How Businesses in China Can Establish Signing Authority and Company Seal Checks Before Franchising

When an established business prepares to franchise, it is easy to treat contract signing as the final administrative step in recruiting franchisees. Yet a standard agreement alone cannot eliminate the risks if recruitment staff offer unauthorised fee reductions, an associated company signs instead, or the franchise applicant differs from the eventual contracting party. In a franchise network, clear signing authority protects head office and helps franchisees understand exactly whom they are entering into a business relationship with.

1. Establish which company is the franchisor

Article 3 of China’s Regulations on the Administration of Commercial Franchising states that organisations other than enterprises, and individuals, may not act as franchisors. Article 11 requires the parties to enter into a written franchise agreement and lists basic information about both parties among its principal contents.

Head office must therefore first identify the specific company that will bear the franchisor’s obligations, rather than simply putting the brand name on the contract cover. The brand, recruitment team, company-operated outlets and contracting company may belong to different entities. Membership of the same corporate group does not make them interchangeable.

Consider creating an internal ‘contracting entity confirmation form’ recording at least:

• The franchisor’s full registered company name, Unified Social Credit Code (China’s business registration identifier), registered address and legal representative details;
• The brand used in the agreement and the relationship between the relevant business resources and the contracting company;
• The entities responsible for delivering training, technical support and day-to-day guidance;
• The organisation employing the franchise recruitment staff and the scope of their authority.

Article 7 of the Regulations requires franchisors to be capable of providing ongoing operational guidance, technical support and business training, among other services. Article 14 requires them to provide the relevant services as agreed. Even where an associated company helps deliver those services, the agreement should explain the arrangements. Saying that ‘the group is responsible’ is no substitute for identifying the entity with the obligation.

2. Separate recruitment authority from signing authority

Authority to introduce a franchise opportunity does not confer authority to amend an agreement. Nor does showing a prospective franchisee around give someone authority to promise additional benefits on behalf of head office. Head office should distinguish between presenting the opportunity, conducting commercial negotiations, approving terms and formally signing, with designated people responsible for each stage.

Recruitment staff may be permitted to explain the approved agreement and standard services. However, fee reductions, additional training, exclusive rights or special exit arrangements should be referred to designated staff for approval. Unapproved promises should not be included in the version submitted for signing.

A written authorisation should specify the authorised person’s identity, the matters covered, the relevant project or agreement, the scope and duration of the authority, and whether it may be delegated further. Avoid relying indefinitely on vague wording such as ‘full authority to handle franchise matters’.

Applicants should also be given a clear contact channel through which they can verify authorisation. An internal authority matrix does not, by itself, settle liability towards third parties. Disputes over unauthorised promises or an agent’s authority must be assessed in light of the authorisation documents, communications and actual performance. It is not enough simply to declare that ‘all promises made by employees are invalid’.

Recruitment staff should submit a written list of any special terms agreed verbally before signing. Approved terms should be incorporated into the agreement or its schedules, while applicants should be clearly told which terms have not been approved. This helps prevent the parties from signing with different understandings.

3. Verify both parties’ identities and the final text before signing

Do not check only head office’s company seal: verify the franchisee’s side as well. There should be a clear connection between the name on the application, the person assessed, the eventual contracting party and the proposed outlet.

If the applicant plans to establish a company to operate the business, first confirm whether the individual or the company will sign. Then check that the agreement’s rights, obligations and operating arrangements reflect that choice. A company that has not yet been incorporated cannot be treated as an existing entity for signing purposes. Nor should a later change of contracting party be handled merely by altering the first page of the agreement.

Four pre-signing checks can be introduced:

1. Identity: Check company registration details or personal identification, ensuring that the name matches the agreement.
2. Authority: Confirm that the signatory is the legal representative or an agent holding valid authorisation. Do not assume that a job title confers signing authority.
3. Contract text: Check the agreement number, version, schedule list and special terms. Resolve any unfilled blanks and confirm that both parties hold identical texts.
4. Company seal: Check that the entity named on the seal matches the contracting entity, and retain records of signing and delivery. The seal’s appearance alone cannot establish its authenticity or the agreement’s legal effect.

These steps are internal risk-control recommendations, not a standard signing format prescribed by the Regulations. If electronic signing is used, separately verify identity authentication, signing authority, document integrity and evidence retention. Pasting an image of a seal into a document is not a complete signing process.

4. Bring the signed agreement into the contract management process

After signing and sealing, the contract administrator should record the actual date of conclusion, both contracting parties, the signatories and the authorisation documents, and retain the final agreement with all schedules. The franchisee should receive a complete copy. Do not retain only the sealed signature page or leave key schedules in recruitment staff’s personal chat histories.

Accurate dates are particularly important. The Regulations on the Administration of Commercial Franchising require the franchisor to complete its regulatory filing within 15 days of concluding its first franchise agreement. Completion of internal approval, receipt of payment or the outlet’s opening cannot automatically be treated as an alternative starting point. Where the parties sign in different locations or at different times, seek legal advice in advance on when and how the contract will be formed, so that delays in circulating documents do not disrupt the subsequent filing.

When staff leave, authorisations expire or responsibilities change, promptly update the list of authorised personnel, retrieve the relevant authorisation materials and notify applicants still in negotiations of their new contact. Signed agreements and historical authorisations should remain on file, rather than being deleted when an employee leaves.

Practical takeaway: Before signing the first franchise agreement, use a complete set of actual documents to work through ‘entity confirmation—authority approval—text verification—signing and archiving’. If anyone still cannot answer ‘Who can make commitments? Who signs on whose behalf? Who bears the contractual obligations?’, signing should not be treated as a simple matter of applying a seal.