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China Business Contracts: Getting Them Signed.

Posted in Basics of China Business Law, Legal News
We recently did a set of tooling agreements for a client doing business in China and as a part of that, one of our China lawyers sent the client the following instructions on making sure those agreements were properly signed:

As noted above, you must ensure that the tooling agreements are properly executed by the Chinese companies that will control the tooling. This means that you need to make sure that each of these agreements is signed by a duly formed Chinese company and by the legal representative of these Chinese companies, and that the names and addresses of the Chinese companies are in accord with the information registered for those companies and that the formal company chops are used to seal the agreements. […]

In terms of verification of the Chinese company information, at minimum you need to do the following: 1) personally visit each factory; 2) obtain the business card of each person who will sign on behalf of each Chinese company and have that person give you a specimen of their company’s chop; 3) obtain a copy of a previously executed company document to verify the authenticity of the chop; 4) obtain a copy of the business license which will provide the registered address and the name of the legal representative. If ANYTHING about the tooling agreement is inconsistent with the information you receive, DO NOT EXECUTE it and do not do business with the manufacturer. Even a simple mistake in the address can lead to invalidity of the contract

A few months later, another of our China lawyers did some China NNN Agreements (a/k/a NDAs or Non Disclosure Agreements) for the same client.  NNN Agreements are not long or complicated agreements and they are typically discussed and even entered before the parties have a much of a business relationship. Our client asked our (and its) lawyer whether it would need to go through the same long and somewhat difficult process for the signing of each NNN Agreement, just as it had done for its tooling agreements.

Our lawyer responded as follows:

The short answer is that the same standard of enforceability applies to all China business contracts.
I understand your concern that the legal representative of the Chinese party may not always be willing to sign your agreement. It is always preferable (and safer) to have the legal representative sign, but if the agreement is sealed with the company chop then it should still be enforceable even if it is signed by some other company representative.
With regard to the verification steps listed, none of them are, strictly speaking, mandatory. That is, they do not themselves make a contract any more enforceable. But they are all highly advisable. The more steps you take, the more confident you can be that the contract has been properly executed by the proper company. Of these steps, securing the business license of the Chinese company is probably the most important, for two reasons: (1) it provides an easy method of verifying the name and registered address of the company and the identity of the legal representative, and (2) it is extremely easy for the Chinese party to provide, and if they can’t do so it is usually a warning sign.
It is that “easy.”
  • Ward Chartier

    Regarding tooling, I would also require the company fabricating the tool to permanently mark it, “This tool is the property of located in . In the case of multi-part tools, I would mark each part accordingly. Since this was always my practice, I never had a problem wrangling over who owned the tool. I have heard of instances in which the company using the tool to fabricate parts for its customer claimed ownership when the customer wanted to retrieve the tool. Marking the tool with ownership information helps to prevents this sort of problem.