Fraud Alert: if a Chinese Company Signs a Contract Like This
You must be alert to fraud when the following situations occur.
1.No Chinese company seal is stamped on the contract.
In China, the official company seal is a symbol of corporate power. Anything stamped with the official company seal is considered to be on behalf of the company’s will.
So, if you’re going to do business with a Chinese company, the contract has to be stamped with the official company seal. In this way, the Chinese courts and law enforcement authorities will recognize that the contract is concluded by the said company.
Moreover, only real Chinese companies have official seals.
In China, making official company seals is under supervision by the police. It would be a crime for anyone to make the company seals without authorization, and in the most serious cases, he/she could be sentenced to 10 years in prison.
If a Chinese company doesn’t stamp a contract or order, it is likely to be a fraud.
2.A Chinese company uses an overseas company to enter into contracts with you or to receive payments.
The overseas company often does not have any ability to perform, or even has no enforceable assets in its name, but rather is a shell company.
The factory performing the contract is located in China, the actual controller of the Chinese company resides in China, and the assets and cash of the Chinese company are also located in China.
In such cases, a contract with an overseas company often means that you cannot recover any damages for fraud or breach of contract.
To some extent, this practice is understandable. Because of China’s foreign exchange controls, Chinese companies are reluctant to bring funds into China for more flexible use.
However, to ensure that this Chinese company bears the necessary liability, we recommend that the Chinese company and its overseas company are jointly liable for you. This way, although the money is paid to the overseas company, the liability is borne by the Chinese company.
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