the company’s legal representative can make. As consultants, we strongly advise companies to make sure their stamp is used solely for the purposes you want it to be used. If you do not have full insight, we advise you to check documents regularly.

For brand new WFOE owners, this is not a surprise, but this detail is one many people tend to forget when starting a business in China. We also strongly advise WFOE’s to have a stamp register book where employees sign off when using the stamp. This register should always correspond with the documents signed.

Another important compliance issue regarding the use of stamps comes from the opposite signing party. Sometimes, if an organisation has a foul intent, they sign contracts with fake stamps. A Chinese company stamp should always be chopped in red ink, and should be circular. If the chopped seal is illegible, it may become legally invalid.

Furthermore, the name on the chop should always be the Chinese name of the company, not the English one. If you find a blue, English and/or rectangular stamp on your agreement, then something is probably not right.

Finally, you have to confirm that the document is signed by a legally allowed person to stamp or sign such documents within the company.

Checking is normal and needed

Checking a Chinese company stamp on being valid is a costly but common process among local Chinese entrepreneurs. They visit the local authorities where the company is registered to see if a stamp is registered to a company. Some stamps are not registered but still legal. When a stamp is not registered, you need to compare the stamp to other signed deals by the counterpart.

Many Western firms believe this to be an expensive waste of time. Chinese counter such claims by stating that being cheated is more expensive and an even larger waste of time. Many of the stories Westerns tell when they fail doing business in China ends with finger pointing to the Chinese.

We believe that many of those mistakes could have been prevented. Making sure you are compliant could reduce certain mistakes and increases your chances for success. In China your counterpart does not cheat you, you let yourself become cheated. Check your China compliance.

Chinese company names: How they work

Some of the world’s biggest multinationals struggled with selecting proper Chinese company names for their entity in China. When Mercedes found out their initially selected name freely translated to “Rush to die”, they rushed to alter their name into “Dashing speed” (Ben Chi 奔驰). The example of Mercedes shows that picking the right name is not easy. So what is important when selecting your Chinese name?

Selecting Chinese company names

In the process of registering a company in China, people need to prepare several ranked Chinese company names to hand in for the registration at the AMR. The AMR, short for Administration of Market Regulation, is the registration authority and regulator of most businesses in China.

Based on the availability of those names, the highest ranked available name can be selected. Every company name in China is structured in a specific way. The city of registration is mentioned, as well as the chosen company name, the industry, and the company type. The order of these parts can vary and may even be chosen by the investor. For Acclime in Shanghai this means the following name: Acclime 雅可丽玫 ( company name ) Business Information Consulting 商务信息咨询 ( industry ) (Shanghai City上海) ( city ) Co., Ltd., 有限公司 ( company type ).

Leading in company name selection is the Chinese name. Some western company names are not so easy to translate. A name like Heineken is just not that easy to translate into something which sounds comparable. More about that below.

Translating into Chinese

There are four different ways of translating a company or brand name into Chinese.

Chinese company names

Dual Adaptation

The first and most ideal option is dual adaptation. With dual adaptation the Chinese name sounds the same as the original name and conveys the meaning of the original name. This is the most ideal name because it conveys meaning and sound, connecting well to the content and the international sound of the company.

A good example of a foreign company that has used a dual adaption for their name is Nike. Nike selected the name 耐克 (nài kè). The sound is comparable to Nike and conveys the essence of Nike. Nài kè means enduring and persevering.

Phonetic adaptation

The name sounds the same as the original name but conveys a different meaning. Such a setup is ideal for organisations who seek a connection between the original company name and the Chinese company name. The risk of phonetic adaptation is that the meaning of the brand could be contrary to the company’s goals or values.

An example of a foreign company that has adapted their company name phonetically is Audi. Audi chose a name that sounds the same in Chinese, 奥迪 (ào dí). But the meaning in Chinese,  profound enlightenment , is not connected to the original meaning Westerners associate with the company.

Meaning adaptation

The third option is a name which conveys the same meaning as the original name but sounds different. Especially when selling to consumers, it is very important to create a connection between the company name and the company’s meaning. The risk of meaning adaptation is that the connection to the international brand name gets lost.

Colgate is an example of a company which chose a Chinese name that is in the same spirit as the feeling Western customers have with the name Colgate. Colgate’s Chinese brand name is “高露洁 (gāo lù jié),” which roughly means “high reveal clean.” However, it does not sound like Colgate. Another great example for this type of adaption is Heineken. Heineken tried to show their company values in the Chinese name, 喜力 (xǐ lì). xǐ means happiness, and lì means strength.

No adaptation

The last option is selecting a totally different name. The least ideal of all options, but sometimes better than a bad phonetic or meaning adaptation.

Original versus Chinese company names

Some famous western companies fully stick to their original name in brand communication, including the English language. This is possible for marketing purposes, but not for the company registration. For the company registration the name must be in Chinese. To still protect your brand name in China, many organisations opt for registering the brand logo with the English written version of the company in it.

Using the original company name could be a benefit. The English name could add a desirable effect to the name. Especially in the luxury consumer goods market, this could provide extra allure to the brand name. However, switching to the Chinese name will likely reach a much larger target market. Most Chinese people regardless of their English proficiency will use a Chinese name to refer to a brand. If no Chinese name is provided by the company, consumers will likely create their own. To remain in control of their messaging to the market, the company should create their Chinese name and also register it as a trademark in China.

Your Chinese company names

When selecting the six Chinese company names to hand in for the registration process, it is very important to consider the goals your company has in China. The following aspects have a strong influence on the name selection:

  1. The sound of your Chinese company name
  2. The meaning of your Chinese company name
  3. The goal of your Chinese company
  4. The type of industry
  5. The market segment, and whether you sell to businesses or consumers

We love to brainstorm about company names for China, feel free to connect with us.

Chinese business license

The business license, together with the company chops, is one of the most important elements any company in China. Every company has a business license, from local Chinese companies to Joint Ventures and Wholly Foreign Owned Enterprises (WFOE).

We realise that not every country has these kind of licenses and therefore it is not always clear what the use of the license is. In this article we would like to inform you what is stated on the Chinese business license and why it is such a useful document, even for foreigners.

Information contained on the Chinese business license

To get an idea what the business license is, please find an example business license below.

 

Chinese business license 1

On this document there is a treasure trove of information. As almost everything on the document is in Chinese, it might be difficult for many readers to use this information. The most important information on a business license, going from left to right and top to bottom, is:

统一社会信用代码 Unified social credit code

USCC is a unique, 18-digit national business registration number issued to all businesses and other entities in China, it is an official indication that a company is registered and verified with the Chinese government to operate legally in Mainland China.

名称 Company name

The company name is the first item on the Chinese business license. Chinese company names are all quite similar. They are usually composed by “city” – “name” – “company type”. In our case this is “Shenzhen” – “Acclime China” –“Consulting Company”, which is very similar to our official company name.

类型 Enterprise type

The enterprise type indicates the type of entity.

法定代表人 Legal representative

Here will find the name of the person who is the legal representative or the representative director. This person has the primary authorisation of the company and is also responsible for that the company operates legally. This person is often in charge of the company chops, bank accounts and other company licenses.

经营范围 Business scope

The business scope of a company lists the services that it is legally permitted to operate in.

Chinese business license 2

QR code

There is a QR code indicated on the business license. By scanning the QR code, you can see more detailed information about the company on the local government website. Please note that the specific information is different for every local government. Generally speaking, additional information is visible, such as business scope, performed audits and potential blacklisting.

注册资本 Registered capital

Registered Capital of a foreign-invested enterprise can be expressed in RMB or in freely convertible currencies. It is used to make a quickfire assessment of the size of the company.

成立日期 Incorporation date

The incorporation date gives an idea how long the specific location of a company has been active.

营业期限 Term of Operation

The term of operation is a time frame in which company can legally operate, and there are usually two types, limited term and long term.

住所 Address

The address should correspond to where the majority of the business activities are performed. Important to note is that if you change address, the business license also needs to be updated, to be in line with the new address.

How to use a Chinese business license

Now that we have an idea what kind of information is on the business license, it is good to think about how a license can be used. Requesting a business license for a company in China before doing business is standard practice, since all companies have to have this license. With the license you can then check whether the information given to you in previous communications overlaps with the license. Then, if something does not add up, you know this beforehand.

Examples of discrepancies of a business license are:

  • The company name is different than the company name on other items like the import license or the bank account. This should be a red flag that there is something seriously wrong in the communication.
  • The company says they can do the export of a certain product, but the company scope lists marketing agency. This can be a red flag that the company is and will be unable to perform the export operation, since Chinese companies must stick to their business scope.
  • The address noted on the license is in a different location, or even in a different city, than the company you are doing business with is located. Companies can have multiple locations, so it would be wise to investigate the link between the entities and ask for the other location’s license.
  • The legal representative name is not the same as the person who signs the contracts. This might mean someone goes around their boss’ back or accidentally makes a contract invalid, since only the authorised legal representative is allowed to sign documents.
  • The registered capital is low. This can be a warning that if you do business in products with large quantities and want to be guaranteed that the company you are dealing with can handle this volume.

Knowing is half the battle, especially in China. If you are going to set up your company in China, the Chinese business license is one of your most important documents. Keep it safe. If you are going to do business with a partner in China, request a scan of the license. Should their license give you a hunch or you are unsure what you are dealing with, then a small background check can be of much assistance.

Protecting your intellectual property in China

The Beijing Silk street market

It is often said that imitation is the highest form of flattery, so by this logic, thousands of brands are flattered every day in tireless factories all across China. This disregard for intellectual property in China is most blatantly apparent in the majestic pageantry that is the famous Beijing Silk Street Market. This 5-story tall air-conditioned shopping mega mall is a mecca for tourists looking to buy knockoff Gucci bags, Rolex watches, Jewellery, and name brand clothing. Anything touristy with a Chinese knockoff flavour exists at a great discount, just for you!

No matter if it is your first, or thirty-first time in Beijing, the Silk Street Market is worth the trip. If nothing else than for the sensory overload of endless sales people hawking their knockoff Gucci bags, and people from all over the world overpaying aggressive sales women for what is mostly fake garbage with recognisable brands stamped on. While the knockoff goods are in violation of the laws of intellectual property in China, the actual quality of the copies varies greatly.

Harmless fun or serious economic misconduct?

Although the Beijing Silk Street Market is mostly good fun for tourists looking for a unique shopping experience, counterfeit goods coming from China poses a serious threat to all consumer product industries. This expands beyond luxury clothing to sports gear, motor bikes, electronics, computer software, medicine and even food. The World Customs Organization discovered that 65% of all counterfeit shipments around the world originate from China. Within China around 20% of all consumer products are counterfeit. This is of course shocking, and billions of dollars are being lost to theft of this intellectual property in China every year, but times are changing. New laws and technology are being used to counter the old methods of counterfeiting goods and the factories that produce them.

Changes in intellectual property protection laws

China is undoubtedly a special country with a unique economic situation. The central government is trying to balance international rules and norms with maintaining high levels of economic growth. While China often boasts of its long history, the intellectual property protection historically did not exist before 1979, when they entered the Agreement on Trade Relations with the United States. And even then, it was not until the 1990s that any serious consideration was given to protecting intellectual property in China.

And even still, the Chinese concept of intellectual property is different from a Western one. While most western countries recognise “first to invent”, China recognises “first to file”.

But, this being said, the laws protecting intellectual property in China are getting stronger every year. The central government is taking an active role in protecting intellectual property and promoting innovation. Now, vendors both in person and on e-commerce platforms that are caught selling counterfeit goods are punished with heavy fines of up to 3 million RMB. After trade negotiations with the United States in 2018, Chinese authorities listed “38 unusually draconian punishments” that will apply to both businesses and individuals. These will not only affect those charged economically but also restrict the personal lives of the perpetrators, the National Intellectual Property Administration states. Offenders of IP laws will be put on a blacklist that can be viewed at www.creditchina.gov.cn.

Enforcement

The actual enforcement of these laws can be spotty and often determined by political, economic, or social pushback. The Beijing Silk Street Market mentioned above will sometimes be raided by trademark enforcement officials, and shops will be shut down. But, the shop vendors will fight back and sometimes they win. Even if they don’t, after enough time passes new shops selling the same goods eventually take their place. While Burberry, Gucci, Chanel, Louis Vuitton and Prada first sued successfully the Silk Street Market in 2005, all those products are still being sold there, at quite a discount.

How to keep your intellectual property in China safe

As stated previously, trademark and Patent laws in China are by first-to-file bases, not on a first-to-invent basis. If the idea being trademarked has not been filed yet in China, anybody can file it, even if it has been trademarked already outside of China. The laws governing intellectual property in China also require no evidence of prior use or ownership. So, if somebody in Lithuania creates a new gadget, brand name and logo, but does not file for trademark in China, a person in China can legally trademark it locally as their own.

Therefore, regardless of where you plan on doing business it is wise to trademark intellectual property in China as soon as you can. There is a large and booming trademark troll industry in China, where people actively search for Western companies of any size to steal their logos, or names, or products and then sell the trademark back to them for a substantial price.

We recommend hiring a professional Chinese attorney to assist you in this process, because it is a complicated and lengthy legal preceding that must be done in Chinese. The entire process will take between 9-24 months, but will save you future headaches and heartaches in the end.

What if your intellectual property in China is already being counterfeited?

If you find your own products, or brand, for sale in China without your permission, it is not too late for action. Ideally you already have a Chinese trademark, but even if you don’t, it’s not a hopeless situation. All the large e-commerce sites such as Taobao, Tmall, Alibaba, etc. have their own procedures for the removal of listings that infringe upon your intellectual property rights.

If you follow their procedures, exactly as they are laid out, then usually these e-commerce sites will execute a takedown order. But, even when you succeed in one takedown, more will always pop up. It is an ongoing process, a battle of attrition, that will only end when it becomes unprofitable for intellectual property thieves to steal somebody else’s idea.

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