In China it is the company chop — a red ink seal bearing the entity's registered Chinese name — and not a signature that binds a company. A contract, a bank instruction or a government filing generally takes effect once the right seal is applied, and it does so whoever applied it. That single rule turns a rubber stamp into one of the most valuable assets inside your China entity, and it is why chop custody belongs in the board pack rather than the office-supplies budget.
- The chop binds; the signature is usually secondary. Contracts, banking documents, employment agreements and filings take effect when the company seal is affixed, whether or not a signature also appears.
- Misuse still binds you. A company generally remains bound by a document carrying its genuine chop even where the person who applied it exceeded internal authority — unless the counterparty knew of that limit.
- Your entity will carve several seals: company, finance, legal-representative and invoice (fapiao) chops, plus contract and customs chops where relevant. Each is cut by a licensed engraver and filed with the Public Security Bureau once the business licence issues.
- The legal representative is a second binding route. Under the 2024 Company Law (effective 1 July 2024) the company bears the consequences of civil acts that person performs in its name, and internal limits on the role cannot be asserted against a good-faith counterparty.
- Whoever physically holds the chop can act. The recurring failure is a departing manager who keeps the seal — which can paralyse an entity with no separation of custody, approval and use.
- Electronic chops carry the same legal effect where the signature-creation data is exclusively controlled by the signatory and later alteration is detectable — so control of that data is the same problem in a new form.
1. Why a rubber stamp outranks a signature
Most Western systems locate authority in the individual: a person with power to bind the company signs, and the signature carries the authority. China locates it in the entity's registered seal. Affixing the chop is what gives a document legal effect — across contracts, banking documents, employment agreements, invoices and government filings. The consequence surprises foreign management: because the seal represents the company itself, it largely does not matter who pressed it onto the page; what matters is that the seal is genuine.
Chops are therefore not stationery. Each is produced by an authorised engraver and registered with the Public Security Bureau (PSB) once the business licence has issued, which is what allows a genuine seal to be told from a forgery. For a new entity this is step five of the set-up sequence — see the legal steps to set up a WFOE in China — and it is the step foreign teams treat as administrative when it is in fact the moment they hand out the power to bind their company.
2. The chops your China entity will actually have
A Chinese company does not have one seal. It has a small set, each with a defined scope:
- Official company chop (公章). The entity's legal personality in physical form, and the broadest in scope — contracts, official letters, filings, most bank formalities. Mandatory for every company, and the one to guard hardest.
- Finance chop (财务专用章). Banking and treasury: account opening, payment instructions, cheques, tax dealings. Held by finance and — importantly — never in the same hands as the company chop.
- Legal-representative chop (法定代表人章). A personal name seal of the registered legal representative, used mainly with banks and typically recorded with the PSB and the bank.
- Invoice / fapiao chop (发票专用章). Required to issue official invoices; without it you cannot bill customers in a deductible form.
- Contract chop (合同专用章). Optional, and useful precisely because it is: it lets sales or HR execute routine agreements without the company chop leaving the safe.
- Customs chop (报关专用章). Needed for customs declarations if you import or export.
A representative office, which cannot trade at all, has a correspondingly narrower set — one of several reasons the vehicle you choose changes your exposure here; see WFOE, JV or representative office.
3. Who is bound: the chop, the legal representative, and good faith
The seal. A document carrying the company's genuine chop is generally enforceable against it. The company remains bound even if the individual who applied it lacked internal authority — unless the counterparty was aware of that limitation. Internal rules are an internal matter; they do not travel with the document.
The legal representative. The revised Company Law, effective 1 July 2024, provides that the company bears the legal consequences of civil activities the legal representative carries out in the company's name, and that restrictions imposed by the articles of association or the shareholders' meeting cannot be asserted against a bona fide third party. The same revision widened who may hold the role — a director who executes the company's affairs, or the general manager — and provided that resigning from that underlying position is deemed a simultaneous resignation as legal representative, with a replacement to be appointed within 30 days.
Read together, the message for a foreign parent is uncomfortable but clear: your protection is not the counterparty's good faith; it is your own control of the seal and of who occupies the legal-representative seat.
4. Failure mode one: the chop used from inside
The classic incident is not forgery. It is a genuine chop applied by someone in the business who should not have applied it — a side letter granting terms nobody approved, a guarantee of a related party's debt, a settlement signed to make a problem go away. Because the counterparty need not have known about your approval matrix, the company is generally left holding the obligation and a claim against its own employee.
The more damaging version is possession. Where a departing general manager or legal representative physically retains the seal, the entity can be unable to sign contracts, change bank mandates or complete registrations, while remaining exposed to whatever that person continues to chop; cases of former staff keeping access after departure are well documented. Recovering the position usually means shareholder resolutions and change registration, a police report where the seal has been misappropriated, a public announcement, re-carving and re-filing, and often litigation to compel its return — all slower and more expensive than the custody rules that would have prevented it.
5. Failure mode two: the chop on the other side of the deal
The mirror risk is the chop you receive. A seal in the wrong company name, a scanned impression, or an unregistered "department" seal can leave you unable to enforce against the entity you thought you had contracted with. A short discipline covers most of it: check the Chinese-character name on the chop against the counterparty's business licence rather than its English trading name; confirm who the legal representative is from that licence and take that person's signature as well; insist on an original wet-ink impression for anything material; and take a board or shareholder resolution where the amount or the counterparty warrants it.
This is also where a well-drafted dispute clause earns its place — see arbitration clauses in China contracts and, if it comes to collection, enforcing a foreign award or judgment in China.
6. Electronic chops: same legal effect, different control problem
China's Electronic Signature Law — enacted in 2004 and amended in 2015 and 2019 — gives a reliable electronic signature, including an electronic chop, the same legal effect as a handwritten signature or an affixed seal. Reliability turns on two conditions: the signature-creation data is exclusively owned and controlled by the signatory at the moment of signing, and any later alteration to the signature or the document is detectable. The signatory must safeguard that data and stop using the chop if it is compromised. Certain documents stay outside the regime, including those concerning personal relationships such as marriage, adoption and succession, and some property and public-utility matters.
Digitising a chop does not solve the custody problem; it relocates it. The question shifts from who has the key to the safe to who holds the credentials, on whose device, with what audit trail.
7. A chop policy a foreign parent can actually enforce
The controls that work are unglamorous and consistent across well-run China entities:
- Separate custody, approval and use. Whoever approves a chop request should never be the person who holds or applies the seal.
- Split the seals. Company chop and finance chop in different hands and different safes — this alone defeats most unilateral misuse.
- Keep a chop-use log (date, document, requester, approver) and reconcile it periodically against executed contracts.
- Choose the legal representative deliberately and document the handover, including return of seals, before anyone leaves the role. A sound employment framework helps; see hiring employees in China.
- Audit annually, and after any departure from finance, legal or general management.
None of this is exotic. It is the difference between a China subsidiary the parent genuinely controls and one controlled by whoever is nearest the safe. Our corporate, compliance and data practice reviews chop and authority arrangements for foreign-invested entities as a matter of routine — usually before there is a problem, occasionally after.
Frequently asked questions
In practice you want the chop. In China the company seal is what gives a document legal effect, and a contract bearing the genuine company chop is generally enforceable against the entity. The safest position for a foreign party is both: the company chop plus the signature of the individual named as legal representative on the counterparty's business licence.
Usually yes. A company generally remains bound by a document carrying its genuine chop even where the person who applied it lacked internal authority, unless the counterparty knew of that limitation. Internal approval rules protect you against your employee, not against the third party — which is why physical custody controls matter more than policy documents.
The official company chop is mandatory for every entity. In practice a functioning company also carves a finance chop for banking, a legal-representative chop, and an invoice (fapiao) chop to bill customers, adding a contract chop and a customs chop where useful. Each is cut by a licensed engraver and filed with the Public Security Bureau after the business licence issues.
The practical route combines corporate and police steps: pass shareholder resolutions replacing the individual and complete the change registration, report the misappropriation to the public security authorities, publish an announcement, apply to re-carve and re-file the seal, and if necessary sue to compel its return. It is slow and public — which is the argument for separating custody, approval and use before anyone leaves.
Yes. Under the Electronic Signature Law, enacted in 2004 and amended in 2015 and 2019, a reliable electronic signature or electronic chop has the same legal effect as a handwritten signature or an affixed seal. Reliability requires that the signature-creation data was exclusively controlled by the signatory when signing and that later alteration is detectable. Certain personal-status and property documents fall outside the regime.
Sources
- China Briefing — Company Chops in China: What Are They and How to Use Them — chop types, PSB filing and internal-control guidance.
- Acclime — Company Chops, Seals and Signatures in China — binding effect where internal authority is lacking, and the lost or stolen chop procedure.
- Hawksford — Company chops and seals in China: types, risks and tips — custody separation and misuse patterns.
- Freshfields — New Company Law in China: 10 key changes — the legal representative under the law effective 1 July 2024, including the 30-day replacement rule.
- Electronic Signature Law of the PRC (2019 revision) — reliable electronic signatures and excluded documents.
- Internal: setting up a WFOE in China and our corporate, compliance and data practice page.
This article is general information for foreign companies, not legal advice on any specific matter. Rules and practice change; please take advice on your facts.