What are company chops?
Company chops – sometimes referred to as a seal or stamp – are mandatory for doing business and replace signatures that are used in Western countries. A company seal is the tangible representative and legal evidence of the company’s activities abroad.
The company’s person-in-charge or other management personnel authorized to hold the seal is only the temporary custodian of the seal. As such, the rights and obligations arising should be borne by the company, not the holder or custodian.
Foreign-invested enterprises (FIEs) must produce the company chop after registering with the Administration for Market Regulations (AMR). The company chop contains the full registered name of the company in Chinese and must be filed at the Public Security Bureau (PSB).
What is the difference between a company chop and a company seal?
A company seal is a tool that stamps or embosses important company documents to show that the Board of Directors has certified and agreed to them.
A company chop is a rubber stamp that can be used for both legal and non-legal documents.
The 5 main types of company chops in China
Beyond the official company chop, a firm will likely need several chops – each for a different purpose and used on different types of official documentation – depending on its business scope. Regardless, every business should consider diversifying their use of chops.
There are five main types of company seals and some others that can be applied in special situations.
For some chops, any person could be deemed as authorized to use it if it is in their possession. However, this will not be the case for every type of chop, as explained below, and warrants the need for clear internal controls to supervise their responsible use.
Official company chop
An official company chop is required when any important document is signed and can provide legal authority when opening a bank account or altering the name or business scope of the company.
The official company chop has the widest scope of use among all the seals and is a symbol of the rights of legal persons.
All letters, official documents, contracts, and introduction letters issued in the name of the company, certificates, or other company materials can use the official chop, which will legally bind the company. However, under some circumstances, certain documents will be required to be stamped with a particular chop. For example, invoices must be stamped with a special invoice chop.
Financial chop
The financial chop is used for opening a bank account, issuing checks, authenticating financial documents, such as tax filings and compliance documents, and for most bank-related transactions.
It is a mandatory chop, though the company chop can often be used in its place. This is why companies will often keep their financial and company chops separate to avoid exposure to misuse.
The chop must be recorded with the PSB and the company’s bank.
Legal representative’s personal chop
The legal representative’s personal chop is a chop owned by the company’s legal representative. The legal representative is the main principal of the company identified on the business license and has the authority to enter binding obligations on behalf of the company. A company can only have one legal representative.
The legal representative’s personal chop can be used in place of a signature, or alongside one. Upon registration, it must be recorded with the PSB and the company’s bank.
Contract chop
Many companies use a separate contract chop for signing contracts with their employees or executing agreements between salespeople and clients.
While having a contract chop is not a statutory requirement, this chop can serve in place of the company chop when used for contracts.
The contract chop grants less authority than the company chop, making it useful for delegating authority.
Invoice (fapiao) chop
The invoice chop is mandatory for issuing official invoices and tax receipts (fapiao). A chopped invoice is required to declare a purchase as a business expense.
Electronic chop
An electronic chop is the digital equivalent of a given chop used for online transactions, including financial and contractual ones.
Since the release of the Electronic Signature Law of the PRC, which was last revised in 2019, electronic signatures, including electronic chops, have enjoyed the same legal status as physical seals.
However, to be regarded as a ‘reliable’ electronic signature, and to carry legal weight, it must have the following characteristics:
- The electronic chop creation data must be exclusively owned and controlled by the signatory at the time of signing;
- Subsequent alterations to the electronic chop and any relevant data made must be detectable; and
- The signatory must properly keep and retain all electronic chop creation data.
Parties can generally agree upon the use or non-use of electronic signatures in contracts or other documents and instruments in civil activities. Some exceptions exist, such as the signing of documents relating to marriage, adoption, inheritance, public utilities, and other documents as stipulated by law and administrative regulations.
Customs chop
The customs chop is used for customs declarations on import and export goods. It is mandatory for companies engaged in cross-border trade.
Other types of chops
Although only the company, financial, and customs chops (if applicable) are legally required, various government departments may at times require other chops for specific purposes.
For example, a government department may require a document chopped with the company seal of the foreign investor’s parent company. This can create complexities, as the use of seals by many smaller corporations is not mandatory and is not part of the typical administration process.
However, in order to satisfy requirements, a seal may be procured, which should be countersigned by a recognized person on the board of the parent company. Chinese authorities will normally specify whose signature should accompany the document and seal.
In-house counsel for US or EU corporations should determine the legal use of chops and seals within their domestic legal framework. Chinese authorities apply domestic administrative rules to foreign companies when requesting seals and chopped documents. This approach reflects a commitment to consistency in their regulatory framework. However, it may need to fully account for the differences in regulatory practices that foreign investors are subject to in their own countries.
Secure your company chops
The use and possession of a company chop in China yields immense power. Therefore, companies are advised to implement the following steps to secure their chops and ensure that they are not used for illicit purposes or stolen by disgruntled employees.
Departmental distribution
Assign different chops to various departments as needed—for instance, the accountant's finance chop and the in-house lawyer's contract chop.
Mandatory company chop accompaniment
Implement a policy where all departmental chops must be used alongside the company chop for enhanced security.
Additional authorization
Couple the use of chops with the signature of an authorized signatory, adding an extra layer of security beyond Western practices of relying solely on signatures.
Restrict access to trusted personnel
Limit chop possession to trustworthy individuals and establish internal controls to regulate and record their use.
Avoid centralized control
Refrain from allowing a single individual to control all chops and act as the signatory for each, except in the case of company owners.
Legal and HR Audits
Regularly conduct comprehensive legal and HR audits to ensure the strength of internal controls and minimize risks associated with the improper use of chops.
