These last few months our China manufacturing lawyers have been working 24/7 on helping foreign companies, charities, states, and countries sort out the legal and business issues inherent in purchasing PPE from China (Personal Protective Equipment). These deals almost invariably must be done quickly, and that often means there is just not enough time to dot every i and cross every t.
What then do you do about getting your Chinese PPE supplier to chop its contract or invoices with you? Worth it or not? It generally is, IF you have the ability to quickly distinguish a real chop from a fake one, which is — even by experts — not always possible. The reason we come down on the positive on this is because it takes the typical Chinese company all of five minutes to chop a document and there really is no reason for it not to do so. If it demurs, that in and of itself is a good indicator of something fishy.
It is always a good idea to have your Chinese counter-party “chop” or “seal” your China contracts with their official China company chop. Every contract with a Chinese company must be executed by a person at the Chinese company with authority, and using the company chop (sometimes also called the company seal) evidences that authority.
An official Chinese company chop on a contract says the Chinese company itself has authorized the contract. This is important because if, let’s say, you end up not getting the million dollars of PPE you ordered, you do not want the company from which you ordered it to be able to claim that it never agreed to provide the PPE. Perhaps most importantly, if your PPE seller refuses to chop the document with the XYZ Chinese PPE supplier company seal, there is a damn good chance this means your PPE seller either has no connection with XYZ Chinese PPE supplier company or, at minimum, has no authority to act on behalf of XYZ Chinese PPE supplier.
Now here is where it gets complicated. The requirements for Chinese company chops differ by city, making it difficult to know whether a company’s chop is a proper, legally registered, and authorized company chop just by looking at it. For this reason, Chinese courts have decided that 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, they 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 need to 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. What this also means though is that if your contract is not signed with a proper chop you will have one more litigation hurdle you will jump through and to earn your litigation victory. What if it is a mid-level manager who signs your contract and not the company president? You prevailing on your breach of contract claim is now 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 generally should be avoided if you want to take a cautious approach. Unfortunately, some districts have moved to using these oval company chops, so it can be a good idea to determine whether you are in one of these districts. Our China lawyers like to see the standard round company chop with a star in the middle, and nearly all Chinese companies have this style chop.
The only way you can be certain about the authenticity of a Chinese company chop is to do an expensive and time consuming and difficult in-person due diligence. This involves sending a qualified person (typically a Chinese lawyer) to the head office of your Chinese counter-party to 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. The person who makes this in-person company visit must 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 as proof are real or not. As you can imagine, this sort of in-person due diligence is not ordinarily done, other than on big money transactions where time is not of the essence or where the Chinese company is conveniently located.
An even better way to determine the validity of a Chinese company chop is to send a China attorney to confirm with the government that the company chop that will be used on your contract is the Chinese company’s real company chop. But this method too is usually used only for big money transactions because because getting an attorney to run to the local MOFCOM office will not be cheap or easy.
Our firm’s China lawyers are occasionally engaged to do one or even both of the company chop verifications described above, but for verifying company chops for more typical China contracts we usually suggest the following:
Ask the Chinese party to provide you with the following four pieces of information:
- The title of the person who will be signing your contract, in both Chinese and in English.
- The name of the person who will be signing your contract, in Chinese characters.
- A scanned copy of the signer’s business card, in Chinese and English.
- A copy of the Chinese company’s business license.
Armed with this, our China lawyers cannot guarantee the company chop is authentic, but we can determine whether we are comfortable with it. By this point we have almost certainly already done basic due diligence on the Chinese company and so we already know it to be a legitimate company. Once we get the above information relating to the company chop, we usually are pretty comfortable about the chop’s bona fides.
If the company chop looks authentic and the person signing your contract or document has apparent authority to act on behalf of the Chinese company, that is usually all that is required.
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 expertly faked. So even if you know what the genuine chop looks like, you cannot know whether the one you are looking at is that chop or a fake.
So though not absolutely essential, your insisting that your PPE documents be chopped is still the way to go for all of the reasons set forth above.
For more on what is entailed with China PPE deals, check out How to Buy PPE from China Without Getting Ripped Off and read every link in it.