Electronic Chop in China
Company chops are an essential part to the handling documents and managing internal and external affairs when doing business in China. In recent year, a digital equivalent of the standard stamp has been widely adopted in China. This article will discuss company chops in detail with regards to their applications, and types, focusing more specifically on the increased use of the electronic chop.
What is a Company Chop in China and How are They Used?
For any company in China, the official company chop serves as a seal to validate any documents and is a necessary requirement to operate any business in the country.
A document stamped with a relevant chop makes it legally binding, representing a company’s official decision for internal and external affairs. Company chops are commonly used in any official company provided letters, contracts and official reports issued to the public as well as in supportive documents to relevant authorities.
The legal representatives of a company must effectively safeguard the chops, given that any documents which are chopped implies a sign of confirmation or agreement towards any activity from the company. For any documents that are chopped, the company must be aware of the responsibilities and consequences of using the relevant chop. Despite the validity of signatures, in terms of serving the same purpose as chops, a stamp from a company chop ensures that a document is truly legally binding.
There are many different types of chops in China, each serving a specific purpose and application.
The Different Types of Company Chops in China
Finance chops are mandatory to have as part of any company operation in China, with the purpose of handling any activities associated with financing. It is often used in the authentication of financial documents, issuing checks, conducting bank transactions or the opening of bank accounts. While the official company chop can often be used in place of a finance chop, it is strongly suggested that the company and finance chops be kept separately to avoid wrongful or improper usage. The finance chop must be registered with the
Legal Representative Chop
The legal representative is recognized as the principal of the company, who bears the official name on the company’s business license upon registration. Officially owned by the company’s legal representative, this chop is used for financial activities as well as represents the legal representative’s signature in their absence. Common applications for the legal representative chop include approving payment transactions, withdrawing cash from the bank or for issuing company cheques.
A Custom Chop
For any business activities related to the import or export of goods, the custom chop is used. Once registered with the customs authority, this chop can be used to declare any imported or exported goods through the control area indicated by the company. The customs chop should be kept only with specialized employees who handle affairs related to imports and exports of the company.
A separate chop is often used by many companies in China to sign official contracts, for instance between employees or clients. It represents the company in the same manner as an official company chop within the scope of agreement for the contract.
Invoice chops are used to issue tax receipts, also known as fapiaos for the purpose of declaring an official business expense.
What is an Electronic Chop？
Carrying the same legal status and validity as a physical chop, electronic chops are a purely digital form of signature that possess valuable data of the signatory using it. Beyond just a digital replication of a company’s physical seal, electronic chops contain digital information that identifies the individual who is chopping the document while recognizing that they are in approval of the usage.
To ensure validity and reliability of the electronic chop, the signature must be owned and controlled solely by the signatory and any changes made towards the chop need to be detectable by authorities. Data contents must be effectively kept and controlled by the signatory throughout all times.
Why has there been a move to digital chops？
Following an update to the Electronic Signature Law released in 2015 and further revisions in 2019 which cemented the validity of electronic chops, there has been a gradual shift towards the usage of digital chops.
Moreover, due to remote working conditions as a result of COVID-19 restrictions throughout the country, in addition to desire for most sustainable business practices, electronic chops have become a more favorable in China in comparison to traditional seals.
To quantify the adoption of electronic chops in China, it is reported that over two-thirds of tax bureaus throughout the province of Guangdong have begun implementing usage of the digital chop system.
The Law Regulating Digital Chops
While electronic chops are highly securitized through data encryption, fraud is still a possibility if counterparties do not conduct their due diligence by confirming the legitimacy of the data behind the chops.
Advanced electronic signatures, as defined by the European Commission, are designed to ensure that the signatory can be identified at the time of signing, that they retain control of the chop and that any change towards data is distinguishable. Processes and laws have been implemented to ensure that data is protected, and that usage of digital chops is regulated.
As stated by Chinese law, the responsible individual from an organization bears full responsibility for their actions when signing through electronic chops. As such, others should not be able to legally apply the chop for themselves.
Defined by Article 27 of the Electronic Signature Law, a signatory who fails to notify parties of lost of data in the signature, to terminate use and to provide accurate information on errors, will hold responsibility for any losses caused to parties who rely on the electronic signature.
What Happens if an E-chop is Used Illegally?
Article 32 of the Electronic Signature Law states that in the case in which an electronic signature is counterfeited, copied or usurped, the person committing the act will be held accountable with criminal responsibility and investigated in accordance with the law. Further losses will hold them liable to compensations as civil responsibility.
Therefore, any companies who are planning on using digital chops should be mindful of the laws in place regulating usage, and have a secure system of authorized signatories responsible for the usage of electronic chops.
When can an electronic chop be used？
Electronic chops can be used for most civil activity instances under contractual agreement between parties. Examples in which electronic chops can be seen to be used include approving reimbursements, fulfilling transaction agreements or signing off on contracts.
The usage of electronic chops are not applicable to all document types however, and should not be used in cases concerning documents associated with personal relations or related to public utility services. Electronic chops should also not be applied to documents already prescribed by law or administrative regulation.
Final Considerations on E-chops
Electronic chops are a highly valuable and effective form of company signature to be used in place of physical chops in China. While recognizing the relative benefits of utilizing an electronic system for document validation, it is also important for companies to be aware of the regulations surrounding electronic chops.
MS Advisory has served foreign SMEs in China with accounting, business advisory and corporate set-up services for over a decade. Our experts are well-versed and highly knowledgeable about the Chinese market landscape and will help you ensure that your business remains compliant and on track for success. Get in touch with us right away so that we can help you with all your business needs.
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