This month, a control dispute at Chinese chip foundry Haiwei Huaxin escalated into a fight over company seals. Haiwei Huaxin alleged that a shareholder with a 31.41% stake, Haite High-Tech, organized more than 100 people to break into the company’s premises, open a safe, and remove four seals. Haite High-Tech disputed this account, saying that five shareholders had authorized the retrieval of the seals. The matter is currently under police investigation.
The case highlights a recurring risk in Chinese corporate governance: a dispute over seals is rarely just about seals. In practice, the party controlling the company seal, bank credentials, financial systems, and key digital accounts may gain significant operational leverage, even where ultimate legal authority remains contested. The practical control conferred by these assets should be distinguished from whether a transaction is legally binding on the company.
Under Chinese law, a company seal alone does not determine the validity of a transaction; the signatory’s authority, internal approvals, and the counterparty’s good faith may all be relevant. However, internal irregularities may not automatically invalidate an external transaction, particularly where the counterparty had reasonable grounds to believe that the signatory was authorized.
The Haiwei Huaxin dispute also highlights several warning signs:
- Unclear allocation of control where major shareholders hold competing interests.
- Inadequate separation between custody, approval, and use of company seals.
- Concentration of control over bank accounts, payment systems, ERP platforms, company email, and other critical digital assets.
- No practical protocol for handing over authority following a management change.
- No enforceable process for resolving shareholder deadlock or facilitating an exit.
These arrangements should be embedded upfront in the articles of association, shareholder agreements, board rules, and internal-control policies, instead of being improvised after a dispute erupts. Companies should define who keeps each seal, what approvals are needed, and how its use is recorded. Payment initiation, approval, and bank access should be assigned to different individuals, with transaction limits and audit trails.
Equally importantly, companies should plan for disruption. Governance documents should address how seals, system credentials, bank access, and records are protected and transferred if directors, senior management, or shareholders enter a control dispute. Deadlock provisions may include structured negotiations, independent mediation, escalation procedures, valuation mechanisms, buyout rights, or arbitration.
Seals are only one point of corporate control. Robust protection depends on clear authority, segregation of duties, and workable contingency arrangements.
By Sasha Zheng, Senior Researcher