Understanding the legal significance and potential risks of using traditional chop stamps in Taiwan is essential for managers to safeguard their companies from disputes, fraud, and regulatory violations.

BY JOHN EASTWOOD, HEATHER HSIAO, and MICHAEL WERNER

For centuries in Taiwan and the rest of Asia, individuals, companies, and government officials have used carved stone and wooden seals (印章, yinzhang, often called “chops”) to authenticate documents. If you visit the National Palace Museum, you’ll even see a wide variety of red-ink chop stamps used by past Chinese emperors to indicate the ownership and approval of various paintings on display.

While distinctive handwritten signatures are popular in Western countries, the Chinese-speaking world developed a different solution: the chop stamp. Originating from the need to process and approve official documents, these chops remain a staple in daily transactions to this day, with stamped documents presumed to be authentic.

Chop stamps, once meticulously hand-carved as unique works of art, have largely transitioned into the modern era of standardization. Today, most chop-carving shops rely on computerized equipment, offering a wide array of calligraphic styles that can be replicated with precision and efficiency at a fraction of the price.

This standardization has, to some extent, diminished the unique irregularities of hand-carved chops that once enhanced their effectiveness as security devices. However, this has not deterred companies from continuing to use them in daily business operations, even as e-signatures and other authentication technologies gain popularity. A typical contract often bears chop stamps not only at the signature line but also on each page. For very large contracts, stamps may be applied along the edges of the sheets, serving as a mark of authenticity for the entire document.

Different chops

In the course of business dealings, a company may maintain a small set of chops for routine use. If required by operational needs or the complexity of transactions, the company may also opt to expand its collection of chops.

A small set might only include the main company chop and a “representative person” chop (usually bearing the name of the legally responsible person). The company chop is generally a larger square stamp featuring the company name in Chinese. For foreign companies, it may also include a band with the romanized name of the company. The representative-person chop is usually smaller and represents the signature of a high-level person with the authority to represent the company in its transactions – for example, a chairperson or president.

Some companies limit the scope of authority for departmental chop stamps, setting aside some stamps to be used exclusively for smaller contract signings, human resources matters, or other issues that might not necessitate getting the main chops out.

Additionally, companies may choose to maintain a set of chops with their legal counsel to expedite corporate transactions or for use in litigation. These chops are typically subject to strict power-of-attorney restrictions, ensuring they can only be used under the direct, written instructions of the company, thereby safeguarding against unauthorized use.

Chop handling by companies

Since documents bearing company chop stamps are typically regarded as signed with the full authority of the company, it is absolutely essential that the chops are stored securely to prevent misuse while remaining accessible enough to enable the company to conduct its daily business operations efficiently.

The possession of chops and the lines of authority for using the chops should be set out and kept track of carefully. Safeguards should be in place to ensure the return of chops prior to departure of personnel. Many companies secure their key chops at the close of each business day in a safe for that very purpose. A digital or physical logbook with details on each use of the chops should be maintained to protect against misuse by staff.

When companies store their corporate and responsible-person chops at their lawyers’ offices, the chops are kept securely, and their use is strictly regulated. Any application of the stamps must be based on written instructions from authorized personnel, specifying the exact documents to which the stamps should be applied. As part of this arrangement, a digital or physical logbook is maintained to document each use of the chops, ensuring transparency and accountability. It is also standard practice for the law firm to charge a monthly or annual fee for providing this secure storage and administrative service.

Transitions

If a company’s key authorized person named on a chop leaves the organization, it is crucial to plan ahead to ensure the chop and the associated authorization are updated without delay. For example, if your Taiwan general manager is resigning, the company should promptly take steps to name and register the successor, create a new chop reflecting the change, and register that chop with any relevant banks or government authorities.

During the termination of a senior executive with chop-stamping authority, it is essential to immediately secure the stamps to prevent their unauthorized use in dealings with third parties or government entities. If the stamps are no longer needed, their destruction is strongly recommended to eliminate any risk of misuse.

Dangerous territory

Misuse by employees, executives, and even shareholders is not unknown. In fact, the possession of chop stamps has sometimes resulted in significant complications. In Taiwan, the People’s Republic of China, and other jurisdictions, disputes over company control have occasionally escalated due to unauthorized use of chop stamps, leading to legal and operational challenges for the affected businesses.

In no case should a company use the chop stamp of an executive who has already departed the company, as such use could give rise to allegations of fraud and forgery. A few years back, we saw a multinational company continue to use an executive’s chop after having terminated that person’s employment, despite receiving a demand to stop using his name on documents. Using a chop stamp under such circumstances is playing with fire – it would have been far better for the company to smash the stamp with a hammer.

Taiwan’s Criminal Code Article 210 provides for prison sentences of up to five years for forgery or alteration of a private document, and Article 211 provides for prison sentences of up to seven years for forgery or alteration of a public document. Article 216 provides for similar punishment for persons who “put into circulation” a document bearing such forgery or alteration. Article 217 provides for prison sentences of up to three years for forgery of a chop stamp, its impression, or a signature.

While many companies have embraced electronic signatures, traditional chop stamps are unlikely to disappear anytime soon. It remains essential to store these chops securely, closely monitor their usage, and implement safeguards to prevent misuse, preserving their integrity in business operations.

-John Eastwood, Heather Hsiao, and Michael Werner are partners at Eiger, the Taipei-based law firm, with extensive experience in employment-related matters.