China Contract Formalities
Contracts with Chinese companies often generate a unique set of legal and procedural intricacies.
China’s legal landscape differs significantly from that of American, European, or Australian jurisdictions, primarily due to its distinct regulatory frameworks and business culture. These differences require a China-centric approach to both the drafting of China contracts and to the executing of those contracts. This post explains the crucial steps companies should undertake to ensure a seamless contract execution with their Chinese counterparts.
China Contract Drafting and Signing Requirements
When our international lawyers draft a contract between one of our foreign company clients and a Chinese company, we explain what to do to ensure a proper signing by the Chinese counterpart. These instructions are usually along the lines set forth below.
To ensure proper contract execution by the Chinese company, the first step is making sure the Chinese company is a duly formed Chinese company, and the person signing your contract is the legal representative of that Chinese company. We also must ensure that the name and address of the Chinese company accords with the official information registered for this company and that the Chinese company’s chop be used to seal the contract.
Chinese Company Due Diligence and Verifications
To verify the Chinese company’s information, we typically recommend some combination of the following:
- You personally visit the Chinese company, if possible.
- You obtain the business card of the person who will be signing on behalf of the Chinese company, and have that person give you a specimen of their company’s chop. In China, a company’s “chop” (or seal) is an official stamp used to signify the company’s approval on documents, much like a signature. It’s imperative to verify the authenticity of the chop as it is a legally binding representation of the company in China.
- You obtain a copy of a previously executed company document to verify the authenticity of the company chop you have been given.
- You obtain a copy of the Chinese company’s business license. This will provide the Chinese company’s registered address and the name of its legal representative.
If anything about the contract is inconsistent with the information you receive, we will recommend that you do not execute the contract. Even a simple mistake in the address can render the contract invalid.
Small Contract Due Diligence
When the contract is for a relatively small amount, the signing requirements become somewhat less stringent — not because the risk declines, but because the amount at stake is less. When the amount at stake is relatively low, we typically tell our clients it is “less necessary” to make sure the Chinese company’s legal representative signs their contract. Though it is always safer to have the Chinese company’s legal representative sign your contract, a contract sealed with the company chop will likely be enforceable even if signed by some other company representative.
Even minor missteps can have legal and financial repercussions. Following the stipulated procedures is critical when engaging Chinese companies because even minor missteps can have significant legal and financial repercussions. A well-informed approach, coupled with professional legal assistance, can go a long way in safeguarding your interests and ensuring a successful business endeavor.
Verifying China Business Legitimacy
But no matter how small the contract, we always like to see the business license of the Chinese company with which our clients are contracting because that gives us an easy method to verify the name and registered address of the Chinese company and the identity of its legal representative. It is easy for the Chinese party to provide its business license, and any unwillingness to do so should be considered to be a warning sign. We also usually recommend securing a China due diligence report on each Chinese company with which you will be conducting business.
Conclusion
Ensuring the authenticity and legitimacy of the Chinese company with which you are contracting is crucial. Key steps include verifying the Chinese company’s credentials, obtaining a specimen of the company’s chop, and ensuring the contract is signed by the Chinese company’s authorized representative.
Even seemingly minor discrepancies, like a mismatch in the registered address, can render a contract invalid, underscoring the importance of thorough due diligence.
Though the process of ensuring proper contracting with Chinese companies might seem daunting, adhering to the above steps and seeking professional legal guidance can significantly mitigate your risks.
