Contracts in China are more formal than contracts here. This is particularly true with how they should be signed.
When we draft a contract between an American client and a Chinese company, we instruct our client on what it should do to ensure a proper signing by its Chinese counterpart. This instruction is usually along the lines set forth below.
You must ensure that your contract is properly executed by the Chinese company with which you are contracting. It should be with a duly formed Chinese company and signed by the legal representative of that Chinese company. The name and address of the Chinese company should accord with the information registered for this company and the Chinese company’s chop should be used to seal the contract.
To verify the Chinese company’s information, you or someone you trust should do the following:
- Personally visit the Chinese company.
- Obtain the business card of the person who will be signing on behalf of the Chinese company and have that person give you a specimen of their company’s chop.
- Obtain a copy of a previously executed company document to verify the authenticity of the chop you have been given.
- Obtain a copy of the Chinese company’s business license. This will provide the Chinese company’s registered address and the name of its legal representative.
If anything about the contract is inconsistent with the information you receive, do not execute the contract. Even a simple mistake in the address can render the contract invalid.
When the contract is for a relatively small amount, the signing requirements become somewhat less stringent — not because the risk declines, but because the amount at stake is less. When the amount at stake is relatively low, our China lawyer tell our clients it is “less necessary” to make sure that the Chinese company’s legal representative signs their contract. Though it is always preferable (and safer) to have the Chinese company’s legal representative sign your contract, if the contract is sealed with the company chop, it will likely be enforceable even if signed by some other company representative.
But no matter how small the contract, we always like to see the business license of the Chinese company with which our clients are contracting. The business license provides an easy method to verify the name and registered address of the Chinese company and the identity of its legal representative. Most importantly, it is extremely easy for the Chinese party to provide its business license and any unwillingness to do so is a major warning sign.