Tips about Company Registration in China

To avoid being a victim of scams when sourcing from China, it is necessary to learn and verify the real identity of a Chinese company or an alleged Chinese company before entering into any transactions with such a company.

1. In Mainland China, all companies must register with the government and obtain relevant certificates and documents such as the business license before being permitted to do any legal business operations. Before entering into any contractor Purchase Order with a Chinese company, you should first request the Chinese company provide a copy of its business license, which should be written in Chinese and bear the Chinese name of the company and the name of its legal representative. In China, a company is only required to register a Chinese name as its legal company name and is not required to register any English name. Therefore, once any litigation happens, it is not possible to directly identify any company by its English name only. It is therefore very essential to have the Chinese name of the company by obtaining the business license of this Chinese company, and, if conditions permit, the foreign trader may entrust a Chinese lawyer to investigate the validity and credibility of a Chinese company based on the content on its business license (at the cost of approximately US$500-$1,000).

2. In Mainland China, the importance of the company seal is so high that many other countries cannot compare. The company seals must be filed with the public security organ. A document on which a company seal is affixed is deemed as a legal document approved by that company and generally will bind the company to undertake legal responsibilities for the content of such a document without the proof of any other evidence. In China, a person’s signature does not have a strong effect, and sometimes the signature of a director or even the legal representative of a company does not necessarily have a binding effect on the company without the company seal affixed. Therefore, you should first ensure that the contract or PO has both the Chinese name and English name of the Chinese company, and at the same time, the contract or PO bears the affixture of the company seal, together with the signature of the authorized representative. There are two types of company seals in China: the company seal of a domestic Chinese company is a circle, in which the Chinese name of the company and a five-pointed star co-exist, while the company seal of a foreign-invested Chinese company is an ellipse, in which the Chinese name of the company exists (in some cases, together with its English name), without any five-pointed star.

3. In Hong Kong, a company from the mainland of China is not permitted to open a general bank account with any Hong Kong bank. Therefore, if you discover on the contract or PO that a Chinese company provides a bank account at the HSBC in Hong Kong for the purpose of receiving payment, while its address is in the mainland of China, in most cases such a company is a Hong Kong company instead of a Chinese company (please note that some investors may set up a Hong Kong company and a Chinese company separately using the same English name, but these are still two different companies). In such a case, you must insist on obtaining the Chinese name and business license of the Chinese company, and make sure the company seal of the Chinese company is affixed to the contract/PO and that the Chinese name on the company seal is consistent with the name of the party concerned in the contract. If the above is provided, then the Hong Kong company will be considered as a party who receives payment on behalf of the Chinese company only, and all contractual obligations still rests with the Chinese company, therefore when any disputes arise, you may now sue the Chinese company in China.