China WFOE Registration Guide (17) - Seals for a WFOE in China

1. The Origins of Seals

The use of company 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. Seals vs. Signature

Many foreign investors in China are confused about the usage of seals when they are doing business in China. While signatures of company 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 common seal, name chapter of legal representative, financial seal, contract seal, customs seal 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 Seals in China

(1) Common Seal

In China, common seals represent the utmost authority of business entities and have the greatest power among all the other seals. By having a common seal stamped on a document, it represents consent and affirmation of the company. Thus, unless prescribed in specific clauses, the common seal would represent intention of engagement during signing of agreements or other legal documents. Common 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, should appoint trustworthy personal or department 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.

(2) Name Chapter of Legal Representative

Name chapter of legal representative is a personal seal representing the legal representative of a business entity.

The usages of name chapter of legal representative are limited, such as for tax declaration and honouring check. However, this seal still symbolizes a company behaviour 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, name chapter of legal representative are frequently used by personnel involve in company secretary functions, such as accounting manager or professional consultants.

(3) Financial Seal

Financial seal is mostly used for company accounting management, bank-related and financial matters. It would have the wording of company name and financial seal carved 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 personnel 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.

(4) Customs Seal

Customs Seal is used for customs declaration on import and export.

(5) 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.

(6) Fapiao Seal

Fapiao seal is used for issuing invoice.

(7) 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) When foreign invested enterprises apply for business license, the market regulation department will collect the seals engraving information such as the common seal, financial seal, contract seal, fapiao seal and customs seal, and forward them to the sharing platform. The seal engraving institutes shall simultaneously submit the company information to the public security bureau for filing through the Internet.

(2) The name chapter of legal representative could be engraved at any of the seal engraving institutes. Generally speaking, the name chapter of legal representative shall be the same as the name of the legal representative registered in the business license.

5. The Government Filing of Seals

In China, the public security bureau is in charge of filing of seals.

The specimen of company seals should be submitted to local public security bureau for filing after company seals are carved. Such specimen filing is the statutory pre-condition for the company seal to become effective.

If the company seal is lost, the company should make an announcement in the newspaper as soon as possible, apply for re-engraving the missing seal and submit its specimen to the public security bureau for filing.

6. Safekeeping of Company Seals

The company seals represent the company towards third parties. The documents bearing the relevant seal will generally be legal and create a direct liability onto the company or individual represented by that seal. In principle, the company seals shall be kept by the legal representative. On the other hand, the seals 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 companies to create an internal system to control the use of seals 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 seals shall be recorded by seals keeper.

In many instances, we have also seen foreign invested enterprises leaving 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 seals.

Another good way is to leave the company 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 seals and any of your important documents.
In a word, the seal 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.

See also:
Registration of a Service Type WFOE in Qianhai - Procedures and Fees
Registration of a Qianhai FICE - Procedures and Fees
Registration of a Shenzhen FICE - Procedures and Fees
Registration of a Shenzhen Service Type WFOE - Procedures and Fees
Deregistration of WFOE’s Branch in Beijing - Procedures and Fees
Registration of a WFOE Branch in Shanghai - Procedures and Fees