China Company Secretarial Services

When incorporating an entity in China, numerous licenses, permits and approvals are applied for at various government departments. These then constitute a record of the entity’s operating history, chronicling changes throughout the lifetime of the company.

In addition to this, various seals (chops) are required to be carved and registered with the State Public Security Bureau and kept on file as key objects that have a great deal of power, influence and recognition by the regular management and administration of the entity in question.

Many foreign investors are confused about exactly how the company’s file of licenses and permits should be maintained, how such seals are used correctly, and how they are applied in the conduct of commercial operations in China.

Every company needs to keep its licenses, permits, records and company files in order, comply with mandatory administrative guidelines governing PRC entities, carry out updates on a regular basis to keep up with a constantly changing regulatory environment, and participate in an annual inspection (filing) as required by law.

In China, seals hold greater authority than the signature of a natural person. Common business uses include executing contracts, passing of resolutions, making payments, issuing cheques, tax filing, reporting to the local authorities, etc. Therefore it is important for managers and executives to understand the significance of these items and how they should be used. In certain specific situations, only seals of the company are acceptable to confirm Chinese legal documents.

The common types of licenses, permits and seals employed by PRC entities in their daily operations are:

To assist our clients in understanding how the files, permits, licenses, approvals and records of the local entity are managed on a regular basis and in compliance with PRC regulations, Acadia provides a fully-fledged company secretarial service package that covers the following

The main ‘company seal’ is considered the most important item in the administration of an entity in China as it represents the utmost authority within the legal entity and has significantly greater power or authority than other seals. When the company seal is endorsed on a document it indicates consent or affirmation of the terms and conditions within the document by the entity and no actual signatures are required.

Acadia provides custodial and management services for the safekeeping, management and administration on the use and circulation of these key items to enhance internal control practices in each entity. If managed and administered well, companies have little to fear as sometimes simple internal control measures applied to such matters can prevent unnecessary risks and problems.

A company should formulate internal controls to prevent misuse of company chops as well as placing explicit limitations on the power of the legal representative. But when the counterparty to a contract acts in good faith in assuming the chop was used with proper authority and in fact it was not, a company can find itself in a difficult situation trying to cancel such contract and its legal obligations. There are numerous examples of foreign investors finding a disgruntled general manger or legal person refusing to relinquish possession of a company chop.

In such cases, company shareholders will have to take complex steps to regain control of the company seals. They can either file a lawsuit again the outgoing employee to claim return of the chop and the damages, or they can make an official filling to the public safety office for cancellation of the old company seal, and apply for a new one. Both options will take months to implement.