2.3 Verification Of Company Seals Copy

2.3 Verification Of Company Seals Copy

Page Completion Estimate = 30 Minutes

The verification process of the authenticity of the company seals and authorized use requires a three-step approach including performing desk research, visit to the in-charge Administration of Market Regulation and a visit to the third-party company.

1         Step 1: Desk research

As discussed in chapter 1, when performing third party due diligence in mainland China, the single most important document to request from potential customers or suppliers is a scanned color copy of the business license, with an imprint of the company chop affixed to it. The business license forms the starting point of the investigation.

1.1     General observations to the seal imprint

First step in the verification process of company seals is performing desk research, which starts with an overall observation of the (scan of the) document and the seal imprint affixed to it that has been provided. Attention should go out to the following items:

Font used on the seal

First indicator of a fake seal is the font. Most company seals use the fonts Sim Sun or Fang Song. When you receive a document with a seal imprint affixed to it in another than these two fonts, it should be considered a red flag.

Color of the ink imprint

The vast majority of seal imprints are made in red colored ink, although minimally imprints can made in a dark blue color. Any other color used is an indication of a red flag.

Inking of the seal

Crimson oil inkpads are commonly used for inking company seals. When the imprint is affixed to the paper the ink is not always perfectly distributed over the seal, resulting in an imprint that is slightly uneven and not smooth. Due to the uneven distribution of ink on the seal and uneven pressure applied when placing the imprint on the paper, some sections of the imprint may have a darker coloring than other sections containing less ink. Seals may also have an internal ink reservoir (that need to be refilled periodically) but depending how pressure is applied when making an imprint, distribution of ink and color might slightly vary as well.

Shape of the seal

As discussed in last unit, most seals have a round or oval shape with the exception of the legal representative seal, which has a square shape. Any seal imprints that have different shapes are to be considered a red flag.

Angle of the seal imprint

When a hand-stamped seal is placed on paper, the imprint is very unlikely to be perfectly straight.

Location of the seal imprint on the paper

Normally company seal imprints are placed on top of the name of the company. The seal imprint does not cover the entire underlying text as the name of the company is still readable. When a seal imprint is placed on a different location on the paper, or when the underlying text is not readable, it should be considered as a red flag.

1.2     Company Seal

The correctness of the company seal can be verified following the questions listed below:

1.3     Legal Representative Seal

The correctness of the legal representative seal can be verified following the questions listed below:

1.4     Finance Seal

The correctness of the finance seal can be verified following the questions listed below:

1.5     Non-mandatory seals

Companies have the liberty to implement the use of non-mandatory seals within their business operations. From a due diligence perspective, it is a commercial decision whether an enterprise would accept documentation provided by the third-party Chinese company with such a seal imprint affixed to it. It is recommended that the checklist for seal usage discussed below is followed to confirm which officials are authorized to use which seals for which purpose and create insight in internal regulations on seal management.

2         Step 2:  Visit to the Administration of Market Regulation

The authenticity of the company seal can only be further verified by visiting the in-charge local Administration of Market Regulation located in the city and respective administrative division where the company is registered. This on-site verification can only be performed by a licensed Chinese PRC lawyer; inquiries made by foreign (non-PRC licensed) lawyers, commercial companies or private persons are not possible.

When visiting the Administration of Market Regulation, it has to be determined whether the seal is registered. Registration of the company seal is common practice but not mandatory in China. In the event the seal is registered and used on the filed documentation, it can be confirmed that the seal is correct.

If the seal is not registered, various documents filed to the local authorities can still be reviewed, and the seal imprints on the documents can be compared to the seal imprint affixed on the business license which is to be requested by the potential cooperation partner.

3         Step 3: Visit the third party

When the outcomes of the desk research and visit to the in-charge office of the Administration of Market Regulation have been satisfactory, last step to perform in the verification process of the company seals is to visit the third party. Purpose of the visit is twofold; confirmation of the company seal imprints and secondly, for the purpose mitigating risk when conducting future business, authorized use of the seals should be confirmed.

During the visit it should be confirmed which company official(s) are authorized for which purposes and applicable conditions to use which company seals and it should be confirmed whether the person who affixed the seal imprint on the scanned version of the business license is indeed employed by the company.

General checklist for seal usage:

  • Confirm which company officials are authorized to use which seals.
  • Confirm which company officials are authorized to use the seals for which purpose.
  • Confirm which internal regulations are in place to manage the use of seals, i.e.
    • Registration of use of the seals.
    • Are the powers of seal holders recorded in a Power of Attorney?
    • When using the seal imprint is a 4-eyes principle or dual seal/ signature procedure applied?
  • Agree upon a procedure with the company that the use of a company seal is combined with the signature of documents by a designated company representative.