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Signing and chopping a China contract. It’s complicated.

 by Dan Harris

“Stole” the below from an email on which I was cc’ed from one of my firm’s China lawyers setting forth 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 is attached.  (Of course, to enforce the contract you will need to prove that the signature is really that of the legal representative.)

4. Any agreement affixed with the company chop is binding, regardless of who signed on behalf of the company. (Of course, to enforce the contract you will need to prove that the chop is actually the correct chop from the correct company.) This is why control of the company chop is quite important, and 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 therefore a belt-and-suspenders approach. In China, it is also advisable.

6. It is also 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 several other contracts that have been 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.” For instance, the _______ contract on which we are currently working will be signed by ___________’s president and co-founder, who is not the company’s legal representative.

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.

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