Are you seeking to expand your operations into China? Understanding the different types and uses of company chops is essential. Integral to day-to-day business activities, company chops are official seals used to validate various documents and contracts. In China, a company chop carries significant legal weight and should not be regarded as a mere stamp.
In this article, we will explore the significance of company chops and the different kinds of chops, including e-chops. In addition, we will offer guidance on safeguarding your chops to avoid any potential misuse or unauthorised use.
Table of Contents
Overview: Why are company chops important?
For many years, company chops have been widely used in all kinds of business undertakings in China. A company chop holds significant legal weight as an official seal. Affixing the company chop to a document has a legally binding effect on the whole company. It serves as compelling evidence of the company’s official approval and acceptance of the contents therein. In many cases, it effectively replaces the need for individual signatures on contracts and other crucial paperwork. Because of their legal significance, company chops also serve as an important form of verification, providing assurance of the legitimacy and reliability of documents.
Using the company chop can help expedite commercial exchanges and other business activities by providing an alternative means of granting approval. It eliminates the need to repeatedly obtain the legal representative’s signature.
Main company chop
The main company chop serves as the company’s official signature and a binding representation of the company. Having this chop is a mandatory requirement for all business entities in China. Once the company has completed the registration process with the local State Administration for Market Regulation, the chop must be carved and subsequently approved by the local Public Security Bureau.
The main company chop is used on all correspondence, official documents, contracts, memoranda, certificates, etc. bearing the company’s name. In addition, it can confer legal authority in matters, such as opening a bank account, changing the company’s name or business scope. With the exception of particular documents where specific chops must be used, the main company chop can fulfil a wide range of functions.
It should also be noted that the main company chop prominently shows the company’s name in English. The practice of displaying English trading names is generally uncommon in official documentation, as Chinese is the only recognised language. Hence, the chop serves as the sole formal record of the company’s English name.
Besides the main company chop, it is compulsory to have the financial chop. However, the primary company chop can oftentimes be used as a substitute for the financial chop.
The financial chop is typically required for the following purposes:
- Opening a corporate bank account
- Updating account information
- Withdrawing funds from your corporate bank account
- Issuing or depositing cheques
- Carrying out bank transactions
- Initiating wire transfers
- Authenticating official documents from the State Administration of Taxation
Since the financial chop pertains to important financial matters and transactions, you are well advised to establish robust internal controls to minimise the risk of misuse. By limiting its accessibility, you can better safeguard the financial chop and maintain proper oversight over its usage.
Legal representative chop
As the name of the chop suggests, the legal representative is in possession of this chop. In China’s corporate governance system, it is mandatory to appoint a legal representative. The position must be held by the chairman of the board of directors, executive director, or general manager of the company. Akin to the role of a CEO, the legal representative holds extensive powers and performs many functions. These include legally conserving the company’s assets, representing the company in legal matters, and executing the powers of attorney on the company’s behalf.
In addition, the legal representative has the authority to enter into contractual arrangements in the company’s name without needing to provide proof of authorisation. This means that the legal representative has the authority to make legally binding commitments on behalf of the company. When the legal representative affixes his/her seal, it carries serious legal implications. The action binds the company and holds it accountable for the consequences resulting from the decision.
It is uncommon for the legal representative seal to be the sole signature on documents. Usually, additional chops are required, such as the main company or financial chops. The primary usage of the chop is for banking-related matters, such as authorising payment transactions, withdrawing funds, or issuing cheques.
As the chop is associated with a particular individual, it bears the name of the legal representative. Therefore, when the legal representative is replaced, you must carve a new chop with the name of the successor.
The invoice chop is required for the issuance of fapiaos. Fapiaos are official invoices that serve as proof of purchase and sale of goods and services, performing an essential function in tax compliance. They are used for the reimbursement of business expenses and for claiming tax deductions. To claim a purchase as a business expense, the invoice must be stamped with the invoice seal.
Having a contract chop is not mandated by law, but it can effectively substitute for the main company chop when dealing with contractual matters. The contract chop confers a lesser degree of authority compared to the main company chop. It is, therefore, a valuable tool for delegating and entrusting specific responsibilities. For instance, it is common practice for companies to provide sales representatives with a contract chop, granting them authority to sign sales contracts with customers on the company’s behalf.
Companies conducting cross-border trade are required to use the customs chop when filing declarations on imports and exports.
In recent years, China has gradually been adopting e-chops. They serve as digital counterparts of traditional chops and are conferred equal legal standing. That being said, e-chops go beyond being mere copies of their physical equivalents. Important digital data is embedded in them that not only identifies the signatory but also the signatory’s consent to the chop’s usage.
The Electronic Signature Law, updated in 2015, provided clarity regarding the legal validity of e-chops. Where the signatory has sole ownership of and exercises control over an e-chop’s creation data at the time of signing, an e-chop holds the same legal weight as a traditional chop or wet-ink signature. Additional requirements include ensuring the traceability of any modifications made to the e-chop and associated data, as well as the proper retention of all e-chop creation data.
E-chops are versatile and have a wide range of applications in various civil activities. They can be used for a variety of purposes, including signing agreements, contracts, resolutions, and other relevant documents. It is necessary for the counterparty involved to agree to the use of e-chops. There are, however, instances where e-chops are not suitable, such as in documents related to public utility services and those mandated by law or administrative regulations.
How to safeguard your chops and prevent fraud
Implement a robust internal control mechanism to monitor and track usage
By establishing internal controls, you can better ensure that the usage of chops are monitored, recorded, and restricted to certain authorised individuals only. This helps prevent fraud, unauthorised transactions, and costly disputes from having to disavow legal accountability in cases of misuse. Internal controls may include procedures for applying and storing chops, maintaining a logbook of chop usage, conducting periodic audits, and segregating duties to prevent any single individual from having complete control over chop usage.
Add another factor of authentication
For an additional level of security, you can require that all chops be used in conjunction with main company chop. Chops usually appear alongside the signature of the authorised individual. This common practice goes beyond that typically seen in other parts of the world, where sole reliance on signatures is more prevalent.
Conduct thorough due diligence of the counterparty
Physical chops as well as e-chops are susceptible to forgery. It is true that e-chops provide contracting parties with enhanced security through encryption and authentication protocols. However, if you neglect to verify the authenticity of the creation data, you are exposing yourself to potential fraud.
In other cases, the crux of the issue lies not so much in the authenticity of the chops themselves, but in the trustworthiness and legitimacy of the other party involved. To mitigate the risk of fraud, it is crucial to conduct comprehensive due diligence of the counterparty to ascertain the company’s existence, identity, and financial standing.
How CW can help you
Given the severe legal consequences of company chops falling into unauthorised possession, it is vital to put in place robust measures to protect these valuable assets. Well-versed in the complexities of local legal and regulatory requirements, our firm’s dedicated team of seasoned professionals can assist you in safeguarding your company chops. From handling the various registration procedures on your behalf to advising on the proper usage and storage of chops, we are committed to ensuring the utmost protection of your business interests.
Contact us to find out how we can help you.