Every China company, foreign or domestic, is required to have a series of “chops,” which we might more commonly call “seals” in English. chops typically take the form of a simple stamp. These chops serve as the legal “signature” of the company for various documents and official chops must be approved by the Public Security Bureau. When a chop is affixed to a contract the company will be legally bound to the terms of the contract
While these chops can be a convenient way for a company to indicate acceptance of a contract, the nature of the system can allow misuse by unapproved parties, or misappropriation of the chop if not kept securely. Even a misused chop will legally bind the company.
Problems encountered due to misuse of chops include employees redrafting employment contracts and granting themselves increased salary or benefits, Employees using company chops to bind the company to expensive contracts with the employee’s friends or relatives, or employees using chops to deposit company funds directly into the employee’s foreign bank account.
Chops personally kept and under the control of individuals may also be subject to theft or simply refusal to cooperating in executing certain company policies. This can include, holding chops “hostage” and demanding a payout from the company, refusal to approve important business deals, leaving the company unable to take action. Employees holding chops may refuse to cooperate in providing the necessary chop for the employee’s own termination from employment; or if terminated, an employee may continue to hold a company’s chops and continue to carry out business in the company’s name. In an extreme case, a terminated employee holding the companies chops may initiate lawsuits against the company itself, or against its trusted business partners sabotaging the relationship.
It is imperative for each company to establish clear systems for management of the company’s chops, particularly where they are kept on premises. The following are recommended best practices.
1. Company management should appoint persons authorized to approve use of each particular chop (such as a department manager, whether in China, or abroad), and clearly communicate these authorizations to all employees.
2. Company management should appoint persons authorized to hold and use each particular chop, and clearly communicate these authorizations to all employees.
3.An employee seeking to utilize a chop is required to first report the required use, and gain approval from the authorized personnel, and then report to the individual authorized to hold and use the chop to finally affix the chop on the document.
4.Each individual authorized to hold a chop is to be required to maintain the chop safely and securely, and has the responsibility to prevent unauthorized use of the chop in their possession, or delivery to unauthorized personnel.
5.When applying for use of a chop, the applicant shall file an application form or send an application email stating clearly the purpose of the required use of the chop and the nature of the documentation to be chopped.
6.Each time the chop is used, the individual seeking use of the chop is required to sign their name, and mark the date to record the chop use.
7.Each time a chop is used, the authorized holder is required to maintain the application and approval documentation in their possession, clearly filed along with scanned copies of each chopped document.
8.Chops are not to be affixed to any blank or incomplete document.