Chinese Contracts 101 By Ella Xu

When you are doing business with Chinese company in China, there are ten key points you should know when making and checking a contract.

1) The contract must have Chinese Version
The Chinese Government will not help you to translate your contract from French or Spanish to Chinese when they read it. Only the contract with Chinese Version can be acceptable and looked as the valid document in China.

2) Sending money to your vendor’s appointed bank account means nothing in China
There is a different concept between western country and China about what legal force it can represent when sending money to another party. In China, it could not certify there existing any trading relationship between the funds receiver and sender if you don’t have a contract. The money you send to the vendor will disappear in the air without any reason if there is not a legal contract can protect you.

3) Chop
A legal formed company in China should have at least three chops. They are called Company Chop, Finance Chop and Private Chop of Legal Person. The shape of company chop and finance chop of foreign company is ellipse. The shape of company chop and finance chop of Chinese company is round. All the private chop of legal person should be square.

4) How to verify the facticity of a seal
All the companies should go to the local Security Bureau to apply making necessary chops during the period of setting up. You can go to make them after you get the approval from the local Security Bureau. Then you should go back to the local Security Bureau to make a seal sample on the special Chop Card the Security Bureau gives to you. There are two same chop cards. The Security Bureau keeps one and the company keeps one. Only the chops which leaves seal on the chop card are legal.

5) The basic structure of a contract
There should have Parties, Date, Location of signing, Production, Quantity, Quality, Unit Price, Shipping Terms, Rights and Obligation of all parties.

6) How to find out the status of a company in China in one minute
You can go to a searching website first and then type in the name of local Industry And Commercial Bureau. In the website of local ICB, you can type in the full name of the company you want to know if it is still in good status. The searching result can tell you if it is still open, if it does not exist at all, who is the legal person, the registered capital, the registered address etc.

7) The legal force of company seal and signature of legal person
The company seal and the signature of legal person has equal legal force. Either of them can represent the company.

8) One letter’s difference in the company’s name means they are two different company
In one contract, the name of the parties in title, in content and in the seal should be exactly same. They represent different companies although there is only one small difference in the company’s name.

9) Parent company and subsidiary company
Parent company will take any legal responsibility of his subsidiary company. They are two separate independently company. If the title of one contract is the name of the parent company and the seal at the end is his subsidiary company, the contract is illegal.

10) The legal force of original document and copy
Please don’t hesitate to ask for the original contract no matter how complicated to get it. Whoever in your vendor’s company can make a fake contract and fax to you. Also, the legal force of copy contract is much lower than an original contract.

Some of our clients have done business in China over ten years, but they will still make mistakes in the points we mentioned above. It is very difficult to fetch up your loss if there is not a correct legal contract to protect you. Every small detail should be pay attention to when signing a contract in China.