China WFOE Registration Guide (17) – Stamps & Seals for a WFOE in China
1. The Origins of Stamps and Seals
The use of company stamps and seals (‘seals’ in China is related to Chinese history. They were originated from pottery making. At the beginning, pottery seals were used to imprint words or marks on surface of pottery to indicate the ownership of the goods. This was deemed as a certification of proprietorship. As time passed, seals developed as tally and eventually held the function of credit. Thus, in Chinese culture, seals become more important than signature in certifying credibility.
2. Stamps vs. Signature
Many foreign investors in China are confused about the usage of ‘seals’ when they are doing business in China. While signatures of companies’ chairman are the ultimate mark of authority outside China, in China, the function and authority of ‘seals’ are far greater. In the case of setting up a business entity in China, the first thing after obtaining the temporary business license is to carve seals. These include seals for company, legal representative, financial, contract, customs, etc. An entity cannot be incorporated without them. ‘Seals’ are also used commonly while doing business in China. In certain situations, only seals are acceptable to confirm legal documents.
3. The Functions of Various Stamps & Seals in China
Company Seal
In China, company seals represent the utmost authority of business entities and have the greatest power among all the other seals? By having a company seal stamped on a document, it represents consent and affirmation of the company. Thus, unless prescribed in specific clauses, the company seal would represent intention of engagement during signing of agreements or other legal documents. Company seals will be used in all occasions or messages that are being delivered on behalf of the company.
Taken into account of its importance, companies, especially foreign invested enterprises (FIEs), should appoint trustworthy personal or parties to safe keep their company seals. Any usage of company seals must be approved by authorized personal, such as legal representative, delegates, general manager, etc.
Legal Representative Seal
Legal representative seal is a personal seal representing the legal representative of a business entity.
The usages of legal representative seal are limited, such as for tax declaration and honoring check. However, this seal still symbolizes a company behavior instead of individual conduct. If this seal is delivered intentionally to a third party, the company would be responsible for consequences from the use of the seal.
In most cases, legal representative seals are frequently used by personal involve in company secretary functions, such as accounting manager or professional consultants.
Financial Seal
Financial seal is mostly used for company accounting management, bank-related and financial matters. It would have the words “financial seal” and “company name” carve on it.
Banks will require business entities to provide their financial seals for filing when opening bank accounts. Such filings are needed for authentication when the companies apply for any transactions in future. Financial seal should also be used with care by accounting department. Moreover, it should be in separate hand from personal who hold the legal representative seal. Considering this importance, business entities in China always safe keep their financial seal in coffer or entrust a special corporate secretarial company for safekeeping.
Customs Seal
Customs Seal is used for customs declaration on import and export.
Contract Seal
Some companies in China use contract seal in signing contracts. These companies will be responsible for the contracts with such seal stamped.
Carving of contract seal is not statutory requirement. It can be replaced by company seal in all the situations. As for the contracts and agreements, contract seal has the equivalent legal effect with company seal.
Invoice Seal
Invoice seal is used for issuing invoice.
Other Seals
Company may carve other seals by themselves, such as warehouse seal, HR seal. Those seals are only used for internal administration functions.
4. The Carving of Seals
There are no unified regulations of carving seals stipulated by the Ministry of Public Security. Hence, the carving procedures are different based on the category of seals.
(1) To carve company seal, foreign invested enterprises should provide temporary business license to local public security bureau for carving application. After approved, public security bureau will issue a Notice of Carving Permission. Having this notice, foreign invested enterprises may go to a carving company possessing a Shanghai Special Industry Permit (company seal carving purpose) for carving.
(2) To carve legal representative seal, financial seal, contract seal, invoice seal, customs seal and other seal, company should go to a designated seal-carving company for carving. Generally, company should show its temporary business license and carving application form with signature of legal representative before carving.
5. The Government Filing of Seals
In China, there are three governmental bureaus that are in charge of registration and filing of seals.
(1) Public Security Bureau:
After the company’s seal is carved, it shall be filed in local public security bureau. Such specimen filing is the statutory pre-condition for the company seal to become effective.
If the company seal were lost, the company should notify the local public security bureau where it was originally registered at soonest possible. After having announced such loss in newspaper, the company should apply for re-carving in the public security bureau. With the approval of re-carving, the company is able to re-carve and filed the new company seal in the local public security bureau.
(2) Administration Bureau for Industry and Commerce
Company seal, contract seal and financial seal should also be registered at the local Administration Bureau for Industry and Commerce.
However, such filing is not a compulsory obligation. On account of the importance and legal force of these three seals, companies always opt to file on their own accord.
(3) Customs Bureau
Customs Seal should be filed in the customs bureau.
It is worth noting that, the legal nature of company seal filing is different between in the Administration Bureau for Industry and Commerce and in the Public Security Bureau. The former is just for notification and filing and then a third party needs to check the specimen of company seal. In contrast, to file in the public security bureau is a statutory pre-condition for company seal to take effect. Therefore, the force of announcement via filing in public security bureau is stronger than the force of notification via filing in the Administration Bureau for Industry and Commerce.
6. Safekeeping of Company Stamps / Seals
The company stamps / seals represent the company towards third parties. The documents bearing the relevant stamp will generally be legal and create a direct liability onto the company or individual represented by that stamp. In principle, the company stamps / seals shall be kept by the legal representative. On the other hand, the stamps are often needed in the course of doing business.
Keeping them with the legal representative is very inconvenient during the operation. Therefore, it is necessary for foreign companies to create an internal system to control the use of stamps and assign consequences for misuse or abuse. For example, such internal rules may require that pre-approval must be obtained each time when applying for using the company seals. The pre-approval may be made by department manager and general manager jointly. In addition, the date, lender and purpose of using stamps shall be recorded by stamps keeper.
In many instances, we have also seen FIEs leaving stamps / seals to people whom they so called ‘trust’ Later they could also find wrong doings by such trusted people. Hence, it may be a better control to entrust a professional company that has a proven system to custody the stamps / seals.
Another good way is to leave the company stamps/seals with a third party. Kaizen, as a professional accounting firm and company secretarial firm, has created a strict custody system and professional staff, our goal of corporate secretarial service is to take care of your important stamps / seal and any of your important documents.
In a word, the stamp is of extreme significance in China and therefore anyone interested in doing business here should devise guidelines for use and provide adequate safeguards to protect themselves from such risk.