If you are starting a business in China, you need to know what a chop is. PTL Group specializes in company registration in China. We make sure that China company registration is done right, and is supported by extensive operational support for registered entities. This is where our knowledge and expertise really make a difference.
Company Chop : Essential for Business Authorization in China
What are company chops?
The round red stamp that noticeably appears on any formal document in China has critical implications. These red stamps, commonly referred to as Chops, constitute the company’s legally binding decision de-facto. They are wrongly compared to the CEO signature as customary in Western companies. Why is it wrong to compare the two? Because in China, Chops carry greater importance. The Chinese chops represent the company towards third parties and are valid even without an official signatory.
Though red chops are the most prevalent, blue or black chops are occasionally used too, depending on the local government body that issues the chop. Companies operating outside of Mainland China, such as Hong Kong, often use chops in different colors as well.
Business owners in China can ease their concerns: chops are difficult and even impossible to forge. If a company loses its chop, it can only produce a new one with the approval of the Public Security Bureau (PSB), and chops forgery is heavily sanctioned. That said, the chops system entails risks, so full control over their usage must be maintained at all times.
All company chops must be registered with the Public Security Bureau (PSB) during company registration. Only registered chops are legally recognized, and unregistered use can be challenged in court.
Types of Chinese Chops You Need to Know
There are several types of chops, some are mandatory and some optional. Their purpose, application and the individual in charge of them vary, based on the business size.
In order to prevent misuse of the chops and to delegate authority, its recommended to diversify their use.
Official Company Chop
After the registration phase, WFOEs are obligated to produce an official chop at the PSB. The chop is usually round and contains the company’s full name in Chinese.
The company chop is the most important chop and has the widest scope of use. For instance, it is required for contractual documents, documents signed with the government, applications related to the company’s bank account, certifications on behalf of the company, etc.
The chop is deposited to the company’s legal representative. Once a document is sealed, it is validated and the company becomes liable for all consequences.
Financial chop
This too is a mandatory chop (although it can sometimes be replaced by the company chop) and is recorded with both the PSB and the company’s bank.
The financial chop is used for financial affairs such as money transfers, issuing checks, tax filing, cash withdrawals, opening or changing the company’s bank account details.
It is usually kept by the individual who is in charge of daily transfers, separately from the company chop.
Check out our financial guide for foreign companies in China to delve into the financial aspects of WFOE management.
Legal representative chop
The company’s legal representative owns a personal chop. This employee possesses the legal authority to execute the powers and duties of the company, and is accountable for them. As the highest-ranking executive, the legal representative’s chop carries binding legal power even when used without the company chop.
This chop is also mandatory, and has to be recorded at the PSB and the company’s bank. Alongside the company chop, it is mostly used for signing official documents and financial activities. Because of its binding power, it must be strictly safeguarded and only used following formal internal approvals.
Custom chop
This chop is required for companies that engage in cross-border trade.
It must be recorded in the company’s customs registration files, and only authorized staff can use it. It is used for customs declarations and import-export processes.
It is recommended to store the custom chop with the employee who is responsible for the company’s import-export affairs.
Contract chop
This is an optional chop used for signing contracts between the company and third parties (employees, clients, etc.).
Since this chop grants relatively less authority, it is recommended to keep it separately from the Company chop, and to permit only the employee who keeps it to use it.
Invoice chop
This chop is mandatory for declaring business expenses and issuing official invoices and tax receipts.
Electronic chop
Electronic chops, also known as electronic seals or e-seals, are a form of digital signature used in the same way as their physical substitute, for authenticating and approving documents and transactions online in China. Under China’s Electronic Signature Law, an e-chop has the same legal effect as a physical chop if it is issued through a government-certified e-signature platform, is uniquely traceable to the company, the company has sole control over its creation data, and any subsequent changes to the document can be detected.
Electronic Chops are considered a secure and convenient alternative to traditional physical chops, as they can be easily stored and accessed electronically. To use an electronic Chop, you or your company must first apply for a digital certificate from a government-approved certification authority. The certificate is then stored on a secure device, such as a smart card or USB key, and can be used to create an electronic chop by applying a digital signature to a document. Electronic Chops are widely accepted in China and are being used in place of physical chops for various purposes, including signing contracts, issuing invoices, and conducting official business transactions.
Learn more about e-invoicing in China
Careful management – watch your back
Misuse or forgery of company chops can lead to serious legal disputes. In one well-known case, a sales manager used the company chop without approval to sign contracts, and the court ruled the contracts valid – holding the company liable for obligations it never approved.
For WFOEs in China, the most significant risks arise when relying primarily on local sales teams. When these teams keep the chops, they are awarded absolute power, which might pose a concern to foreign managers.
Here are some tips to increase control and prevent the misuse of chops:
- Since the chops are the company’s most valuable asset (whoever keeps them can theoretically sell the company), they should be stored in a secure, locked location with limited access.
/ - The most often used chops can be kept by the individuals who use them regularly.
/ - It is recommended to record which employees hold which chops.
/ - It can be determined that the use of chops in excess of a certain quota (for example in procurement contracts) requires the approval of the CEO.
/ - New managers are advised to verify where each chop is kept.
\ - It’s best practice to store each chop in a separate location and maintain a usage log. Assign specific custodians to each chop, and require formal approvals before use to prevent unauthorized or accidental stamping.
A practical and accepted solution is to find a reliable party who will help manage the company, and will appoint an actively involved trustee who will safeguard the company’s chops.
How PTL Group Supports Your Company Chop Management
PTL Group provides such a solution to dozens of foreign companies in China. Among other things, we help fill the CFO position, manage all bureaucratic and financial transfers, and provide company owners with valuable peace of mind.
China Company Chops: Key Questions Answered (FAQ)
At PTL Group, we specialize in registering and managing foreign-owned entities in China. Get in touch today and let us support your China operations.
Last updated: Feb 2025
