Foreign business owners may not be familiar with company chops in China, which are an essential tool to conduct business in China. If you plan to operate in China, it is vital that you understand the role of company chops in China and how to safeguard them. Horizons can provide you with additional guidance on using company chops in China and internal controls that you can implement to avoid your company chop being misused.
What Is a Company Chop?
A company chop is an official seal or stamp that replaces the use of a signature in Western countries.
A company chop is used to legally authorize documents instead of using a signature. Managers and administrators commonly use company chops. There are various types of chops in China that may limit the use of who can utilize the particular type of chop.
Types of Company Chops in China
The company chop is the most common chop Chinese companies use. However, companies may use a variety of other chops for different purposes and on different types of official documentation, depending on the scope of the business. For some chops, any person can be authorized to use it if they possess it.
Company Chop
The company chop is the official chop of the company and functions as the business’ official signature. This chop is mandatory. Businesses utilize this chop for all legal documents since it can be used to cover the functions of other chops except for a couple of specialized chops.
When an important document is signed, the company chop must be used since it provides legal authority. In particular, this chop is necessary to open a bank account for the business or to alter the name or scope of the business for the company.
Foreign-invested enterprises have to produce the company chop after they register with the Administration of Industry and Commerce. The Public Security Bureau must approve the company chop, which must include the Chinese version of the full registered name of the company.
The company chop must be recorded with the following entities :
- The company’s bank
- The Administration of Industry and Commerce
- The Public Security Bureau
Finance Chop
The finance chop is used for finance-related transactions. This chop is mandatory, but the company chop can usually be used instead.
Some uses for the finance chop include:
- Open a bank account
- Issue checks
- Authenticate financial documents like compliance documents and tax filings
- Complete bank-related transactions
Companies often implement internal controls with the financial chop so that only certain people are authorized and have access to this chop so that it will not be misused.
The finance chop must be recorded with the following entities:
- The company’s bank
- The Administration of Industry and Commerce
- The Public Security Bureau
Contract Chop
Many businesses in China utilize a separate contract chop to sign contracts with employees, execute agreements with distributors and form binding agreements with clients or customers. This chop is not technically required, but it can be useful to separate the company chop for other uses. The contract chop provides less authority, so it can be used effectively to delegate authority.
Electronic Chop
The electronic chop is the digital form of another type of chop that is utilized with online transactions, such as contractual or financial ones. Because technological developments occur at a rapid pace, Chinese companies that use electronic chops must monitor regulatory updates about them to remain in compliance at all times.
Fapiao Chop
The fapiao chop is mandatory to issue official invoices and tax receipts (Fapiao.)
Other Types of Company Chops
Many other chops besides those discussed above may be used for different types of transactions. For example, human resources chops allow human resources personnel to perform certain duties. Company, finance and customs chops are the only statutorily required chops. However, government entities may require other chops be registered and used for specific purposes.
For instance, a government entity may require a particular chop that contains the company seal of a foreign investor’s parent company. It may even specify whose signature must appear on the document with the chop.
Importance of Safeguarding Company Chops
Internal controls should be put in place to supervise the responsible use of chops. Because a chop can grant an extensive amount of legal authority, the use of chops must be carefully monitored.
The first step to safeguard company chops is to be careful who to give a chop to since sometimes merely being in possession of the chop provides proof of the authority to use it.
Some ways to safeguard company chops include:
- Only allow trusted individuals possession of chops
- Have a variety of chops that are provided to different people to prevent anyone from having too much power
- Keep chops carefully locked up and secured so that they are not used for fraud or stolen
- Require that all chops be accompanied by the company chop for an additional layer of protection
- Require the combined use of chops and signatures
- Establish internal controls to regulate and log the use of chops
- Conduct thorough HR audits to ensure internal controls are adequate and minimize risks related to the improper usage of chops
