Importance of Little Red Stamps in China business

The Little red stamp is very significant in China’s business world. The Chinese rules of business are known to be different from all other rules in the world. For Western companies that do business in China the importance of the use of Chinese Company Chop seems odd at first.

The signature of the General Manager or any other legal representative is legally binding in the Western Companies but this is different in China as what they value is a Company Chop. The Company Chop is valid even without a signature and represents the company towards third parties. It is a requirement for every Company in China that is legally registered to have a company Chop and it has to be registered with the Public Security Bureau (PSB). A company can have other chops that can be used for other specific purposes.

Chops in Check
This procedure is not common in the Western Companies. The fact that the chops can easily be copied hence invite fraud is a great concern. To reproduce a stamp is as difficult as to copy a signature. Cases involving chop related fraud can be followed by several penalties like prison sentences or even a fine. Unfortunately, if a company misplaces its chop, the company has to register again with the Public Security Bureau as for a new chop to be made, it has to be approved by the Bureau, failing to this the chop maker might end up being charged for forgery.

There are risks involved in this system. Recently, there was a case where the management of a factory turned against the investors and refused to take the major shareholder’s instructions. The management has put on hold the chops and is not ready to release them.The official documents can be termed as valid only when they have been chopped and since the investor cannot replace the management, they have been forced to go to court. There was another incidence where the company left all the chops in the possession of the Legal Representative of their newly established subsidiary in China, and this was a Chinese national who had just been hired for the job. The company did not realize that they had left him in a position to renegotiate his employment contact. The Legal Representative failed to meet his targets after a year and the company decided to let him go. They were surprised to see that he had put a new clause in his contract providing him with higher compensation in case of termination of contract.

The cases above are very drastic and reveal the importance of Company Chops in China. Control is key for one to understand and organize daily business hence one should build in a sound control system when it comes to chops.

Remain in Control
The chops should be kept in a safe place and since they are among the company’s most important assets, their access should be limited to very few people. Each chop should be kept by someone whose work is related to the chop and this can be done by creating a log where employees need to document their use with a particular chop. Chops of great value like for sales contract should be subject to approval by the General Manager.

The trusted General Manager should be in possession of the Company or Legal Representative Chop. One can use the services of the company’s law firm, trusted family or friends or even an accountant in case the General Manager is away from the company. If the General Manager is not in the office, he can appoint the aforementioned parties to make use of the chop after his or the overseas investors’ approval. This can also be made a standard procedure if the chop is not needed on a daily basis.

Below are the common kinds of chops used.

Company Chop
The Company Chop is the most powerful and important chop as it is normally used for official documents like contracts, bank account applications, documents, and files with the government among others. The name of the company is normally engraved at the bottom of the stamp and the Company Chop itself is round in shape.

Financial Chop
This financial Chop is commonly used for the company’s financial transactions like issuing of checks, cash withdrawals, wire transfers or changing the information of an account. The financial chop can be in possession of the financial officer though this will depend on the size of the business, as he is in control of the daily financial transactions. Also just to make sure that the documents represented are valid as well as legal, the company’s bank can keep a specimen of the chop.

Human Resource Chop
This chop is used for all the employment related activities of an enterprise. Its major use are, signing labor contracts with its staff registration of staff with the government, verify employment proof letters and internal memos among others.

Contract Chop
This chop can be used instead of the Company Chop though it is limited to its usage on contracts as its major use is to validate contracts. A company can have several chops although they can only be used for specific types of contracts.

Legal Representative Chop
The company’s designated legal representative’s signature is normally represented by this chop. The legal Representative Chop must be registered with the Administration of Industry and Commerce. It is normally used with the Company Chop for official documents, like when applying for the Company business license or tax certificate.