A Chinese company’s top executive is usually the company’s legal representative, and he or she is legally entrusted with the company seal, which is the company’s official symbol. The company seal provides the legal capacity to make and execute agreements, provide guarantees, transfer assets, and legally bind the company. When a legal representative is replaced, the displaced legal representative must return the company seal to the company so that the new legal representative can represent the company. However, if the displaced legal representative refuses to return the seal, the company could be liable for all the agreements that the former legal representative binds the company to. In other words, even if the articles of association can be used to remove an executive it does not necessarily mean that the foreign investors have been able to regain control of the company in practice. Therefore, retrieving the terminated legal representative’s unlawfully held company seal is an important step toward the foreign investors recapturing control of the company.
Article 148, paragraph, 2 of the Company Law establishes that “directors, supervisors and senior managers shall not take advantage of their position to take bribes or other illegal income, and they shall not speculate with the company’s assets.” Article 91 of the Meeting Minutes of the Second National Forum on Foreign-Related, Commercial Maritime Trials (Fafa  No. 26), issued by the Supreme People Court on December 16, 2005, provides that “the people’s courts will accept petitions from foreign invested companies attempting to retrieve a company seal from a natural person, legal person, or other entity.” Therefore, based on Article 148 of the Company Law and the published meeting minutes, a company can take legal action against a removed legal representative to have the company seal returned to the company.
However, in practice, this remedy is hard to implement. When a company files a lawsuit to seek the return of the company seal, the indictment must be stamped with the company seal. If the company seal is not available, then the court will accept the legal representative’s signature on the petition, but the legal representative that signs the petition must be the legal representative list on the company’s business license. When the person illegally holding the company seal is the company’s removed legal representative, and the company has not filed the application to change its registered legal representative, the terminated legal representative will remain the legal representative on the company’s business license. In a situation where the preceding legal representative is the defendant, he or she will clearly be unwilling to execute a petition against him or herself to return the company seal. Although the Supreme People’s Court has confirmed a company can effectively change its legal representative even if it does not file a change in legal representative with the SAIC or its local branch office, the new representative must still provide the court his or her identification and company authorization stamped with the company seal to be able to act in the company’s name. Therefore, the company has several procedural problems it must overcome if it wants to file a lawsuit to retrieve the company seal in its own name.
When a company has trouble retrieving the company seal from a removed legal representative, another potential option is to report the lost company seal to the police. Although the public security bureau (“PSB”) in each city and province has its own requirements for reporting a lost company seal, all PSBs require a company to state how the seal was lost or stolen, and publish an announcement about the loss in a designated newspaper for prescribed period of time. Once the announcement has been published for long enough, the new legal representative may bring an original copy of the company’s business license to SAIC or its branch office, and apply to make a new company seal and file related registrations. However, there are two roadblocks to using this technique. First, a company cannot get a new company seal, unless, the new seal registration is completed by the legal representative listed on the company’s business license with the approval of PSB. Second, the question of when a company’s seal should be considered “lost” or “stolen” is a subjective question. Therefore, many PSBs tend not to approve a company’s request to replace a lost seal. However, some PSBs will consider a terminated legal representative’s continued possession of a company seal to be an acceptable exception to the requirements, and they will approve the company’s application for a new company seal after the company provides a detailed explanation about why it cannot follow the proper procedure.
The company seal, as the symbol of power of the company, is critical for obtaining corporate control. However, regaining the seal from a displaced and uncooperative executive is a time-consuming and oftentimes difficult undertaking. Foreign investors should take care to regain possession of the seal prior to replacing management if at all possible.