In China, the practice of signing documents is very different from other countries. Unlike in many jurisdictions, an employee can use the company’s chop to execute a contract. Even if signatures are also used, the company’s stamp is of utmost importance as it officially represents the company.
Understanding the differences between the company chop and the signatures is essential when doing business in China.
Key Differences Between a Company Chop and a Signature
The company chop and the signature play different roles in China, each with unique implications for authority and compliance.
Here is a description of the main differences between the company chop and the signature:
| Type | Signature | Company Chop |
|---|---|---|
| Authority | Linked to the person who signs as an individual and thus involving the signatory’s consent or approval, representing their direct consent or approval. | Represents the company itself. |
| Delegation | If certain documents shall be signed by a designated individual, only such individual can sign. | Can be used by any designated employee, allowing operational flexibility when the legal representative cannot arrange a signature. |
| Compliance and Risk | Minimal delegation risks since a signature is linked to one individual. | Possibility to delegate, but this carries compliance risks. |
| Legal Status | For documents involving the company, the signature of the legal representative is not sufficient. The company chop will be required together with the signature. | Always required for any document where the company is a signatory and any legal documents to be executed by the company. |
Management and Compliance Tips for Company Chops
Unlike the signature, which is related to an individual, a company chop represents the company itself and carries significant legal authority. Thus, the legal representative of the company needs to implement compliance and proper management rules to keep the company’s chop safe.
To ensure security, the company chop shall be stored in a secure location where access is limited to certain persons. Establishing clear usage guidelines is also very important. This implies strict regulations on the use of the chops.
In practice, putting in place a register of use of the chops (detailing the type of chop which was used, the description of the use, the person who uses the chop, and the copy of the document which was affixed with the chop) is very important.
Additionally, conducting employee training on the importance of the chop and the risks of any unauthorized usage can also help.
Validating a Chinese Company Chop
Checking the authenticity of a company chop is a crucial step in ensuring the authenticity of agreements and protecting against potential fraud.
A valid company chop should always be stamped in red ink and have a circular shape. It must also be legible and include the Chinese name of the company. Stamps featuring a blue color, English text, or a rectangular design could indicate a counterfeit or invalid seal.
Some company chops, though unregistered with the local authorities, may still be legally valid. Under such circumstances, it is essential to compare the stamp on a document with those used in previous agreements by the same counterparty.
Chop vs. Signature: Which One Shall Be Used?
Choosing between a company chop and a signature depends on the specific circumstances, legal requirements, and the nature of the transaction.
1. Situations Where a Chop is Required or Preferred
- (Required) Signing legally binding contracts, especially with Chinese entities
- (Required) Submitting official documents to government authorities or banks
- (Preferred depending on the company’s internal policies)Authorizing transactions involving large sums or critical business operations
- (Required) Ensuring the document’s legal validity, as some institutions and partners may only accept agreements affixed with the company’s chop
2. When a Signature May Suffice
- Daily internal approvals or communications
- Agreements that are less formal and not subject to stringent legal requirements
- Instances where the counterparty does not require a stamped document
3. Recommendations for Specific Industries or Transactions
- Manufacturing and Export Businesses: Company chop shall necessarily be used for contracts, purchase orders, and export documentation to ensure compliance with Chinese regulatory standards.
- Financial Transactions: A chop is often necessary when opening a business bank account or authorizing financial agreements
- Technology Startups and Service Providers: A signature may be acceptable for service contracts with international clients, but a chop is advised for local partnerships and official filings.
In general, if there is any doubt about the use of the chop or the signature, it is highly recommended to arrange affixing the company’s chop.
