If you thought that only signatures were legally binding in China, then you probably have not used a company chop before. As we know, the cultural differences in China are quite vast, and the way that documents are deemed legally binding is also no stranger to any cultural differences.
The company chop is essentially a stamp that carries the same legal weight as a signature in the west. Although the use of company chops sounds quite simple, there are some things you have to look out for after you realise the potential risks and responsibilities that come with using the company chop.
What is a chop/seal?
A chop (a seal or stamp) is a tool used to make legal documents have some form of validity. There are several types of chops used in companies situated in China, with the official company chop being the main one.
The official company chop is a circular or oval stamp that uses red ink and includes at least the Chinese name of the company. It may also contain a registration number and, in some cases, a translation of the name in English. The design of stamps comes in different styles that the average person cannot distinguish.
You can obtain your company chops from government-authorised chop makers with approval from the public security bureau.
Company chop vs signature
The company chop represents the whole company, irrespective of who has stamped it. Whereas signatures are linked to a specific individual. Read more in our company chop versus signature article.
The different types of company chops
There are various stamps that are used within companies in China, where each different stamp must be used for a certain type of document. Some of these chops are mandatory for doing business in China, however, non-compulsory chops can also be used in certain instances.
Below are the most important ones:
- Official company chop: This chop can be regarded as the main chop. Official documents, contracts, letters, certificates and introduction letters can all be stamped by the official company chop.
- Legal representatives chop: As the name mentions, this chop is the name-chop of the company’s legal representative. The chop is linked to the specific individual; therefore, the name of legal representative is found on the stamp, which is often rectangular-shaped. It is mainly used for banking purposes to represent the will of the legal representative.
- Financial chop: The financial chop is used in banking operations, mainly on issuing checks and verifying statutory documents.
- Contract chop: This is a non-compulsory chop, and can be used for signing contracts with employees and forming binding agreements with clients and suppliers. Although it is not a required chop, it is often used to delegate authorities to managers who need to tend to the previously listed matters, without giving them access to the company chop (which can also be used on contracts).
- Invoice (fapiao) chop: A mandatory chop for stamping invoices and tax receipts. As per a previously published article from Acclime China, fapiaos are being digitalised but meanwhile, the fapiao chop retains its importance.
- Customs chop: Certifies any import or export declarations in China, which is mandatory for cross-border trade.
How to prevent the misuse of company chops
As a company expanding into China, you need to realise the risk involved with the mismanagement of your company chops. The company chop is tied to the company, therefore, people who gain access to the chop can effectively bind the company.
Your company is liable for documents that are stamped even if the stamp holder did not have proper authority (unless the counterpart knew of this); hence a company must manage the chops to prevent any misuse. Negligence in the management of the company chops will end up hurting your business sooner or later.
To minimise the risk of potential misuse, there are a couple of ways to manage the use of chops in your company:
- Limit access to the company chop. This reduces the chance of the chop getting into the wrong hands. Therefore, you should only entrust your company chops with trusted individuals. You can ensure the security of your chop by only allowing the heads of each department in your company to have access to the chops, or you can outsource the management of chops to a third party (e.g. Acclime China acts as the chop manager for many foreign-invested companies in China).
- Create a record for chop use. This helps you identify the person who used the chop and when they used it.
- Accompany any stamped document with the company chop. To add another layer of security, require a senior executive to sign alongside the stamps.
- Conduct regular and thorough audits of your company’s documents. Doing this would identify any instances where a stamp has been misused.
Limit the number of company chops in use. Of most chops, there should be only one (e.g. the official company chop, the legal representative chop and the finance chop). If you do not need a contract chop, don’t have it.
You may think all these precautions might seem time-consuming or too excessive. But you do not want to be in a position where you have to involve yourself in lawsuits or other money-draining legal practices for several months or even years to fight abuse – for example, a terminated manager that has taken away the chops or a high-value contract that was chopped without proper authority. So please consider employing some of these suggestions when operating a business in China.
How we can help
If you require more guidance regarding company chop compliance in China, you can contact us, Acclime China. Our team can advise you on any queries you may have, and we can offer solutions if your company experienced any chop related legal trouble.
Did you find this guide useful? Share it with your colleagues or friends.
Acclime is a premier provider of professional formation, accounting, tax, HR & advisory services in China. We focus on providing high-quality outsourcing and consulting services to our international clients in China and throughout the region.