It is always a good idea to have your Chinese counter-party “chop” or “seal” your China contracts with their official China company chop. It has been more than five years since we blogged about what constitutes an official China company chop and it seems like our China lawyers are getting an uptick in requests for us to explain how to discern what is and is not an official China company chop. This post is a response to those emails and a necessary update to our previous posts on China company chops.
Every contract with a Chinese company must be executed by a person at the Chinese company with authority and it must be chopped with the official company chop (sometimes also referred to as a company seal). However, there are many types of company chops. Which one should be used? How do you know if the company chop is real? What does a real China company chop look like? What does Chinese law require of a China company chop? What are some examples of fake company chops?
An official Chinese company chop on a contract says the Chinese company itself has authorized the contract. This means that the company cannot later claim that whomever signed it was not authorized to do so and so the contract should be deemed invalid.
The rules/requirements for Chinese company chops are different in every city, so there is oftentimes no way to know whether a company’s chop is a proper, legally registered and authorized company chop just by looking at it. For this reason, the Chinese courts have decided that they generally do not care and if the document is chopped with something that purports to be the company chop and if the signer of the document is either the legal representative of the Chinese company or a person with apparent authority to act on behalf of the Chinese company based on his or her business card the Chinese courts will usually not invalidate the contract based on a technical argument related to the validity of the company chop or the authority of the signer.
What this means in real life is that if you ever sue a Chinese company for breach of contract and the Chinese company tries to claim that the chop on your contract is not really theirs and its President (per his or her business card) did not have authority to sign on behalf of the company, it will almost certainly lose. Nonetheless, what this also means is that you will have one more litigation hurdle you must jump and on which you could conceivably fall. What if it is a mid-level manager who signs your contract and not the President? Your prevailing on your breach of contract litigation now looks less certain.
Since there are so many kinds of company chops, it is best to insist on the standard round company chop using red ink. Some of these company chops are numbered and some are not. This varies by district and is not an indicator of validity. The newish oval company chops in black and purple are not common and should be avoided for companies that want to take the cautious approach. Unfortunately, some districts have moved to using these oval company chops and so it can be a good idea to determine whether you are in one of these districts. Nonetheless, none of our China attorneys have personally dealt with a Chinese company that did not have access to a standard round company chop with a star in the middle.
The only way you can be virtually certain about the authenticity of a Chinese company chop is to do expensive and time consuming and difficult in-person due diligence. You can visit the head office of your Chinese counter-party and inspect the company chop there and then compare that company chop to the company chop used on previous contracts executed by the company and provided to you during your visit. For this sort of visit to be helpful, you need to be fluent in Chinese and know enough about Chinese law and business to be able to discern whether the older contracts you are being shown are real or not. As you can imagine, this sort of in person due diligence is not ordinarily done, other than on really big money transactions.
Better yet, you send a China attorney to confirm with the government that the company chop that will be used on your contract is actually the company’s real company chop. But this method too is usually reserved for only big money transactions because because getting an attorney to run to the local MOFCOM office is not going to be cheap or easy.
Our firm’s China lawyers are occasionally engaged to do one or even both of the two company chop verifiers described above, but for verifying company chops for more typical China contracts we usually suggest foreign companies do the following:
Ask the Chinese party to provide you with the following four pieces of information:
- The signatory’s title, in Chinese and in English
- The signatory’s name in Chinese characters.
- A scanned copy of the signatory’s business card, in Chinese and English [unless you already have a copy
- A copy of the Chinese company’s business license
Armed with this, our China lawyers cannot guarantee anyone that the company chop is indeed authentic, but we can at that point let our clients know whether we are comfortable or not with the chop. By this point we have almost certainly already done basic due diligence on the Chinese company and so we already know it is a legitimate company and so once we get the above information relevant to the company chop, it is the incredibly rare instance when we express discomfort.
The bottom line on China company chops is that so long as the company chop looks authentic and so long as the person signing the contract or document has apparent authority to act on behalf of the Chinese company, that is all that is normally required. Due to the variations from district to district regarding Chinese company chops, on all but really large transactions, it will usually not make economic sense for you to do much more than to get your experienced China lawyer (who must be fluent in Mandarin) the four pieces of information listed above and have them give the company chop a relatively quick perusal.
To a certain extent, China company chops are somewhat overrated. The big issue is whether you are dealing with a person in the Chinese company with authority to bind the company. Are you even dealing with the company and not some rogue employee or third party? Does the company even exist, using the name they have given you? Those are the real issues, and they require real work to resolve. The notion that “the company chop is everything” is no longer a wholly accurate representation of the current state of law in China. Finally, any company chop can be faked. So even if you know what the genuine chop looks like, you do not know whether the one you are looking at IS that chop or is rather a fake.
However, insisting that that any legal document be chopped is still required in China so the basic best practices described above should be used for all your China contracts.