Professional Interpretation

Writer’s Note

American well-known investor Aileen Lee firstly referred to the startups whose evaluation value in both PE and public market went beyond a billion dollars as “Unicorn” in 2013, the extraordinary feature of “Unicorn” is that although it is not widely known by the public at early stage, it almost takes leading position within its market. With the rapid development of market economics of socialism, “Unicorns” keep showing up successively including Ant Financial, DiDi, etc., and on this precise, Beijing Docvit Law Firm Dispute Resolution Team currently has launched “Legal Service Production Series for Unicorn” under this circumstances. As the first article of the whole series, this article aims to assist “Unicorn” to grow up through conducting researches on market circumstances, legal theories and judicial practice.  

Abstract

As the symbol of corporate legal person identity and the symbol of the power of company, official seal is the concrete expression of company’s will, so reserving and using seals shall be the necessary point in holding control over the company. Beijing Docvit Law Firm Dispute Resolution Team has resolved plenty of disputes about seals recently, so this paper shall explain relevant legal propositions about seals and provide legal advice in order to assist client enterprises in process of seizing control over the company, based on judicial precedents, in accordance with PRC Company Law, etc.

Ⅰ. The Reason for Frequent Seal-disputing Incidents

Recently, Dangdang seal-disputing incident is all the rage. It is reported that Dangdang’s founder Mr. Li Guoqing went to the general basement of Dangdang with his lawyers and secretaries, and took official seal, financial chop, contract seal and other seals away. After it happened, Dangdang announced that all the official seals being held by Mr.Li Guoqing were invalidated.  For what reason or purpose both two protagonists launching a campaign for seal-disputing? It will be  talked from the significance of seal in legal dimension.

As one of the fundamental principles of commercial law, commercial externalism is a principle of application of law that weighs up conflict of interest between obligee and the third person at a certain condition. The purpose is to achieve cost reduction and transaction security. Official seal is the symbol of corporate legal person identity and the power of company. The first party universally follow the commercial externalism, with the concreteness of seal in demonstrating corporate wills, thus it can be seen the significance of keeping seal properly. Once the loss happens, the consequences would be unimaginable.

What is deserve to be mentioned, although the seal is the concrete representation of corporate power, holding the seal can not be equated with the despoilment of corporate control power, but only an approach of assisting doer to despoil the corporate control power. Also take seal-disputing incident as an example, after the loss of the seal, the reapplication of it requires signature confirmation of all shareholders.  It would be hard for Ms.Yu to reapply the seal of Dangdang without the approval of Mr.Li Guoqing. That most possibly makes Dangdang unable to affix a seal, and inevitably makes an impact on corporate business. Under this circumstance, holding the seal increases the control power of Mr.Li Guoqing toward Dangdang in this way.

Ⅱ. The External Force VS Internal Force of the Seal

"The stipulation of seals of state administrative organization, enterprise and public institution from the State Council", in 1993, stipulated norm or relevant departments for state administrative organization, enterprise and public institution, the form of seals of social organization, middle pattern, size, diction, typeface and material, which was the equivalent of recognizing the special legal force of seal. As the concrete representation of corporate power, the seal is one of the Chinese characteristics, however, under the existing jurisprudence, the regulations of legal force of the seal are inexplicit, so in metaphysical dimension we can divide it into external force and internal force.

1. The External Force of the Seal

The seal has strong behavioral expression ability, on account of that official seal should be authorized to be carved by legal controller of enterprise, being controlled by enterprise leadership, authorization department and staff. Therefore, while being used in written legal documents, there will be legitimate presumption that the seal possessor is the subject of the declaration of will toward this legal document, and is willing to bear legal responsibility for that declaration of will.

However, it should be noted that the No.41 regulation of "The judicial work conference summary of nationwide court civil and commercial case"(which is  referred to hereafter simply as "The ninth summary") offers elaboration about the force of law of the sealed behavior, that is "When hearing a case, the people's court should examine whether contractor has the right of representation and authority while sealing, thereby confirming the validity of contract according to related rules of representation and agency. Based on the spirit of "The ninth summary", whether external deal of corporation can be regard as its faithful declaration of will, not only need to consider whether it seals, but also requires to examine the permissions of representatives and deputies. The contract with the stamp confirming by representatives and deputies automatically provoke constraining force toward corporation. On the contrary, the seal stamped by agent without right of representation and agency may not has an anticipative effect of valid contracts.

Take the case of financial loan contract disputes between Weihai ShuangLian hoisting and excavating corporation and Mr.Yu Qiangbo for example. In this case, the Supreme Judicial Court considers that the instrument with official seal incompletely represents the company under the circumstances that the possession of seal is not based on the will of corporation. Thus it indicates that only control the seal does not mean to grasp the corporate right of control, and still requires to consider multi-aspects.

2. The Internal Force of the Seal

According to the relevant rules of "PRC Registration and Regulations on Administration of Enterprise as a Legal Person", an enterprise as a legal person affix a seal due to corporate internal affairs, deemed to be the same force of law as the seal of that department. For example, "Several Provisions of the Supreme People's Court about Suspicion of Economic Crimes when Hearing Cases of Economic Dispute" clearly points out that the official seal and the special seal for contractual uses have the same force of law during signing a contract.

This shows that in the level of internal effect and based on the collectivity of official seal, official seal has more general and extensive effects than the department seal in terms of the corporation.

Ⅲ. Practical Suggestions on Methodology

"The life of law lies not in logics but in experience". Our dispute resolution team has succeeded in handling multiple lawsuits, non-contentious projects and permanent legal consultations about official seals, gathering rich experience from legal disputes that enterprise seals involved. On account of this, the author concludes several suggestions about legal practice as follows:

1. Establishing Sound Establishing Sound Official Seal Management System

Articles of incorporation are the core regulations of every company, so however complicated or simple, business affairs should be run in strict accordance with articles of incorporation. However, although articles of incorporation enjoy high status of effect, it is hardly being refined into the management of official seal and using affair. Therefore, in order to regulate the using order of seal and achieve legal risk reduction, it is necessary for enterprise to establish its own management method of official seal.

Generally, a perfect seal management method ought to contain: the custody of seal, confirmation of custodian, procedure of authorization, usage process, sphere of application, responsibility for breach of contract, etc. Besides seal, a part of companies also produce financial chop, contract seal, department seal, invoice seal, etc. That requires classified discussion within management method. Differing from major companies that are well established, we suggest unicorn companies that do not produce overmuch classified seals except official seal and financial chop at initial stage. On the one hand, for the sake of efficient management, cost saving, manpower, etc. On the other hand, for the prevention of disastrous seals loss.

Corporation possesses characters based on shareholders, the Company Law respects company autonomy,  corporate internal legal relations adjusted by company autonomy mechanism in principle, and judiciary authorities won’t step into company internal affairs in principle. Therefore, among juridical practice, the common viewpoint of the court is to entitle the custody and the right to use to the legal representative without the explicit stipulation of seal usage and custody from the company. As a result, it is vital for the ownership of corporate right of control that to establish complete custody and usage system inside the company.

2. Suggestions to Improve Seals Authorization System, and Choose Custodian Carefully

Official seal belongs to company property, staffs may keep it for company with official authorization. Legal representative will be presumed to keep the official seal without explicit stipulation inside the company. In consideration of the legal sense of the official seal, it is necessary to appoint custodial staff properly, and once the person confirmed, he or she must fulfill obligations, keeping the seal properly and checking in usage records in time.

The company should require legal department or hire external law office for the letter of authorization of using seals, where should specify detailed information about authorizer and authorized person, usage right, whether special authorizations, etc, and that clearly stipulate the red line and gray scale. Besides, in order to avoid risks, we suggest that company should require the custodial staff to report to legal representative for approval.

Ⅳ. Conclusion

To sum up, although holding official seals benefits for the corporate right of control, there still needs comprehensive considerations combining doers, trading occasion, transaction and various factors, and achieve equilibrium between protecting bona fide counterparty and company with the seal. Above are several feelings and experiences from the author’s limited legal works, and no more tautology here due to limited space, but to broach the topic in order to provide methodological revelation for unicorn companies.