Company Chops in China
In the context of business in China, an official company chop holds significant importance. Also referred to as a company seal, a company chop is an official stamp used by businesses to validate documents, contracts, and transactions. Considering its importance, understanding the role of company chops and how it works are essential for any business operating in China. Below we provide a complete explanation of company chops, how to use them and the importance of safeguarding them.
What is a China Company Chop?
A company chop is a physical stamp or seal which bears XXXXXXX of a company. This stamp serves as an official signature and is used in various processes such as opening bank accounts, signing contracts, approving transactions and more. The primary purpose of the company chop is to provide a legally identifiable and verifiable form of authentication in business transactions, for a company.
Why are Company Chops so Important?
Company chops play an important role in in business transactions in China. Whereas outside of China, generally a signature (or signatures) is used to validate documents and transactions, in China this is done through use of the chop.
Chinese company chops are used to serve as a tool of authentication which ensures the legality and credibility of documents. It also serves as a symbol of authority and integrity of a business.
Due to the significance and potential implications of the use of company chops, it is essential to ensure the secure storage and handling of them. There have been cases of misuse and negligent use of chops, therefore access should be limited to those who have access authorized by the shareholders or articles of association.
Types of Company Chops
There are various types of company chops used in China, some of the most important chops for a company include:
- The company chop
- Finance chop
- Legal representative chop
- Custom chop
- Contract chop
- Invoice chop
1. Company Chop
To validate any document within China needed to conduct business, the official company chop of the company is required. These chops are special government issued seals (or stamps), which all business entities in China have and are of the utmost importance to the company.
Even though signatures can be used to validate documents on behalf of individuals, only the stamping of a document with the relevant chop makes the document truly legally binding for a company.
- Purpose: this seal can handle internal and external affairs and in these instances the company chop represents a company’s official decision (comparatively to a signature in the West).
- Application: for any official letters provided by the company, any supporting documents for relevant authorities, and used to sign contracts and issue official reports to the public.
- Attention: this seal must be safeguarded by the legal representative(s) only. Once the company chop is used or chopped on any documents, it implies that the company has confirmed or agreed upon any activities, as well as acceptance and awareness of any subsequent risks or consequences attached to those activities. Furthermore, if a document is chopped the company shall bear all responsibilities for the consequences of using the company chop.
2. Finance Chop
Every company must have a finance chop and this chop is used for handling any affairs or documents related to financing (e.g., opening a bank account, authenticating financial documents, issuing checks or performing bank-related transactions). It is generally advised to keep the company and finance chops separate, in order to avoid misuse.
- Purpose: this seal is used for handling any affairs or documents related to financing.
- Application: can be used for actions such as opening a bank account, authenticating financial documents, issuing checks, as well as performing bank related transactions.
- Attention: it is advisable to keep the company- and finance chop separated in order to prevent misuse.
3. Legal Representative Chop
The legal representative chop is held by the company’s legal representative and represents the signature of the legal representative in its absence. Because the legal representative has the authority to enter into binding obligations on behalf of the company, when used solely or along with the company chop, it represents an official company decision. This chop is commonly used to issue cheques, approve payment transactions or used to sign contracts.
- Purpose: mostly used for financial activities, but also represents the signature of the company legal representative in its absence.
- Application: commonly used to issue company cheques, for approval of payment transactions, and to withdraw cash from the bank (alternatively used to sign contracts).
- Attention: this chop shall be kept by the company legal representative only. If the chop has been used solely or along with the company chop, it represents an official company decision.
4. Custom Chop
The customs chop is used for import or export related business activities and therefore is generally kept by the employee(s) in charge of managing import and export related affairs. Without this chop, the company will be unable to process any imports or exports.
- Purpose: the chop will be used when the company has any imported or exported goods which need to be declared and reported to the Chinese customs.
- Application: the custom chop shall be used in the port or custom authorization and control area indicated by the company.
- Attention: the chop has to be kept by the employee(s) whom is in charge of dealing with import and export related affairs only. Without this chop the company will not be able to process any imports or exports.
5. Contract Chop
A large number of companies use a separate chop for signing contracts between parties (such as the company and its employees, or the company and a third-party such as a client).
- Purpose: to sign contracts on behalf of the company. It may represent the company within the scope of the contract and shall bear all rights and obligations therefrom.
- Application: used for any business-related contract and agreements with third-parties.
- Attention: as this chop grants the person responsible less authority than the company chop it is useful for delegating authority. Nevertheless, only the person permitted to use this chop may keep it.
6. Invoice Chop
- Purpose: to issue official invoices or tax receipts (fapiao).
- Application: chopping an invoice is required to declare a business expense.
A document which is chopped by the company becomes legally binding in China. This means that the individual with physical access to the chops can effectively take legally binding decisions in China on behalf of the company. For this reason, we would recommend to carefully manage using chops in your company, by either having a dedicated staff member taking care of this item or choosing to outsource this service to an independent company which is experienced in managing chops of the company.
MS Advisory has much experience in supporting foreign enterprises on various compliance procedures. If you are interested to learn more about our services, please do not hesitate to contact us at firstname.lastname@example.org
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