How to Make the Contract Officially Binding in China?
In the previous post, I covered how to get the supplier to respect the contract and if penalty clauses in supplier contracts actually work. Now, in the article below, I will be sharing some tips and practices on how to make the contract officially binding in China.
Many parts of Asia, including China, the "Chop" (an ink stamp) not a hand signature, represents the company and is legally binding. It doesn't matter who the hand is that attaches the chop, if the chop is on the document, it is considered the official "signature" of the company and legally binding. When you are setting up contracts with suppliers in China, know that it is not the general manager's hand signature that matters, nor are you after the signature made by the hand of any legal representative of the company. It is the corporate chop that has real value.
But it is not enough to have your contact "chopped". Because you also need to make sure that chop is real or not? In this blog post I will offer some of the tips and best practices I use when signing contracts with Chinese parties.
Tips and Best Practices When Signing Contracts with Chinese Parties
✓ Be sure to use bilingual versions of contracts as this will help you greatly should you ever need to enforce the contact in a Chinese court.
✓ Obviously, make sure the Chinese party uses a chop to make the document official. In China, the chop is an ink seal that is round and usually in red ink. Here is an example:
Only the “chop” not the hand signature, is legally binding in China.
✓ The official stamp of a company registered in the mainland China is in round form and is in red. But, for the foreign-owned companies in the mainland China, in other words, for the companies that are completely or partly owned by foreign shareholders, the official stamps are in oval form and can be in blue or in red.
✓ Make sure that the Chinese name (in Chinese characters) of the party “Chopping” the document is the party with whom you wish to do business. It’s a common mistake to sign a contract with one company in a group, but send a PO and payment to another group company. This can be dangerous.
About the Author: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe.
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