The importance of stamps in China

The importance of stamps in China

stamps

From our branch IC&Partners Asia

An important difference between China and western countries is the role of the stamps (in China, often called chops: while in the western countries, the signature of legal representative  is the mark of authority that can confirm the Company decision, validate a document or bind a contractual relationship, in China (since imperial times)  the chop performs similar functions as the signature in western organizations.

 

All legally registered companies in China are required to have a company official stamp (it has round shape and has the official name of the company carved). The company stamp is required on almost all official documents and any agreement affixed with the Chinese company’s stamp is binding, regardless of who signed on behalf of the company and regardless of who used the chop.

 

The local Public Security Bureau issues the company official stamp upon successful company registration with the Administration of Industry and Commerce (AIC); the Public Security Bureau will keep a specimen of company’s stamp for verification in case of dispute or suspected fraud.

 

A company that has executed a contract with a Chinese company, in order to enforce this contract, must prove that the stamp on the contract is actually the correct stamp of the other contract’s party: therefore, it’s very important to check that the stamp on the contract is the official stamp of Chinese society and that there is correspondence with the name of the company written in its business license.

 

The Legal Representative stamp is required for some documents, in particular when it’s required to sign license’s applications, tax certificates and banking documents. The stamp is square-shaped and has the name of the company’s Legal Representative carved (each Chinese company has only one Legal Representative who is officially identified as such on the company’s business license).

 

The finance stamp is used for the company’s financial transactions such as cash withdrawals, bank cheques, wire transfers. The use and control of this stamp is normally delegated to the company’s financial officer and should be kept separate from the other stamps . The company’s designated bank will keep specimens of this stamp for verification.

 

Furthermore it’s possible to have contract stamps can be issued as a substitute for the company stamp in some agreements: for example, the contract stamp can be established with authority to certify sales agreements and then the use of this stamp can be delegated to a sales manager; for another type of agreements, the company can establish another stamp and delegate its use to a manager in different positions.

The human resource stamp can be used for company’s HR documents such as employment contracts, internal memos and rules issued by the HR department.

Furthermore, the invoice stamp is used to stamp all invoices issued by the company; the tax stamp is used on all the documents given to tax authorities.

Anyone who is in possession of the official company stamp has the power to legally bind the company: in fact, third parties may always presume that a document is legally executed by the company’s Directors if it bears the Company’s stamp.

Except where it’s possible to prove that third party knows that the person using the stamp is not authorized to do so, the stamping of a document creates a direct liability onto the company.

Therefore a Chinese company should create internal rules to regulate and to control the use of stamps and assign penalties for misuse or abuse.

For example, the internal rules  can prohibit a sales manager from stamping contracts valued above a certain limit; if he goes beyond this limit without prior approval from the Legal Representative or General Manager, then he will bear the liability for any damages towards the company he misrepresented; if the contract becomes subject to dispute, the company would still be bound and liable towards the third party, but that company could in turn claim against the sale manager.

A newly appointed Legal Representative or General Manager should first perform a complete review of all of the company’s stamps and map out who keeps them, where and how they are kept and file a copy of their imprint. Once this review has been completed, internal rules should be established for each stamp with a responsible user and custodian assigned.