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Tuesday
May152018

Eric Carlson on China chops, seals and stamps: What do they mean for compliance?

Anyone who has viewed a contract or official document in China may have noticed a bright red circle in the signature block. This is often called a “chop” -- alternatively translated as “seal” or “stamp.” This post describes what these chops are and how they can be used and misused by employees.

The concept of a chop is not unique to China -- similar seals or stamps can be found in many other jurisdictions around the world historically, and are still very common in official documents in Japan and Korea, in addition to China.

Chops are most commonly used in:

  • official letters, statements, or notices
  • agreements / contracts
  • commercial instruments, such as fapiaos (for more on fapiaos, see our earlier series here, here, here, and here)
  • proof of a transaction, e.g., purchase order, bill of lading
  • corporate governance documents, e.g., meeting minutes, bylaws
  • corporate incorporation documents, e.g., shareholders agreement, joint venture contract, application materials
  • internal documentation, e.g., decisions by a certain department, or formal communication between departments
  • banking documentation (e.g., opening or closing bank accounts)

Chinese law has particular requirements for a chop’s size, shape, and typeface. In most cases, a chop is not required to make a document legally effective, but the chop is commonly used in both companies and government agencies to signify that the entity approved the document (as opposed to something written by an individual). As such, documents that lack a chop are usually not treated as final or official by counterparties. For instance, a letter from a government agency that is not chopped would be far less authoritative in verifying the agency’s intention than a document that was chopped.

This post uses the term “chop” generically, although a variety of chops exist.  Here is a non-exhaustive list:

  • company chop (法定名称章/公司公章): the “master” chop or general chop (particularly where a specific chop for a particular matter/purpose is not required). The local police (Public Security Bureau, or PSB) requires that only one such chop be produced and that the image be registered with the PSB.
  • contract chop (合同专用章): a company may have this chop particularly for entering into contracts/agreements.
  • finance chop (财务专用章): a company uses this chop when dealing with financial matters (e.g., on banking and financial documents).
  • fapiao chop (发票专用章): used for stamping fapiao issued by the company.
  • chop of the legal representative of a company (公司法定代表人印鉴/法定代表人章): there is only one legal representative of a company, which is specified on the (publicly accessible) business registration information. Because the legal representative has apparent authority to represent the company, affixing the legal representative chop is similar to signing and usually will bind the company. (Note that the legal representative does not need to be a lawyer.) 
  • electronic chop (电子签章/电子印章): used for electronic documents and transactions.
  • other chops: some localities, departments (e.g., human resources, procurement), and industries (e.g., Customs, banking) may have specific chops or specific chop requirements.

While not a legal requirement, it is quite common for a party to fan out the pages of a multi-page contract and chop the edges (骑缝章) to ensure that a page cannot be substituted, similar to initialing each page of an agreement.

Because a chop carries quasi-official weight and a counterparty may act in reliance upon a chopped document, the management of a company’s chops -- i.e., who has access to and authorization to use a chop -- is critical. In general, government agencies, state-owned enterprises, public institutions (e.g., hospitals, universities), and China-based companies have extremely strict rules and internal approval processes for chop usage. As such, obtaining a chopped document (e.g., a letter) can be time consuming, and we often see pushback by counterparties or partners when a request is made to have certain types of documents chopped that are outside the normal scope of contracts and financial documents.

Many multinational companies with operations in China also have rules on chop access and usage to minimize risk.  We have found that some multinational companies with operations in China lack such rules, and/or that these rules are not followed. Sometimes casualness with the chop is for practical reasons -- the legal representative travels regularly, so a chop is put in an unlocked desk drawer or given to an administrative colleague so that the chop can be used easily in the absence of the legal representative.

The next post will discuss further how chops can be misused and offer suggestions for risk mitigation.

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Eric Carlson, a contributing editor of the FCPA Blog, is a Shanghai-based partner at Covington & Burling LLP specializing in anti-corruption compliance and investigations, with a particular focus on China and other regions in Asia.  Eric Carlson speaks fluent Mandarin and Cantonese and can be contacted here

James Yuan and Audrey Zhi, both associates in Covington’s Shanghai office specializing in anti-corruption compliance and investigations, contributed to this post.