June 2001

The Story Behind the Unique Look of Japanese Agreements 

by David Monroe

"I didn't know what to think of the first one I saw. It had a stamp on the front page, a red seal on the back page, and was bound like a book. I couldn't figure out whether I was supposed to sign it, mail it, or put it on my book shelf," a Western businessperson might quip when recalling the first time presented with a Japanese agreement.

Japanese agreements look different from their Western counterparts, as even a surface review by one who reads no Japanese will reveal. The stamp on the front page, binding tape running the length of one side, and the red chop seals that appear on the signature page and inside spines all combine to give Japanese agreements a unique look. Few foreigners — in fact, few Japanese — truly understand the significance of these distinguishing features.

A revenue stamp appears on most Japanese agreements, usually in the upper left or right corner of the front page, though the location is a matter of custom rather than law. Much like a cancellation mark put on a postage stamp, the revenue stamp should have a chop seal placed half over it and half over the agreement to protect against re-use. The seal should be the same one used by one of the parties — either one will do — to "sign" the agreement on the signature page.

Many who have worked in the law department of a Japanese or foreign company with business interests in Japan have shared the experience of being asked at least a dozen times, "Does this agreement require a revenue stamp?" The general answer is that a revenue stamp is required for those categories of agreements listed in the "required" section of Attachment 1 to the Revenue Stamp Law, while it is not required for those that either appear in the "exempt" section or do not appear on Attachment 1 at all. So, distribution agreements require a revenue stamp; building lease agreements do not. An intellectual property transfer agreement requires a revenue stamp, but an intellectual property license agreement does not. If you are leasing land — put a stamp on the agreement, but if you are leasing a building — leave it off. If there's any rhyme or reason to determining which types of agreements require a revenue stamp and which do not, it's not readily apparent. Even so, the determination usually can be made relatively easily by reference to Attachment 1, which also stipulates the fixed amount or method for calculating the tax, which can range from 200 to 600,000 yen (roughly US $1.80 to $5,450).

So, what happens if you forget to put a revenue stamp on an agreement that requires one? The good news is that this infirmity will not affect the enforceability or validity of the agreement. The bad news is that you may be subject to a tax penalty of three times the delinquent amount and, in very rare and extreme cases, jail time.

As one might expect, the tax applies only to agreements executed in Japan, which is why a Japanese company entering into an agreement with a foreign counter-party will often sign (or, more accurately, chop-seal) first so that the final signature, and arguably the execution, will occur outside Japan.

Many Japanese agreements are "bound" with binding tape. The more important the agreement, the more likely it is to be bound. Most stationery stores in Japan sell the type of tape ordinarily used, which is a dull black fabric type, though virtually any tape will do. Typically an agreement is bound by first stapling one side of the agreement, usually the left side, and then placing a strip of tape down the spine, from top to bottom, so that the staples are covered.

There is no legal requirement for this type of binding; however, it does serve an important purpose. Each party to a bound agreement is expected to place its seal over the inner spine, with half the seal extending over the backside of one page and the front side of the other. This helps protect against the replacement of inner pages of the agreement, which would otherwise be fairly easy to do. For this reason, some Japanese companies, banks among them, are particularly reluctant to sign unbound agreements.

Most Japanese agreements provide space for each party, whether an individual or business, to "chop" the agreement — that is, apply its chop seal on the "signature" line that generally follows the body of an agreement. Chop seals on Japanese agreements serve the same purpose as signatures on their Western counterparts: providing proof of an intent to contract and by whom. Additionally, since seals generally appear in red ink, they can aid in distinguishing between an original and a duplicate, though less so now that color copiers are common.

All seals are not created equal, though. They come in two varieties, registered and unregistered. A registered seal is one that has been registered at the appropriate government office, which is the local Legal Affairs Bureau in the case of a corporation, and the local city or ward office in the case of an individual. A company does not actually register its own seal, i.e., a seal with the company's name on it; rather, it registers the seals of its representative directors, who are the only persons Japan's Commercial Code empowers to bind the company. Since the government office at which the seal is registered will issue a certificate of registration, a party to an agreement can compare the seal that appears on the agreement to that on the certificate in order to verify the seal's authenticity — much as one might compare fingerprints.

Individuals and companies often have unregistered seals also, which, as the name suggests, are seals that have not been registered. An individual, at least one with a common last name, will often use a mass-produced seal purchased at a shop that specializes in seals, or at a stationery store. Hand-made seals are also common. A company seal will naturally be made to order. And since the company must register its representative directors' seals and not its own seal with the Legal Affairs Bureau, a seal with the company's name is always unregistered.

An agreement need not be chop-sealed to be binding, just as it need not be in writing. However, a seal is evidence that the person or company whose seal appears on the agreement intended to be bound by it, and a registered seal is more persuasive than an unregistered one. So, the more important the agreement, the more likely it is to have a registered chop seal.

Instead of being "signed, sealed and delivered" as its Western counterpart used to be, a Japanese agreement is more likely to be stamped, bound and chopped — and now you know why.

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