Seals have been used to stamp important documents in China since ancient times. You might have heard of the large jade seals belonging to the Chinese Emperors:
If you open a new Chinese company, typically a WFOE, you'll be issued with more than one company seal or chop. But what are they and how do you use them?
What's a company seal?
A company seal is, basically, a stamp that is used for different purposes. The stamp is equivalent to a signature, and it demonstrates the company's agreement or confirmation that a document or business transaction is agreed upon. In many cases, a document is not considered acceptable unless it is stamped with a relevant seal.
These aren't as common in the West as they are in China, Japan, and other Asian countries, although foreign investors may be used to using a stamp to stamp invoices, for example.
There are several different types of seals and they'll look something like these:
Official company seal
This seal is an essential business tool. This round seal is used daily in most Chinese businesses and every WFOE will be provided with one after opening. The legal representative or authorized company representatives may use it to stamp official company correspondence, contracts, and official paperwork submitted to the government like a tax return, for example. This stamp is the equivalent of the signature of the company owner. In some cases, this seal could be used instead of the following types as it is 'the main seal,' such as using it to stamp a new contract instead of the contract seal.
When a contract is signed this seal will be used to stamp it alongside the signatures of the parties entering into the business relationship.
A finance director or accountant will use the financial seal to stamp bills and cheques and confirm transactions such as the movement of funds.
A fapiao is essentially an invoice. As the name suggests, invoices or fapiaos given to customers will be stamped with this seal and they are not considered valid in China without the stamp (customers will demand this as they cannot claim the purchase as an expense without the stamped fapiao).
Legal representative seal
The legal representative of the company, whose name appears on the business license, is issued with their own seal which includes their initials. They will often use this to confirm bill payments and other financial transactions, but they may use it on new contracts, too.
This seal is used to stamp import/export paperwork and the China customs will have a record of it to facilitate their checks once products are at the port.
How do we obtain our seals?
The seals will be engraved and put on record as a part of the company registration process, as they're an important business resource for doing business.
Once you have your new company's tax registration certificate and business license copy, these and a copy of the legal representative's ID card or passport should be given to the PSB (public security bureau) to start the application for the seals (the legal rep will write a letter specifying which seals are needed).
The PSB will provide clearance for the seals to be engraved and you will collect them from the official provider's office as specified by your local PSB to collect them.
This is one of the last steps of opening a company in China.
Safe seal storage and usage
It's helpful to implement the following processes to keep the seals safe and use them securely:
- Seals are typically kept by the legal representative or other senior figures in the company such as the finance director, although some businesses will put a trusted staff member in charge of seal management, too
- Store them securely in a locked drawer or cabinet where they cannot be accessed without permission
- Staff using the seals must sign them in and out so you know who has them at any given time
- Have a chain of command for who is authorized to access and use the seals if the legal representative is not available, for instance
- Add a ceiling to the value of contracts that can be stamped by staff below senior management to reduce the risks of fraud and causing the company to get into financial difficulties (this would be in their employment contract)
- After a document is sealed by a staff member, their manager can check that the correct seal has been used before signing off on the document
- Staff will be informed that violation of seal use that causes financial losses to the company will be investigated and prosecuted as they will be held responsible for its usage
- Staff will be prohibited from sealing blank documents (contracts, cheques, etc), as this could result in fraud and management may not be aware of values being added at a later date
Company seal FAQs
What is a seal goes missing or is stolen?
Aside from the inconvenience of not being able to stamp fapiao, for example, losing a seal is a security risk for the business as it could be used fraudulently. Therefore the police must be notified about a lost or stolen seal. The company must also place a statement in the newspaper clarifying that the seal in question is no longer valid. Once that has been published it's possible to re-apply for a replacement seal/s at the PSB and get them engraved following a similar process to above, but with additional proof that the seal was lost or stolen, police informed, and paper article run.
Can seals be digital in China?
Yes, digital versions are increasingly used, but some official documents such as marriage certificates and real-estate purchase documentation must use a physical seal stamp.
Are seals used everywhere in Asia?
They're used in East Asia a lot. In China, Japan, and Korea widely, also mandatory in Singapore. They may be used in Hong Kong, but are not mandatory.
If a document is signed but not stamped by the legal representative, is it valid?
Yes, the legal representative's signature makes the document valid even if a seal is not used unless it is specified in the contract that a seal must also be used.
Is the company or individual stamping a document held responsible?
If your staff member is stamping a document with your official seal the assumption is that they're authorized to do so, and the company will be responsible for the agreement, transaction, or other activity being stamped, not the individual who is merely acting as a representative of the business. If fraud has been committed, the business will have to work with the police to show that wrongdoing occurred. This shows why keeping control of company seals and limiting who can use them and when is important (see more on this later).
If a company alters their name, are existing documents with the original seal still valid?
Yes, older documents used with a seal that has since been replaced are still valid. This prevents a change of company name being used as a mechanism to avoid debts, etc. Also, in this case, the old seal's will be officially related to the new one, so checks will show that the new one is a replacement for the old one.
What is someone uses a counterfeit of our seal?
If it's found that someone is using a counterfeited version of your seal, the process to solve the issue is as follows:
- Report this to the police who will investigate the counterfeiting
- Publish a clarification statement in the newspaper to make it public that your company seal has been counterfeited and potential fraud could be carried out
- Notify any customers or business who have received paperwork using your counterfeited seal. Discuss the case and attempt to agree on terminating the contract or rescinding the paperwork. If the other party does not agree, it may be necessary to go to court to legally determine that the contract is invalid and terminate it
Can a fake seal be identified?
There are sometimes some telltale signs that you can use to check seals and the resulting stamps:
- Seals often need to be stamped over the company name on a contract, for instance, and if a seal has been printed it will totally blank out any text below it, whereas a real stamp's ink should still allow you to see the printed text through it
- A stamp printed onto a document may have consistent color, whereas hand-stamped seals are often less even
- Perfectly round stamps may have been printed, hand-stamped ones will have pressure in different places and are sometimes sightly inconsistent
- The seal should use Chinese font only
Get help to open your new Chinese company
Now you know what the seals are for, how important they are, and how to use them securely, you might be wondering how they fit in with your new company. Let's get it open in China soon!
Did you know that it's easy, regardless of Covid, to open a company in China right now to achieve your business goals here? If this is part of your plans, speak with us about your needs and we'll provide you with tailored advice and a quotation for getting it all set up legally, including the company seals!