Dealing with Chinese Counterparts (4): Watch Out for Counterfeit Chinese Common Seals
Every company in China will receive a company common seal at the time of approval of incorporation, and the use of common seals in business practice is common and critical. A legitimate company stamp signals a company’s certification of certain documents on which the stamp is affixed, and documents without being stamped cannot be deemed as a company’s representation from the legal perspective.
Having in mind the importance of a common seal in China, it is quite concerned to us that many clients of ours approached us regarding contractual non-perfomance matters, in which the proforma invoices or contracts were stamped by our clients’ opposing party using anything other than a Chinese common seal. When you are trading with a Chinese (allegedly) company, this should be a ‘red flag’ indicating risks involved in your transaction.
Recognizing a Legitimate Chinese Common Seal
You could obtain much useful information of a company just by a glance of its common seal, such as its country of incorporation, or its authenticity. A legitimate common seal of a Chinese company shall have the following traits: (i) round, it diameter is around 4cm; (ii) only red; (iii) the Chinese name of the company within the seal. Here we have an example of what a legitimate Chinese common seals should look like:
In contrast, the rectangle, blue stamp with a signature stamp in the middle is usually common seal of a company which is incorporated and registered in Hong Kong; and the rectangle, red stamp on the right is just a counterfeit stamp made by defrauders, or at least not an official stamp.
Different Scenarios regarding Company Seals
If you are dealing with a company which claims to be operating in Mainland China, but does not have a legitimate common seal like the one above, you need to be extra cautious for the following reasons:
1.The said company might not be real - not registered and incorporated in China. In that case you are most likely to be dealing with defrauders, or people who has a high chance of being dishonest during the transaction;
2.If the company uses a rectangle blue stamp like the one in the middle, it is likely that the entity your counterparty is using, though incorporated and registered in Hong Kong, could just be a shell company, while the main operation of the counterparty is still in Mainland China. Therefore, in the event of non-performance, it is extremely difficult, not to mention time-consuming, to seek help from the judiciary, or the law enforcement bodies:
(i) As it is a legally incorporated entity in Hong Kong, the public security bureau (PSB) in China would consider the case to be financial dispute between entities, and be reluctant to take it as a criminal one;
(ii) On the other hand, if you file the case to the court of Hong Kong, or the people’s court in China, it is generally burdensome to apply for asset preservation orders or to enforce judgement against bank accounts that are outside of the court’s jurisdiction, since the company 's main asset would be in mainland China.
We have seen a number of cases from years of experience in which companies have suffered irrevocable loss because they cannot identify a counterfeit common seal when dealing with Chinese suppliers, and we would regret if your interests are damaged by the few dishonest entities from the start of a transaction. Should you have any questions or need assistance in your dealing with Chinese counterparts, please feel free to contact us.
Larry Zhou, Partner
Landing Law Offices China
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