The 101 on Signing and Chopping China Contracts

Got the below from an email from one of my law firm’s China transactional lawyers setting forth for a client who from a China SOE (State Owned Entity) should sign its China contract.

1. SOEs have business licenses just like other Chinese companies.

2.
Each Chinese company has only one “legal representative” (a term of art under Chinese law). That person is identified as such on the company’s business license.

3.
Any agreement signed by the legal representative is binding, whether or not a chop (a/k/a seal) is attached. But without a chop you will need to prove that the signature is really that of the legal representative if you want to enforce the contract in court.

4.
Any agreement affixed with the company chop is binding, regardless of who signed on behalf of the company. This is why control of the company chop is important and why the chop is usually kept by the legal representative or some high-ranking company officer/director.

5.
Having an agreement signed by the legal representative AND affixed with the company chop is a belt-and-suspenders approach. It is also advisable.

6.
It is possible that an agreement that is not chopped and not signed by the legal representative will be enforceable against a company, if a company executes a number of agreements in this fashion. This is fact-specific and is definitely not a desirable approach.

7.
One way to verify (or at least to gain some more certainty) that an agreement is executed in a technically correct fashion is to go to the company’s offices and review other contracts executed by the Chinese party. And, if possible, also contact other parties that have executed contracts with the Chinese party. Does the execution page bear the same chop? The same signature? If there are any differences, are the differences consistent? For instance: perhaps the chop is always used, but depending on the type of contract or type of customer, maybe the sales manager signs or maybe the VP signs or maybe the legal representative signs.

8.
In larger companies, many (if not most) of the contracts are signed by someone other than the formal “legal representative.”

Got it?

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