In China, a company’s signature is not a pen stroke — it’s a chop. The company chop is a physical seal that’s registered with the public security bureau, and every significant corporate act — signing a contract, opening a bank account, filing a tax return, transferring money — requires the chop to be affixed to the document. A foreign executive who’s used to signing documents with a pen needs to understand that in China, the chop controls the company, and whoever controls the chop controls the money.
Here’s what the chop system is, how it works, and what a WFOE needs to manage the chop safely.
The Types of Chops
A Chinese company has several chops, each with a specific use. The official company seal — the gōngsī gōngzhāng — is the primary chop. It’s round, it bears the company’s full Chinese name, and it’s used for the most important documents — the articles of association, the board resolutions, the major contracts, the government filings. The company seal represents the company as a legal entity, and a document affixed with the company seal is binding on the company.
The financial seal — the cáiwù zhuānyòng zhāng — is used for financial documents. It’s typically rectangular, and it’s used for bank transactions — issuing checks, authorizing bank transfers, opening and closing bank accounts. The financial seal must be used together with the legal representative’s seal for bank transactions — the bank will not process a payment instruction that’s only affixed with the financial seal.
The legal representative’s seal — the fǎdìng dàibiǎorén míngzhāng — is the personal seal of the company’s legal representative. It’s a small square seal with the legal representative’s name, and it’s used together with the financial seal for bank transactions and for certain government filings that require the legal representative’s personal authorization.
The fapiao seal — the fāpiào zhuānyòng zhāng — is used for issuing VAT invoices. It’s oval and bears the company’s name and tax registration number. A fapiao that’s not stamped with the fapiao seal is not a valid tax invoice, and the buyer cannot claim the input VAT credit.
The contract seal — the hétong zhuānyòng zhāng — is used for contracts that don’t require the formality of the company seal. Some companies use a contract seal for routine commercial contracts and reserve the company seal for the most important documents. The contract seal is optional — the company seal can be used for all contracts — but a dedicated contract seal can streamline the contract execution process.
The Legal Effect
A document affixed with the company seal is binding on the company, regardless of who affixed the seal. The company is responsible for the security of its chops, and a document that bears the company’s seal is presumed to have been authorized by the company. The company can challenge the authority of the person who affixed the seal — arguing that the person stole the seal or used it without authorization — but the challenge is an internal dispute between the company and the person, not a defense against the counterparty who relied on the seal.
The Chinese legal principle is that the seal is the company’s signature. A contract that’s signed by the legal representative but not affixed with the company seal may be enforceable, but the enforcement requires proof that the legal representative signed it and that the signature was within the legal representative’s authority. A contract that’s affixed with the company seal is enforceable without proof of who affixed it — the seal itself is the authority.
The seal’s legal effect is why chop management is a serious compliance matter. A disgruntled employee who has access to the company seal and who affixes it to a fraudulent contract creates a binding obligation on the company, and the company’s recourse is against the employee — not against the counterparty who accepted the contract in good faith.
The Chop Custody
The chops should be kept in a secure location — a safe, a locked cabinet, a restricted-access office — and the access should be limited to authorized personnel. The company seal and the financial seal should be held by different people — the company seal by the general manager or the administrative director, the financial seal by the financial controller or the chief accountant. The separation of custody is a basic internal control — no single person should have access to all the chops that are needed to complete a financial transaction.
The chop custody should be recorded in a chop register. The register records the location of each chop, the person responsible for each chop, and the date the responsibility was assumed. The register is updated when the custody changes — a new financial controller assumes custody of the financial seal, and the register records the date and the signature of the outgoing and incoming custodians.
The chop should not leave the company’s premises except for a specific purpose that requires it — registering documents at a government office, opening a bank account, attending a court hearing. When the chop leaves the premises, the person taking it should sign the chop register, stating the purpose, the destination, and the expected return time. The chop should be returned immediately after the purpose is completed, and the return should be recorded.
The Chop Usage Procedure
The company should have a written procedure for chop usage. The procedure should require the person requesting the chop to complete a chop usage application form that states the document to be stamped, the purpose of the document, the counterparty, and the amount involved if the document is a financial document. The application should be approved by a person with the authority to approve chop usage — typically the general manager or the department head, depending on the significance of the document.
The chop custodian should verify the approval before affixing the chop. The custodian should not affix the chop to a document that hasn’t been approved, and the custodian should not affix the chop to a blank document — a document where the content has not been filled in. A blank document affixed with the company seal is a blank check — the person who completes the document after the seal is affixed can write anything, and the company is bound by it.
The chop usage should be recorded in a chop usage log. The log records the date, the document, the counterparty, the purpose, the approving person, and the custodian who affixed the seal. The log is the evidence that the chop usage was authorized and that the custodian followed the procedure. In a dispute about whether a document was authorized, the chop usage log is the company’s defense.
The chop should be affixed in a specific location on the document — typically over the company’s name at the bottom of the document, or on a designated seal location. The seal should be clear and complete — a partial seal that’s cut off or smudged may be challenged as not having been properly affixed.
The Electronic Chop
The Chinese government has introduced electronic chops — digital versions of the physical chops that are used for online transactions and government filings. The electronic chop has the same legal effect as the physical chop, and it’s increasingly used for routine transactions — tax filings, social insurance registrations, customs declarations — that are conducted online.
The electronic chop is managed through the company’s electronic chop system — typically integrated with the company’s enterprise resource planning system or the government’s electronic services platform. The electronic chop is activated by an authorized person using a digital certificate — a USB key or a mobile phone — and the usage is recorded electronically.
The electronic chop doesn’t replace the physical chop entirely — certain transactions still require the physical seal — but it reduces the frequency with which the physical seal is needed and the risk of loss or misuse of the physical seal.
The Lost Chop
A lost chop is a crisis. The company must report the loss to the public security bureau immediately, and the report is the evidence that the chop was lost and that any subsequent use of the chop is unauthorized. The company must publish a notice in a newspaper — a public announcement that the chop has been lost and is invalid — and the newspaper notice is the public record that protects the company against a counterparty who later claims to have relied on the lost chop.
The company must engrave a new chop through the authorized chop engraver, and the new chop may have a slightly different design or a serial number that distinguishes it from the lost chop. The new chop must be registered with the public security bureau, and the bank and the government agencies that have a record of the old chop must be notified of the change.
The cost of a lost chop is not the engraving fee — it’s the cancellation of the old chop and the notification to every entity that has the old chop on file. A company that has provided the old chop specimen to ten banks, five government agencies, and thirty customers must notify all of them of the change, and each notification is an administrative task that costs time and money.
A lost financial seal is particularly serious because the bank processes transactions based on the financial seal. A lost financial seal that’s not promptly reported to the bank can result in unauthorized transactions from the company’s bank account, and the company’s ability to recover the funds depends on the speed of the report and the bank’s procedures.
