A Legal Representative of one of our clients came to us and asked who should be the overall controller of the company seals. He thought he would be the one to manage all the seals, but no company documents indicate that as a requirement. In practice, the official company seal and the Legal Representative seal were kept under the control of the General Manager, the financial seal and the contract seal were kept by the Finance Manager, the human resources seal was held by HR Manager’s hand. The Legal Representative held nothing in his own control, and he had no knowledge about the daily use status of those seals. The Legal Representative was worried about potential personal liabilities to himself which may result from use of the seal without his knowledge or consent.
The latest regulations regarding the management of company seals are the Provisions of the State Council on the Administration of Seals of State Administrative Departments, Enterprises, Public Institutions and Social Organizations, wherein only the shape, content, size and the administrative engraving organ were provided. There is only one article regarding the management of the seals, and it states that “…enterprises…must establish and improve a seal management system, reinforce seal management and perform strict examination and approval formalities. No seal of an entity may be used arbitrarily without the approval of its leader.” But, who should be the “leader for approving and management of the seals” then? “Leader” is not a technical term defined in China law. The Company Law doesn’t say anything specifically about this, and neither do other regulations with respect to the WFOEs.
In practice, enterprises always get approval for engraving seals from the Public Security Bureau, and the legal basis for the PSB’s authority was just the above mentioned provisions. In order to remedy the legal loopholes, the board of directors or the executive director of enterprises usually prescribes rules regarding daily management and use of seals based on their legal role as the regulator of the company’s internal policies granted by the Company Law.
For those enterprises which have no rules regarding seals management, the situation for using the seals often becomes chaotic. Company stamps are often found to be fake or misused, and our China Lawyers have encountered many horror stories over the years resulting from failures to properly manage company seals. Such failings often result in additional legal risks for the company whose seals have been misused including unpredictable damages or unwanted payment.
We strongly highly recommend every enterprise to implement regulations regarding the seals management and use, take steps to confirm who will be the responsible person or the manager for keeping seals and specify certain rules for daily use of the seals so as to avoid unwanted complications!