Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
o
x
o
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .
For the transition period from to
OR
Commission file number 001-37485
Jupai Holdings Limited
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Global Creative Center, T2, 15/F
No 166 Min Hong Road
Minhang District
Shanghai 201100
People’s Republic of China
(Address of principal executive offices)
Min Liu, Chief Financial Officer
Global Creative Center, T2, 15/F
No 166 Min Hong Road
Minhang District
Shanghai 201100
People’s Republic of China
Phone: (86 21) 5226-5925
Email: maine.liu@jpinvestment.cn
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
American Depositary Shares, each representing six ordinary shares
Ordinary shares, par value US$0.0005 per share*
Trading Symbol
JP
Name of each exchange on which registered
New York Stock Exchange
* Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2020, there were 199,051,046 ordinary shares outstanding (excluding 8,626,458 ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved under our share incentive plan), with a par value US$0.0005 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes x No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act:
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Emerging growth company o
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards† provided pursuant to Section 13(a) of the Exchange Act. o
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit report. o
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP x
International Financial Reporting Standards as issued
by the International Accounting Standards Board o
Other o
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. o Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o
No
Table of Contents
INTRODUCTION
FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
PART I.
ITEM 1
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
PART II.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.
PART III.
ITEM 17.
ITEM 18.
ITEM 19.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE
MINE SAFETY DISCLOSURE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
i
1
2
3
3
3
3
42
72
72
90
98
99
99
100
109
110
113
113
113
113
114
114
114
114
114
115
115
116
117
117
117
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Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:
INTRODUCTION
· “asset under management” or “AUM” refers to the amount of capital contributions made by investors to the funds we manage, for which we are entitled to receive
management fees. The amount of our AUM is recorded and carried based on the historical cost of the contributed assets instead of fair market value of assets for
almost all our AUM. For assets denominated in currencies other than Renminbi, the AUM are translated into Renminbi upon their contribution, without interim
value adjustments solely due to changes in foreign exchange rates;
· “China,” “mainland China,” or the “PRC” refers to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau and
Taiwan;
· “Jupai,” “we,” “us,” “our company” and “our” refer to Jupai Holdings Limited and its subsidiaries, its variable interest entities, or VIEs, and their respective
subsidiaries;
· “ordinary shares” or “shares” refers to our ordinary shares of par value US$0.0005 per share;
· “RMB” and “Renminbi” refer to the legal currency of China;
· “US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States; and
· “U.S. GAAP” refers to generally accepted accounting principles in the United States.
This annual report on Form 20-F includes our audited consolidated financial statements including the statement of operations for the years ended December 31, 2018,
2019 and 2020 and the consolidated balance sheets as of December 31, 2019 and 2020.
Effective July 1, 2016, we changed our reporting currency from the U.S. dollars to Renminbi. The aligning of the reporting currency with the underlying operations better
reflects our results of operations for each period, and reduces the impact that the increased volatility of the Renminbi to U.S. dollars exchange rate will have on our reported
operating results. This annual report contains translations of certain Renminbi amounts into U.S. dollars for convenience. Unless otherwise noted, all translations from Renminbi to
U.S. dollars in this annual report were made at RMB6.5250 to US$1.00, the noon buying rate for December 31, 2020 as set forth in the H. 10 statistical release of the Board of
Directors of the Federal Reserve System. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be
converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC government restricts the conversion of Renminbi into foreign currency and
foreign currency into Renminbi for certain types of transactions. On April 9, 2021, the noon buying rate set forth in the H. 10 statistical release of the Board of Directors of the
Federal Reserve System was RMB6.5522 to US$1.00.
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FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views of future events. The forward-looking statements
are contained principally in the items entitled “Information on the Company,” “Risk Factors,” “Operating and Financial Review and Prospects,” “Financial Information” and
“Quantitative and Qualitative Disclosures About Market Risk.” Our forward-looking statements relate to events that involve known and unknown risks, uncertainties and other
factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities
Litigations Reform Act of 1995. You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,”
“intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions, although not all forward-looking statement contain these words. Forward-looking
statements include, but are not limited to, statements relating to:
· our goals and strategies;
· our future business development, financial condition and results of operations;
· the expected growth of the wealth management services market as well as the asset management services market;
· our expectations regarding demand for, and market acceptance of, our services;
· PRC governmental regulations and policies governing the financial services and wealth management industries;
· competition in the wealth management services industry as well as the asset management services industry; and
· general economic and business conditions, particularly in China.
You should read thoroughly this annual report and the documents that we refer to herein with the understanding that our actual future results may be materially different
from and/or worse than what we expect. Other sections of this annual report, including the Risk Factors and Operating and Financial Review and Prospects, discuss factors which
could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible
for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or
information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by applicable law.
2
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ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
PART I.
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The following table presents our selected consolidated financial information. The selected consolidated statements of operations and comprehensive income data for the
years ended December 31, 2018, 2019 and 2020, the selected consolidated balance sheet data as of December 31, 2019 and 2020, and the selected consolidated cash flow data for
the years ended December 31, 2018, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The selected
consolidated statements of operations and comprehensive income data for the years ended December 31, 2016 and 2017, the selected consolidated balance sheet data as of
December 31, 2016, 2017 and 2018, and the selected consolidated cash flow data for the years ended December 31, 2016 and 2017 have been derived from our audited
consolidated financial statements not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
Our historical results do not necessarily indicate our results expected for any future periods. You should read the following information in conjunction with our
consolidated financial statements and related notes included elsewhere in this annual report.
2016
RMB
2017
RMB
For the Years Ended December 31,
2019
RMB
2018
RMB
2020
RMB
US$
Selected Data of Consolidated
Income and Comprehensive
Income:
Revenues:
Third-party revenues
Related-party revenues
Total revenues
Business taxes and related surcharges
Net revenues
Operating cost and expenses:
Cost of revenues
Selling expenses
General and administrative expenses
Impairment loss of goodwill
Government subsidies
Total operating cost and expenses
415,295,453
716,130,680
1,131,426,133
(3,715,689)
1,127,710,444
(477,034,912)
(237,297,482)
(155,958,876)
—
37,385,834
(832,905,436)
479,917,547
1,232,785,709
1,712,703,256
(6,541,634)
1,706,161,622
(737,507,904)
(282,171,751)
(204,052,576)
—
41,138,443
(1,182,593,788)
335,246,612
990,820,793
1,326,067,405
(4,323,742)
1,321,743,663
(684,558,659)
(303,170,575)
(274,782,664)
(267,917,575)
48,742,897
(1,481,686,576)
3
387,870,253
402,889,899
790,760,152
(4,812,940)
785,947,212
(481,746,067)
(206,777,405)
(265,527,496)
—
31,429,802
(922,621,166)
212,783,752
177,025,427
389,809,179
(1,637,436)
388,171,743
(205,634,704)
(84,903,304)
(153,650,898)
—
21,590,703
(422,598,203)
32,610,537
27,130,334
59,740,871
(250,948)
59,489,923
(31,514,897)
(13,012,001)
(23,548,030)
—
3,308,920
(64,766,008)
Table of Contents
Income (loss) from operations
Exchange (loss) gain
Gain from deconsolidation of
subsidiaries
Interest income
Investment income (loss)
Income (loss) before taxes and gain
(loss) from equity in affiliates
Income tax expense
Gain (loss) from equity in affiliates
Net income (loss)
Net (loss) income attributable to non-
controlling interests
Net income (loss) attributable to
ordinary shareholders
Net income (loss) per share:
Basic
Diluted
Weighted average number of shares
used in computation:
Basic
Diluted
Selected Consolidated Balance
Sheet Data:
Cash and cash equivalents
Restricted cash
Short-term investments
Total current assets
Goodwill
Advanced payment for acquisition
Investment in affiliates
Total assets
Total current liabilities
Total liabilities
Total liabilities, mezzanine equity and
2016
RMB
294,805,008
(19,568)
—
3,712,918
12,619,887
311,118,245
(82,612,132)
1,539,316
230,045,429
2017
RMB
523,567,834
(2,040,641)
—
11,385,895
10,012,216
542,925,304
(122,998,509)
2,579,447
422,506,242
For the Years Ended December 31,
2019
RMB
(136,673,954)
3,409,000
2018
RMB
(159,942,913)
4,227,896
561,528
3,990,096
(292,384)
(151,455,777)
(129,855,367)
(113,486,155)
(394,797,299)
—
6,136,600
12,627,142
(114,501,212)
(52,944,639)
(5,015,063)
(172,460,914)
2020
RMB
(34,426,460)
2,382,302
—
5,162,441
(7,333,446)
(34,215,163)
(796,524)
(1,612,759)
(36,624,446)
US$
(5,276,085)
365,104
—
791,179
(1,123,900)
(5,243,702)
(122,073)
(247,166)
(5,612,941)
(22,461,561)
(13,014,063)
7,053,281
7,774,839
5,256,798
805,640
207,583,868
409,492,179
(387,744,018)
(164,686,075)
(31,367,648)
(4,807,301)
2016
RMB
2017
RMB
For the Years Ended December 31,
2019
RMB
2018
RMB
2020
RMB
US$
1.08
1.03
2.09
1.99
(1.93)
(1.93)
(0.82)
(0.82)
(0.16)
(0.16)
(0.02)
(0.02)
192,674,014
200,765,917
195,467,414
205,671,904
200,480,910
200,480,910
201,695,899
201,695,899
200,431,277
200,431,277
200,431,277
200,431,277
2016
RMB
2017
RMB
2018
RMB
2019
RMB
2020
RMB
US$
As of December 31,
1,123,166,156
—
25,210,000
1,473,455,429
277,752,765
77,560,000
85,830,444
2,128,054,419
482,937,736
579,783,669
1,527,777,270
—
23,203,612
1,908,518,999
261,621,691
—
181,922,556
2,626,087,778
697,973,210
772,219,777
1,298,565,042
4,000,000
4,723,612
1,582,067,319
297,031
—
67,262,431
1,980,494,033
588,906,112
613,345,198
711,205,698
1,100,000
—
826,608,777
—
—
107,541,000
1,549,746,943
317,182,550
350,930,835
630,416,786
26,819,159
—
754,714,381
—
—
100,341,909
1,411,402,316
241,511,488
266,840,367
96,615,599
4,110,216
—
115,665,039
—
—
15,378,070
216,306,868
37,013,255
40,895,075
equity
2,128,054,419
2,626,087,778
1,980,494,033
1,549,746,943
1,411,402,316
216,306,868
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Selected Consolidated Cash Flow
Data:
Net cash provided by (used in)
operating activities
Net cash provided by (used in)
investing activities
Net cash provided by (used in)
financing activities
Effect of exchange rate changes
Net increase (decrease) in cash, cash
equivalents and restricted cash
Cash, cash equivalents and restricted
cash at beginning of period
Cash, cash equivalents and restricted
cash at end of period
2016
RMB
2017
RMB
For the Years Ended December 31,
2019
RMB
2018
RMB
2020
RMB
US$
188,263,729
617,527,056
(67,721,633)
(213,255,822)
535,459
82,063
1,878,091
(74,041,982)
(40,881,690)
(365,663,454)
(32,428,482)
(4,969,882)
114,406,429
23,120,744
(121,147,657)
(17,726,303)
(121,429,521)
4,820,616
29,636
(11,369,704)
(7,085,100)
(16,091,630)
(1,085,839)
(2,466,151)
327,668,993
404,611,114
(225,212,228)
(590,259,344)
(55,069,753)
(8,439,809)
795,497,163
1,123,166,156
1,527,777,270
1,302,565,042
712,305,698
109,165,624
1,123,166,156
1,527,777,270
1,302,565,042
712,305,698
657,235,945
100,725,815
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Related to Our Business and Industry
Our operating history and track record may not be indicative of our future performance and prospects.
Our business model has evolved over our operating history. We commenced our wealth management services to distribute wealth management products in July 2010. We
refer to “wealth management product” as an investment venture in which investors participate for wealth preservation or appreciation. We started from January 2013 to provide
asset management services, including management of real estate or related funds and other fund products, to complement our wealth management product advisory services. After
several years of growth prior to 2017, our net revenues decreased to RMB1.3 billion in 2018, RMB0.8 billion in 2019 and RMB0.4 billion (US$59.5 million) in 2020. Therefore,
our historical performance may not be indicative of our future performance, especially if we are unable to maintain and further improve our wealth management product advisory
and asset management capabilities to achieve our clients’ expectation of the investment returns.
Prior to 2015, substantially all of our revenue was attributable to one-time commissions and recurring service fees generated through our wealth management product
related services. However, these revenues may not grow at the same rate as it had in the past. For example, our revenues from one-time commissions was RMB162.2 million
(US$24.9 million) in 2020, representing a decrease of 49.1% from 2019. In addition, we cannot assure you that businesses from asset management and other services will continue
to grow or our attempts to further expand our service offerings will be successful. While the deleveraging-related policy-tightening and uncertainties related to the trade conflict
between the United States and China and the COVID-19 outbreak contributed to the slow-down of economic growth, the aggregate value of wealth management products we
distributed decreased by 34.3% from RMB9.8 billion in 2019 to RMB6.5 billion (US$1.0 billion) in 2020.
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In addition, the development of our business will primarily depend on the demand for our services and products. Any failure on our part to keep up with the development
of the wealth management service and asset management service sectors or our failure to respond to product innovation may materially and adversely affect the growth of our
business.
You should consider our prospects in light of the risks and uncertainties that companies with limited operating histories may encounter.
We may not be able to effectively manage our growth or implement our future business strategies, in which case our business and results of operations may be materially and
adversely affected.
Our business growth and expansion has placed, and may continue to place, significant strain on our management and resources. Factors relating to our business that may
impact our growth and cause fluctuations include:
· a decline or slowdown of the growth in the value of products we distribute or manage;
· a reduction of the value of our invested assets and the investment returns credited to investors, which could reduce revenues from the asset management services;
· changes in laws or regulatory policies that could impact our ability to provide wealth management product advisory services and/or asset management services to
our clients;
· negative publicity regarding the financial services industry in China;
· unanticipated delays of product or service rollouts;
· unanticipated changes to economic terms in contracts with our wealth management product providers, including renegotiations that may not be favorable to us or
our clients;
· failure to enter into contracts with new wealth management product providers and cancellations of existing contracts with wealth management product providers;
· increases in the number of clients who decide to terminate their relationship with us or who ask us to redeem their investment in the products that we distribute;
and
· continued volatility or declines in the equity, debt or real estate markets that reduce the assets under our management and may result in the clients’ withdrawing
their investments.
We believe that it will depend on our ability to effectively implement our business strategies and address the above listed factors that may affect us to achieve future
growth.
In order to strengthen our market position in the third-party wealth management service industry in China, we need to allocate substantial resources to design and develop
high-quality products, enhance our ability to source and distribute third-party wealth management products and continue to grow our asset management business, all of which
require us to further expand, train, manage and motivate our workforce and maintain our relationships with our clients, third-party product developers, corporate borrowers, and
other industry players such as financial institutions and asset management companies. Our capital expenditure may increase due to establishment of additional offices and client
centers so as to increase our market penetration. We anticipate that we will also need to implement a variety of enhanced and upgraded operational and financial systems,
procedures and controls, including the improvement of our accounting and other internal management systems. All of these endeavors involve risks and will require substantial
management efforts, attention and skills, and significant additional expenditure. We cannot assure you that our current and planned personnel, systems, procedures and controls will
be adequate to support our future operations. In addition, we cannot assure you that we will be able to manage our growth or implement our future business strategies effectively,
and failure to do so may materially and adversely affect our business and results of operations.
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We may fail to obtain and maintain licenses and permits necessary to conduct our operations in China, and our business may be materially and adversely affected as a result of
any changes in the laws and regulations governing the financial services industry in China.
The laws and regulations governing the financial services industry in China are still evolving. Substantial uncertainties exist regarding the regulatory system and the
interpretation and implementation of current and any future PRC laws and regulations applicable to the financial services industry and companies that operate wealth management
or asset management businesses. In the past, depending on the type of products and services being offered, our business operations may be subject to the supervision and scrutiny
by different authorities. On April 27, 2018, the People’s Bank of China, or the PBOC, the China Banking and Insurance Regulatory Commission, or the CBIRC, the China
Securities Regulatory Commission, or the CSRC, and the State Administration of Foreign Exchange, or SAFE, jointly issued Guidance on Asset Management Business of
Financial Institutions, or the Asset Management Guidance. On October 22, 2018, the CSRC promulgated (i) the Administration Measures on Privately Offered Asset Management
Business of Securities and Futures Operation Institutions, or the Asset Management Administration Measures, and (ii) the Administration Measures on Operation of Privately
Offered Asset Management Plan of Securities and Futures Operation Institutions, or the Asset Management Plan Operation Measures. The Asset Management Guidance, the Asset
Management Administration Measures and the Asset Management Plan Operation Measures, or collectively the New Asset Management Measures, constitute a unified regulatory
framework governing the distribution and management of privately offered asset management products. The New Asset Management Measures prescribed the minimum
investment ratio for different kinds of asset management products, set standards for qualified investors and minimum subscription amount, prohibiting “cash pooling” business,
unified ratio for provision of risk reserves, the liability proportion of each asset management product, regulating graded products type and leverage, prohibiting the implicit
guarantee of the minimum amount of return, the break-even return of principal or the minimum amount or rate of loss to investors, eliminating multilayer asset management
products and “channel” service, and controlling the concentration of investment of the assets management products managed by financial institutions.
On November 8, 2019, the Supreme People’s Court released the Summaries of the National Conference for the Work of Courts in the Trial of Civil and Commercial Cases,
or the Summaries, which, among others, imposes additional obligations on institutional sellers, including but not limited to additional suitability obligations and additional
information disclosure and explanation obligations to financial customers. According to the Supreme Court’s Summaries, institutional sellers include issuers of financial products,
sellers of financial products, and financial services providers. Each institutional seller has suitability obligations, which refer to the obligations to know the customers, know the
products and sell or provide appropriate financial products or services to a suitable financial consumer, where the institutional sellers are obliged to perform their duties in the sale
of, among others, high-risk financial products such as bank wealth management products, insurance investment products, trust wealth management products, brokerage collective
wealth management plans, leveraged fund shares, options and other over-the-counter derivatives to financial consumers. Under certain circumstances, an issuer of financial product
and a seller of financial product may be deemed jointly and severally liable for the losses suffered by the financial customers due to their purchase of such financial product, if
either of the issuer or the seller of the financial product fails to perform its corresponding suitability obligations to the financial customers. If any financial customers suffer the
losses in the purchase of any financial products, resulted from any financial services provider’s failure to perform the suitability obligations, the financial services providers are
obliged to compensate the financial customers for their losses. When deciding if an institutional seller has fulfilled its information disclosure and explanation obligations to
financial customers, the court may combine the objective standard, meaning that if a rational person could understand, together with a subjective standard, meaning that if a
financial customer could understand, based on the risk of the financial products and investment activities and the actual condition of the financial consumer in question. The
Supreme Court’s Summaries is the practical guidance for the courts when handling disputes relating to certain newly emerged issues in civil and commercial trials.
On December 28, 2019, the Standing Committee of the National People’s Congress has enacted the amended Securities Law of the PRC, which came into effect on
March 1, 2020. The amended Securities Law of the PRC provides that, among others, asset management products should be deemed as securities and the rules of issuance and
trading of asset management products should be set out by the State Council. Therefore, the regulations relating to asset management plans and mutual funds are expected to be
further changed in accordance with the amended Securities Law of the PRC in the future.
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In addition, there are laws and regulations governing certain wealth management products that we distribute or manage, such as private equity products, private securities
investment funds, trust products and insurance products. New laws and regulations may be adopted to require additional licenses and permits. Our business may be adversely
affected if the relevant authorities enhance their scrutiny over the wealth management products we distribute or manage.
We cannot assure you that we will be able to maintain our existing licenses or permits, renew any of them when their current term expires or obtain additional licenses
necessary for our future business expansion. For example, currently, a license is required for sales of asset management plans, mutual funds, and other financial products. We sell
mutual fund products and asset management plans relying on a license that was issued by the CSRC to Shanghai Jupai Yumao Fund Sales Co., Ltd., or Yumao, a subsidiary of
Shanghai Jupai Investment Group Co., Ltd., or Shanghai Jupai, in December 2014 to sell mutual fund products or other regulated fund products. We refer to “mutual fund” as a
securities investment fund as defined under the PRC Law on Securities Investment Fund, which raises capital through public offerings of fund shares within China, and the related
capital are managed by fund managers and placed in the custody of fund custodians, and invested in securities portfolios for the holders of fund shares. We cannot assure you that
we will be able to maintain our license to sell mutual fund products or other regulated fund products.
On August 28, 2020, the CSRC promulgated the Supervision Measures on Public Offering Securities Investment Funds Sales Agencies and its implementation
rules (collectively, the “New Sales Agency Measures”), pursuant to which, among others, marketing and promoting mutual funds are deemed to be fund selling activities, thus
requiring a securities and futures operation license, and independent sales agencies may only sell mutual funds and private securities investment funds unless otherwise approved
by the CSRC. If our facilitation and ancillary consulting services are deemed as marketing and promotion of funds by the relevant governmental authorities pursuant to the New
Sales Agency Measures, we may be required to apply for a securities and futures operation license for entities providing facilitation and ancillary consulting services or otherwise
adjust our business operation. The license currently held by Yumao in respect of selling mutual fund products and private security investment funds was issued by the CSRC on
November 1, 2019 and will remain valid until November 1, 2022. To comply with the requirements under the New Sales Agency Measures, Yumao have adopted various
rectification measures, including but not limited to updating the network information technology system, changing the types of products and adjusting the general sale strategy. As
an independent sales agency, Yumao is required to continually reduce the scale of products sold other than mutual funds and private security investment funds in the two-year
rectification period starting from October 1, 2020. After this two-year rectification period, Yumao may be allowed to provide services relating to products other than mutual funds
and private security investment funds for investors who hold the relevant legacy products. If Yumao fails to meet these requirements, including failure to continuously meet
fundamental business operation conditions, failure to carry out mutual fund sales business and the average daily sales volume of funds (excluding money market funds) in the most
recent fiscal year being less than RMB500.0 million, Yumao may fail to renew its license after it expires and may not continue conducting the current business. As a result, our
business, results of operations and prospects would be adversely affected.
Furthermore, new laws and regulations may impose additional restrictions on our business operations. For example, in January 2018, the Asset Management Association
of China, or the AMAC, issued the Notice regarding Filing of Private Investment Fund, or the Filing Notice, which provides that, among others, private investment funds should
not make debt investments, including (i) investing in private loans, small loans or factoring facilities or other assets or beneficiary interests of which the nature is borrowing;
(ii) lending money through entrusted bank loans or trusts; and (iii) conducting the aforementioned activities through the form of special purpose vehicle or investment enterprise. If
the underlying assets of a private investment funds are debt, such private investment funds will not be able to complete the filing with the AMAC. Before the release of the Filing
Notice, a majority of the private investment funds managed by us invest in corporate bonds with underlying assets as real estate projects. Starting from February 2018, we have
ceased to make any new investment in debt assets through our private investment funds and have started to focus on equity investment in real estate developers with high quality
real estate projects. We cannot assure you that after such adjustment our private investment fund will continue to be well received by our clients or will receive the investment
return as we expect, or at all.
On September 30, 2018, the AMAC issued the Notice on Strengthening Self-Regulatory Administration of Information Disclosure by Private Investment Fund, which
emphasizes the information disclosure obligations of private fund manager. In December 2018, the AMAC updated Notice for Registration of Private Fund Manager. The notice,
among others, further clarifies the requirements for new private fund manager applicant, including the authenticity and stability of shareholders and related parties, and the
requirements of continuous operation and internal control for registered private fund manager.
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On December 23, 2019, the AMAC issued the Filing Notice on Privately Offered Investment Funds, or the 2019 Filing Notice, which clarifies, among others, that the
negative scope of financial products that are unable to be registered as private investment funds and the special filing or registration requirements on different types of private
investment funds. The 2019 Filing Notice further emphasizes, among others, that (i) the fund manager or any of its actual controller, shareholder, affiliates or fundraising agencies
is prohibited to promise the minimum amount of return, the break-even return of principal or the minimum amount or rate of loss to investors; and (ii) the fund manager is
prohibited to set up several investment units or tranches in the private investment funds, which accept investments from different investors and make investments in different assets
for the purposes of avoiding any filing or registration obligation.
In the event that we are found to be not in full compliance with the changing regulatory requirements on private fund manager and private investment fund, we may incur
significantly increased costs and expenses and may need to allocate additional resources to gain compliance. We cannot assure you that we will be able to make the required
adjustment in a timely manner if needed, failure of which will materially affect our operations.
The overall regulatory conditions in China would also affect our business and financial condition. For example, in 2018, the PRC government authorities issued a series of
banking policies to control the leverage ratio, which have adversely affected the liquidity of capital in the market. Under such circumstance, the investment demand of our clients
and the financial performance of certain wealth management products we distributed may be adversely affected, which may in turn adversely affect our results of operations.
If any future PRC regulations require us to obtain additional licenses or permits, adjust our business strategies or change our products or services in order to continue to
conduct our business operations, we cannot assure you that we would be able to do so in a timely manner, or at all. If any of these situations occur, our business, financial condition
and prospects would be materially and adversely affected. See “Item 4. Information on the Company—B. Business Overview—Regulation.”
We may not be able to continue to retain or expand our high-net-worth client base or maintain or increase the amount of investment made by our clients in the products we
distribute.
We target China’s large population of high-net-worth individuals as our clients. As the wealth management industry for high-net-wealth individuals in China is ever-
evolving, we cannot assure you that we will be able to maintain and increase the number of our clients or our existing clients will maintain the same level of investment in the
wealth management products that we distributed to them. As this industry in China is at an early stage of development and highly fragmented and has low barriers to entry, our
existing and future competitors may be better equipped to capture market opportunities and grow their client bases faster than us. In addition, the evolving regulatory landscape of
China’s financial service industry may not affect us and our competitors proportionately with respect to the ability to maintain or grow our client base. We may lose our leading
position if we fail to maintain or further grow our client base at the same pace. A decrease in the number of our clients or a decrease in their spending on the products that we
distribute may reduce revenues derived from commissions and recurring service fees and monetization opportunities for our asset management services. If we fail to continue to
meet our clients’ expectations on the returns from the products we distribute or manage or if they are no longer satisfied with our services, they may leave us for our competitors
and our reputation may be damaged by these clients, affecting our ability to attract new clients, which will in turn affect our financial condition and operational results.
If we cannot identify or effectively control the various risks involved in the wealth management products that we distribute or manage, our reputation, client relationships and
overall business operations will be adversely affected.
We distribute a broad selection of third-party and self-developed wealth management products, including fixed income products, private equity and venture capital funds,
public market products, insurance products and foreign-currency denominated alternative investments, for which we may generate revenue based on one-time commissions and
recurring fees. These products often have complex structures and involve various risks, including default risks, interest risks, liquidity risks and others. In addition, we are subject
to risks arising from any potential misconduct or violation of law by the product providers or corporate borrowers. Although, the product providers or corporate borrowers of the
wealth management products we distributed are typically directly liable to our clients in the event of a product default or otherwise, these incidences may negatively impact the
performance of the applicable products that we distribute and adversely affect our reputation. Our success in maintaining our brand image depends, in part, on our ability to
effectively control the risks associated with these products. Our wealth management product advisors not only need to understand the nature of the products but also need to
accurately describe the products to, and evaluate them for, our clients. Although we enforce and implement strict risk management policies and procedures, they may not be fully
effective in mitigating the risk exposure of our clients in all market environments or against all types of risks.
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If we fail to identify and effectively control the risks associated with the products that we distribute or manage, or fail to disclose such risks to our clients in a sufficiently
clear manner, and as a result our clients suffer financial loss or other damages resulting from their purchase of the wealth management products following our recommendations,
our reputation, client relationship, business and prospects will be materially and adversely affected. The poor performance of such products and services, whether self-developed or
sourced from third parties, or negative perceptions of the firms offering such products and services, may adversely:
· affect our distribution of such products and reduce our revenue;
· impact client confidence in the products we distribute; or
· impede the launch of new products or fund-raising activities in connection with our asset management business.
Any harm to our reputation or failure to further enhance our brand recognition may materially and adversely affect our business, financial condition and results of
operations.
Our reputation and brand recognition, including the brand of E-House Capital, is critical to the success of our business. We believe a well-recognized brand is crucial to
increase our high-net-worth client base and, in turn, facilitate our effort to monetize our services and enhance our attractiveness to our clients and product providers. Our reputation
and brand are vulnerable to many threats that can be difficult or impossible to control and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits and
other claims in the ordinary course of our business, employee misconduct, perceptions of conflicts of interest and rumors, among other things, could substantially damage our
reputation, even if they are baseless or satisfactorily addressed.
Any perception that the quality of our wealth management product recommendations or the management capabilities of our fund products may not be the same as or better
than that of other wealth management advisory firms or product distributors or other asset management firms can also damage our reputation. For example, if the performance of
our fund of funds products or real estate or related fund products falls below expectations, they may be linked to negative perceptions that may damage our reputation and brand
recognition. Moreover, any negative media publicity about any of the products that we distributed, the financial services industry or wealth management service industry in general,
or product or service quality problems at other firms in the industry, including our competitors, may also negatively impact our reputation and brand. Negative perceptions of
certain financial products and services, or the financial industry in general, may increase the number of withdrawals and redemptions or reduce purchases made by our clients,
which would adversely impact our revenues and liquidity position.
If we are unable to maintain a good reputation or further enhance our brand recognition, our ability to attract and retain clients, wealth management product providers and
key employees could be harmed and, as a result, our business and revenues would be materially and adversely affected.
Our future success depends on our continued efforts to retain our existing management team and other key management as well as to attract, integrate and retain highly
skilled and qualified personnel, and our business may be disrupted if we lose their services.
Our future success depends heavily on the continued services of our current executive officers. If any of our executive officers or other key management are unable or
unwilling to stay in their present positions, we may not be able to find suitable replacements, which may disrupt our business operations. We do not have key personnel insurance in
place. If any of our executive officers or other key management joins a competitor or forms a competing company, we may lose clients, know-how, key professionals and staff
members. Each executive officer has entered into confidentiality and non-competition agreements with us. However, if any dispute arises between our executive officers and us, we
cannot assure you of the extent to which any of these agreements could be enforced in China, where these executive officers reside, because of the uncertainties of China’s legal
system. See “—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections
available to you and us.”
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We also rely on the skills, experience and efforts of our experienced service professionals, including our wealth management product advisors, client managers and
product development personnel. Our wealth management product advisors and client managers mainly recommend wealth management products. Our asset management personnel
also design our self-developed products. The investment performance of products distributed or managed by us and the retention of our clients are partly dependent upon the
strategies carried out and performance by our talents. The market for these talents is extremely competitive. If we are unable to attract and retain qualified individuals or our
recruiting and retention costs increase significantly, our financial condition and results of operations could be materially and adversely impacted.
Our acquisition of or investment in complementary businesses and assets as well as formation of strategic alliances involves significant risk and uncertainty that may prevent
us from achieving our objectives and harm our financial condition and results of operations.
We from time to time consider opportunities for strategic acquisitions or investments in complementary businesses and assets and strategic alliances. Over the past years,
we have made several acquisitions that are complementary to our business. See also “Item 4. Information on the Company—C. History and Development of the Company.” Our
future strategic acquisitions and investments could subject us to uncertainties and risks, including:
· costs associated with, and difficulties in, integrating acquired businesses and managing newly acquired business;
· potentially significant goodwill impairment charges;
· high acquisition and financing costs;
· potential ongoing financial obligations and unforeseen or hidden liabilities;
· failure to achieve our intended objectives, benefits or revenue-enhancing opportunities;
· potential claims or litigation regarding our board’s exercise of its duty of care and other duties required under applicable law in connection with any of our
significant acquisitions or investments approved by the board; and
· diversion of our resources and management attention.
Our failure to address these uncertainties and risks may affect our ability in implementing our acquisition strategies, which may in turn have a material adverse effect on
our liquidity, financial condition and results of operations. In the year ended December 31, 2020, we recorded impairment loss from equity in affiliates of RMB1.3 million (US$0.2
million) in connection with our equity interest in a non-controlling investee. We cannot guarantee that we will not incur increased impairment loss from any acquisition or
investment in the future, which may materially and adversely affect our financial condition and results of operations. In addition, we may not be able to complete proposed
acquisitions and the completed ones may not benefit our business as intended.
Our business may be materially and adversely affected by various fluctuations and uncertainties in China’s real estate industry, including government measures aimed at the
industry.
To date, all of the products that we distribute involve real estate or related assets. Historically, this concentration is predominantly among the fixed income products that
we distribute. The total transaction value of the fixed income products we distributed that have real estate developers as corporate borrowers accounted for 68%, 100% and 100% of
the total transaction value of all fixed income products we distributed in 2018, 2019 and 2020, respectively. Almost all of the total transaction value of all private equity and venture
capital products we distributed in 2020 were invested in real-estate related assets. The total transaction value of the real estate-related products we distributed (including fixed
income products and private equity and venture capital products) accounted for 79% of the total transaction value of all products we distributed in 2020. We expect that the real
estate or related products will continue to account for a significant portion of the products we distribute.
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The success of such products depends significantly on conditions in China’s real estate industry and more particularly on the volume of new property transactions in
China. Demand for private residential real estate in China has grown rapidly in recent years, but such growth is often coupled with volatility and fluctuations in real estate
transaction volume and prices.
The PRC government has from time to time taken measures to cool down the real estate market and to curb the increase of housing prices by requiring more stringent
implementation of housing price control measures. Such measures may depress the real estate market, dissuade potential purchasers from making purchases, reduce transaction
volume, cause a decline in selling prices, and prevent developers from raising the capital they need and increase developers’ costs to start new projects. In addition, we cannot
assure you that the PRC government will not adopt new measures in the future that may result in lower growth rates in the real estate industry. Frequent changes in government
policies may also create uncertainty that could discourage investment in real estate.
We are also susceptible to the risks inherent in the operation of real estate-related businesses and assets. These risks include those associated with general and local
economic conditions, changes in supply of and demand for competing properties in an area, natural disasters, changes in government regulations, changes in real property tax rates,
changes in interest rates, the reduced availability of mortgage funds, which may render the sale or refinancing of properties difficult or impracticable, and other factors that are
beyond our control. For example, due to the slow-down of economic growth, a number of the wealth management products linked to real estate that we distributed missed the due
date of the payment of return to the investors. Although we are not directly liable to our clients in the event of these product default and did not suffer direct economic losses arising
from such default, these incidences may harm our reputation and may impair the confidence of our clients in the wealth management products we distributed, which may impede
our ability to distribute new products in the future and may result in an increase in the withdrawal or redemption by the clients of existing products.
In February 2017, the AMAC, released the No. 4 Filing Rules to regulate real estate investments by the securities and futures institutions. According to the No. 4 Filing
Rules, private fund managers, such as our company, are required to follow relevant rules with respect to the investment in the real estate development enterprises or projects. See
“Item 4. Information on the Company—B. Business Overview—Regulation.” To comply with the No. 4 Filing Rules, we have adjusted our investment strategies and started to
increase our investment in real estate or related assets in the cities other than certain popular areas as specified in such rules. The AMAC and other regulatory authorities may
continue to release new rules and regulations which may impose additional restriction on our business or require us to adjust our current products, services or business practices. As
a result, our business, cash flow, or prospect could be materially and adversely affected.
If significant fluctuations occur in China’s real estate industry, or the risks inherent in the ownership and operation of real estate materialize, they may result in decreased
value and increased default rates of the wealth management products linked to real estate or the construction and development of the real estate that we distribute or manage, and
reduced interest of our clients in purchasing such products, which account for a significant portion of our product choices. As a result, our revenues from such products could be
adversely affected, which in turn may materially and negatively affect our overall financial condition and results of operations.
A drop in the investment performance for products distributed or managed by us, a decline in the value of the assets under our management or any decrease in our other
services could negatively impact our revenues and profitability.
Investment performance is a key competitive factor for products distributed or managed by us. Strong investment performance helps us to retain and expand our client
base and helps generate new sales of products and services. Strong investment performance is therefore an important element to our goals of maximizing the value of products and
services provided to our clients or the assets under our management. There can be no assurance as to how future investment performance will compare to our competitors or that
historical performance will be indicative of future returns. Any drop or perceived drop in investment performance as compared to our competitors could cause a decline in sales of
our investment products and services. These impacts may also reduce our aggregate amount of assets under management and management fees. Poor investment performance could
also adversely affect our ability to expand the distribution of third-party wealth management products and our self-developed products.
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In addition, the profitability of our asset management services depends on fees charged based on the value of assets under management. Any impairment on the value of
the assets we manage, whether caused by fluctuations or downturns in the underlying markets or otherwise, will reduce our revenues generated from asset management business,
which in turn may materially and adversely affect our overall financial performance and results of operations.
Starting from 2016, we offered consulting services to some peer firms in the asset management industry and other companies seeking for equity investments. Depending
on the availability of products suitable, we may not continue this line of services in the future. Furthermore, we negotiate our service fees with our counterparts on a deal-by-deal
basis, adding to the level of uncertainty in our revenues from this business.
If we breach the contractual obligations under the fund management documents or fiduciary duties we owe to the fund counterparties in connection with our asset
management services, our results of operations will be adversely impacted.
While our asset management business has experienced substantial growth in general since 2013, our assets under management has experienced decrease since 2019, due to
the uncertainty of macro-economic conditions and rapid changes in regulatory regime of the industry. Our assets management business may continue to suffer in the coming year if
the macro economic factors affecting our business do not have material changes in a positive way. However, we intend to further develop our fund management business by
offering and managing a broader variety of funds, including funds related to real estate, funds of securities investment funds, and funds of fixed income funds.
Our asset management business involves inherent risks. For some of the funds that we self-develop or manage, such as contractual funds, we may be exposed to indemnity
or other legal liabilities if we are deemed to have breached our legal obligations as fund managers under the fund management documents or fund subscription agreements, and are
therefore susceptible to legal disputes and potentially significant damages. In cases where we serve as the general partner or co-general partner for the funds that are in the form of
limited partnership, we are required to manage the funds for the limited partners or the investors. We may be removed by the limited partners without cause by their exercising their
kick-out rights if they are not satisfied with our services in the roles of general partner or co-general partner of the funds. If we are deemed to have breached our fiduciary duty, we
may be exposed to risks and losses related to legal disputes. We could also experience losses on our principal for funds invested by us and the entity as the general partner shall bear
unlimited joint and several liabilities for the debts of any fund managed by it out of all its assets. We cannot assure you that our efforts to further develop the fund management
business will be successful. If our asset management business fails, our future growth may be materially and adversely affected and our reputation and credibility may be damaged
among high-net-worth individuals, which in turn may affect our wealth management product advisory services business.
Our risk management policies and procedures may not be fully effective in identifying or mitigating risk exposure in all market environments or against all types of risk,
including employee and financial advisor misconduct.
We have devoted significant resources to developing our risk management policies and procedures and will continue to do so. Nonetheless, our policies and procedures to
identify, monitor and manage risks may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. Many of our risk management
policies are based upon observed historical market behavior or statistics based on historical models. During periods of market volatility or due to unforeseen events, the historically
derived correlations upon which these methods are based may not be valid. As a result, these methods may not predict future exposures accurately, which could be significantly
greater than what our models indicate. This could cause us to incur investment losses or cause our hedging and other risk management strategies to be ineffective. Other risk
management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that are publicly available or otherwise
accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated.
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Moreover, we are subject to the risks of errors and misconduct by our employees and advisors, which include:
· engaging in misrepresentation or fraudulent activities when marketing or distributing wealth management products to clients;
· improperly using or disclosing confidential information of our clients, third-party wealth management product providers or other parties;
· concealing unauthorized or unsuccessful activities; or
· otherwise not complying with laws and regulations or our internal policies or procedures.
Although we have established an internal compliance system to supervise service quality and regulation compliance, these risks may be difficult to detect in advance and
deter, and could harm our business, results of operations or financial performance.
In addition, although we perform due diligence on potential clients, we cannot assure you that we will be able to identify all the possible issues based on the information
available to us. If certain investors do not meet the relevant qualification requirements for products we distribute or under applicable laws, we may also be deemed in default of the
obligations required in our contract with the product providers. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to
properly record and verify a large number of transactions and events, and these policies and procedures may not be fully effective in mitigating our risk exposure in all market
environments or against all types of risk.
Non-compliance on the part of third parties with which we conduct business could disrupt our business and adversely affect our results of operation.
Our third-party wealth management product providers or other business counterparties may be subject to regulatory penalties or punishments because of their regulatory
compliance failures, which may affect our business activities and reputation and in turn, our results of operations. Although we conduct due diligence on our business
counterparties, we cannot be certain whether any such counterparty has infringed or will infringe any third parties’ legal rights or violate any regulatory requirements. We require
the business counterparties in the financial services industry to provide their licenses, permits or filing documents in respect of the wealth management products before we
distribute their products, but we cannot assure you that these counterparties will continue to maintain all applicable permits and approvals, and any noncompliance on the part of
these counterparties may cause potential liabilities to us and in turn disrupt our operations.
The impairment or negative performance of other financial services companies could adversely affect us.
We routinely work with counterparties in the financial services industry, including asset management companies, trust companies, insurers and other institutions, when
providing our services. A decline in the financial condition of one or more financial services institutions may expose us to credit losses or defaults, limit our access to liquidity or
otherwise disrupt the operations of our businesses. While we regularly assess our exposure to different industries and counterparties, the performance and financial strength of
specific institutions are subject to rapid change, the timing and extent of which cannot be known.
Downgrades in the credit or financial strength ratings assigned to the counterparties with whom we transact or other adverse reputational impacts to such counterparties
could create the perception that our financial condition will be adversely impacted as a result of potential future defaults by such counterparties. As a result, our operations and
financial performances may be adversely impacted.
Any material decrease in the commission and fee rates for our services may have an adverse effect on our revenues, cash flow and results of operations.
We derive a significant portion of our revenues from commissions and recurring fees paid by wealth management product providers and corporate borrowers when our
clients invest in the products we distribute. The commission and recurring fee rates are set by such product providers and corporate borrowers or negotiated between such parties
and us, and vary from product to product. Although the fee rates within any given category of the products we distribute remained relatively stable during the applicable periods
referenced in this annual report, future commission and recurring fee rates may be subject to change based on the prevailing political, economic, regulatory, taxation and
competitive factors that affect product providers or corporate borrowers. These factors, which are not within our control, include the capacity of product providers to place new
business and realize profits, client demand and preference for wealth management products, the availability of comparable products from other product providers at a lower cost,
the availability of alternative wealth management products to clients and the tax deductibility of commissions and fees. In addition, the historical volume of wealth management
products that we distributed or managed may have a significant impact on our bargaining power with third-party wealth management product providers in relation to the
commission and fee rates for future products. Because we do not determine, and cannot predict, the timing or extent of commission and fee rate changes with respect to the wealth
management products, it is difficult for us to assess the effect of any of these changes on our operations. In order to maintain our relationships with the product providers and to
enter into contracts for new products, we may have to accept lower commission rates or other less favorable terms, which could reduce our revenues. Although we believe that
substitute third-party providers for most of the wealth management products we distribute are generally available, if some of our key wealth management product providers decide
not to enter into new contracts with us, or our relationships with them are otherwise impacted, our business and operating results could be materially and adversely affected.
Furthermore, as we continue to grow our asset management services, we may face similar fee rates risk in connection with our asset management services.
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We derive a substantial portion of our revenues from several affluent cities in China, and we face market risk due to our concentration in these cities.
As of December 31, 2020, we derived our revenues from 31 client centers in 30 affluent cities in mainland China and Hong Kong. In 2020, approximately 10.4% of our
total net revenues were derived from Shanghai and Hangzhou. We expect these two urban centers to continue to be important sources of revenues. If any of these major urban
centers experiences an event that negatively impacts the local real estate or financial industries, such as a serious economic downturn or contraction, a natural disaster, or slower
growth due to adverse governmental policies or otherwise, demand for our services could decline significantly and our business and growth prospects could be materially and
adversely impacted.
We may face increased competition and if we are unable to compete successfully, we could lose our market share and our results of operations and financial condition may be
materially and adversely affected.
The wealth management market in China is at an early stage of development and is highly fragmented. As the industry develops, we may face increased competition. In
distributing wealth management products, we face direct competition primarily from other third-party wealth management service providers, such as Noah Holdings Limited
(NYSE: NOAH). We also compete with many local PRC commercial banks and insurance companies that have their own wealth management teams and sales forces to distribute
their products.
In addition, there is a risk that we may not successfully identify new product and service opportunities or develop and introduce these opportunities in a timely and cost-
effective manner. New competitors that are better adapted to the wealth management service industry may emerge, which could cause us to lose market share in key market
segments.
Our competitors may have better brand recognition, stronger market influence, greater financial and/or marketing resources. For example, the commercial banks we
compete with tend to enjoy distribution advantages due to their nationwide distribution networks, longer operating histories, broader client bases and settlement capabilities. A
number of commercial banks have established subsidiaries to distribute wealth management products. Moreover, many wealth management product providers with whom we
currently have relationships, such as commercial banks and trust companies, are also engaged in, or may in the future engage in, the distribution of wealth management products
and may benefit from the integration of wealth management products with their other product offerings.
In addition, in the asset management service sector, we may face competition from mutual fund management companies and securities firms that have emerged or will
emerge in the asset management business in China in the foreseeable future. With an increasing portion of wealth management products being distributed through online or mobile
platforms, we expect we may potentially compete with an increasing number of internet finance enterprises.
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Any failure to protect our clients’ privacy and confidential information could lead to legal liability, adversely affect our reputation and have a material adverse effect on our
business, financial condition or results of operations.
Our services involve the exchange, storage and analysis of highly confidential information, including detailed personal and financial information regarding our high-net-
worth clients, through a variety of electronic and non-electronic means, and our reputation and business operations are highly dependent on our ability to safeguard the confidential
personal data and information of our clients. We rely on a network of process and software controls to protect the confidentiality of data provided to us or stored on our systems. We
face various security threats on a regular basis, including cyber-security threats to and attacks on our technology systems that are intended to gain access to our confidential
information, destroy data or disable our systems.
If we do not take adequate measures to prevent security breaches, maintain adequate internal controls or fail to implement new or improved controls, this data, including
personal information, could be misappropriated or confidentiality could otherwise be breached. We could be subject to liability if we fail to prevent security breaches, improper
access to, or inappropriate disclosure of, any client’s personal information, or if third parties are able to illegally gain access to any client’s name, address, portfolio holdings, or
other personal and confidential information. Although we have developed systems and internal control processes that are designed to prevent or detect security breaches and protect
our clients’ data, we cannot assure you that such measures will provide absolute security. Any such failure could subject us to claims for identity theft or other similar fraud claims
or claims for other misuses of personal information, such as unauthorized marketing or unauthorized access to personal information. In addition, such events would cause our
clients to lose their trust and confidence in us, which may result in a material adverse effect on our business, results of operations and financial condition.
We may not be able to prevent unauthorized use of our intellectual property, which could reduce demand for the products that we distribute and our services, adversely affect
our revenues and harm our competitive position.
We rely primarily on a combination of copyright, trade secret, trademark and anti-unfair competition laws and contractual rights to establish and protect our intellectual
property rights. We cannot assure you that the steps we have taken or will take in the future to protect our intellectual property or piracy will prove to be sufficient. For example,
although we require our employees, wealth management product providers and others to enter into confidentiality agreements in order to protect our trade secrets, other proprietary
information and, most importantly, our client information, these agreements might not effectively prevent disclosure of our trade secrets, know-how or other proprietary
information and might not provide an adequate remedy in the event of unauthorized disclosure of such confidential information. In addition, others may independently discover
trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Implementation of intellectual property-related laws in
China has historically been lacking, primarily due to ambiguity in the PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protection
in China may not be as effective as in the United States or other countries. Current or potential competitors may use our intellectual property without our authorization in the
development of products and services that are substantially equivalent or superior to ours, which could reduce demand for our solutions and services, adversely affect our revenues
and harm our competitive position. Even if we were to discover evidence of infringement or misappropriation, our recourse against such competitors may be limited or could
require us to pursue litigation, which could involve substantial costs and diversion of management’s attention from the operation of our business.
We may face intellectual property infringement claims, which could be time-consuming and costly to defend and may result in the loss of significant rights by us.
Although we have not been subject to any material litigation, pending or threatened, alleging infringement of third parties’ intellectual property rights, we cannot assure
you that such infringement claims will not be asserted against us in the future. Some third parties may own technology patents, copyrights, trademarks, trade secrets and Internet
content, which they may use to assert claims against us. We require our advisors, managers and relevant staff to sign agreements upon joining our company, to undertake to follow
certain procedures designed to reduce the likelihood that we may use, develop or make available any content or applications without the proper licenses or necessary third party
consents. However, these procedures may not be effective in completely preventing the unauthorized posting or use of copyrighted material or the infringement of other rights of
third parties.
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Intellectual property litigation is expensive and time-consuming and could divert resources and management attention from the operation of our business. If there is a
successful claim of infringement, we may be required to alter our services, cease certain activities, pay substantial royalties and damages to, and obtain one or more licenses from
third parties. We may not be able to obtain those licenses on commercially acceptable terms, or at all. Any of those consequences could cause us to lose revenues, impair our client
relationships and harm our reputation.
Legal or administrative proceedings or allegations against us or our management could have a material adverse impact on our reputation, results of operations, financial
condition and liquidity.
We have not been subject to legal or administrative proceedings or third-party allegations historically which were likely to have had a material adverse effect on our
business, financial condition or results of operations. We have been, and may from time to time in the future become, a party to such proceedings or claims arising in the ordinary
course of our business. Any lawsuit or allegation against us, with or without merit, or any perceived unfair, unethical, fraudulent or inappropriate business practice by us or
perceived wrong doing by any key member of our management team could harm our reputation, distract our management from day-to-day operations and cause us to incur
significant expenses in the defense of such matters. A substantial judgment, award, settlement, fine, or penalty may generate negative publicity against us and could be materially
adverse to our operating results or cash flows for a particular future period, depending on our results for that period. This risk may be heightened during periods when credit, equity
or other financial markets are volatile, or when clients or investors are experiencing losses.
If we fail to maintain our relationship with E-House and SINA, our business and results of operations could be materially and adversely affected.
Both E-House (China) Holdings Limited, or E-House, and SINA Corporation (Nasdaq: SINA), or SINA, are our existing principal shareholders and are strategically
significant for our business and they may help us grow our real estate or real estate-related wealth management products and expand our presence online. By leveraging our
partnerships with E-House and SINA, we seek to capture new business opportunities and increase our addressable markets by exploring and entering into the online third-party
wealth management and asset management markets. To a certain extent, we rely on continued cooperation with them to develop, innovate and diversify our products offerings.
Either of E-House and SINA could, at any time, reduce its support for our business. In addition, their dual role as our substantial shareholders and contractual counterparty could
result in conflicts of interest. If for any reason E-House or SINA reduces its support for our real estate or related wealth management products and our online services, our business
may be materially and adversely affected.
We are required to register our client centers outside of our corporate residence address as branch offices under PRC law and any failure to do so may subject our centers to
shut-down or penalties.
Under PRC law, a company setting up premises for business operations outside its residence address must register the premises as branch offices with the competent local
market regulation bureau and obtain business licenses for them as branch offices. We have 31 client centers in 30 cities across China and overseas as of December 31, 2020. As of
March 31, 2021, two of these client centers in their relevant cities have not been registered as branch offices, and the net revenues attributable to these centers in the aggregate
accounted for 2.7%, 0.8% and 0.6% of our net revenues in 2018, 2019 and 2020, respectively. We are in the process of applying for the registration of these client centers, and we
cannot assure you whether the registration can be completed in a timely manner. Although we have not been subject to any query or investigation by any PRC government authority
regarding the absence of such registration, if the PRC regulatory authorities determine that we are in violation of the relevant laws and regulations, we may be subject to penalties,
including fines, confiscation of income and suspension of operation. If we become subject to these penalties, our business, results of operations, financial condition and prospects
could be materially and adversely affected.
Our principal shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.
As of March 31, 2021, Mr. Jianda Ni, our chairman of the board of directors and chief executive officer, and Mr. Xin Zhou, a director of our company, beneficially own an
aggregate of approximately 35.3% of our total outstanding shares. As a result, Mr. Ni and Mr. Zhou have substantial influence over our business, including decisions regarding
mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Also, Mr. Tianxiang Hu and SINA hold
16.1% and 10.9% of our total outstanding shares as of March 31, 2021, respectively. Our principal shareholders may take actions that are not in the best interests of us or our other
shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to
receive a premium for their shares as part of a sale of our company and might reduce the price of our ADSs. These actions may be taken even if they are opposed by our other
shareholders, including those who hold ADSs. For more information regarding our principal shareholders and their affiliated entities, see “Item 6. Directors, Senior Management
and Employees—E. Share Ownership.”
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We have granted, and may continue to grant, share options and other share-based compensation in the future, which may materially impact our future results of operations.
As of March 31, 2021, options to purchase 15,642,600 ordinary shares and 9,937,100 restricted shares have been granted, and options to purchase 7,924,047 ordinary
shares and 1,342,296 restricted shares are outstanding under our currently effective incentive share plan. As a result of these grants and potential future grants under the plans, we
have incurred, and will incur in future periods, significant share-based compensation expenses. We account for compensation costs for all stock options using a fair-value based
method and recognize expenses in our consolidated statement of income in accordance with the relevant rules in accordance with U.S. GAAP, which may have a material adverse
effect on our net income. Any additional securities issued under share-based compensation schemes will dilute the ownership interests of our shareholders, including holders of our
ADSs. See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers.” We believe the granting of share-based compensation
is of significant importance to our ability to attract and retain key employees and consultants, and we will continue to grant share-based compensation to directors, employees or
consultants in the future.
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or
prevent fraud.
We are subject to the reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or the SEC, as required under Section 404 of the
Sarbanes-Oxley Act of 2002, has adopted rules requiring a public company to include a report of management on the effectiveness of such company’s internal control over
financial reporting in its annual report on Form 20-F. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the SEC, our management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 using criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial
reporting was effective as of December 31, 2020.
If we fail to achieve and maintain an effective internal control environment for our financial reporting, we may not be able to conclude on an ongoing basis that we have
effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. We may therefore need to incur additional costs and use additional management and
other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward. Moreover, effective internal control over financial
reporting is necessary for us to produce reliable financial reports. As a result, any failure to maintain effective internal control over financial reporting could result in the loss of
investor confidence in the reliability of our financial statements which in turn could negatively impact the trading price of our ADSs. Additionally, ineffective internal control over
financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory
investigations and civil or criminal sanctions.
We have limited insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Other than casualty
insurance on some of our assets, we do not have commercial insurance coverage on our other assets and we do not have insurance to cover our business or interruption of our
business, litigation or product liability. Moreover, the low coverage limits of our property insurance policies may not be adequate to compensate us for all losses, particularly with
respect to any loss of business and reputation that may occur. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such
insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured occurrence of loss or damage to property, litigation or business
disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.
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We face risks related to outbreaks of health epidemics, natural disasters, and other extraordinary events, which could significantly disrupt our operations and adversely affect
our business, financial condition or results of operations.
Our business could be adversely affected by the outbreak of Zika, Ebola, avian influenza, severe acute respiratory syndrome, or SARS, the influenza A (H1N1), H7N9,
COVID-19 or other epidemics. Any of such occurrences could cause severe disruption to our daily operations, and may even require a temporary closure of our offices. Such
closures may disrupt our business operations and adversely affect our results of operations. Our operation could also be disrupted if any of our employees were affected by such
health epidemics.
In the first quarter of 2020, outbreaks of COVID-19 resulted in the temporary closure of many corporate offices, retail stores, and manufacturing facilities across China.
Normal economic life throughout China was sharply curtailed. The population in most of the major cities was locked down to a greater or lesser extent and opportunities for
discretionary consumption were extremely limited. This outbreak led to temporary closure of our offices in many locations in February 2020 with a significant portion of our
employees working from home. For offices re-opened, we had taken measures to reduce the impact of this epidemic outbreak, including adjusting employees’ office hours to avoid
public transportations in rush hour and monitoring our employees’ health on a daily basis. We experienced lower work efficiency and productivity due to the measures we adopted,
which adversely affected our service quality, and our employees were not be able to respond to inquiries from our potential clients as timely as usual due to such lower work
efficiency, which further resulted in a lower-than-usual referral rate of our products. In addition, the outbreak caused delay or cancellation of our offline events and restrictions on
our employees’ ability to travel, which also adversely affected our business, results of operations and financial condition.
In 2020, as COVID-19 had negatively affected the broader Chinese economy and the global economy, China had experienced lower domestic consumption, higher
unemployment, severe disruptions to exporting of goods to other countries and greater economic uncertainty, which impacted our business in a materially negative way as our
clients were less inclined to invest in wealth management products. The operations of some of our business partners and service providers had also been constrained and impacted,
which also had a negative impact on our business.
In the fourth quarter of 2020, we witnessed a strong recovery in China’s overall economy, benefiting from the highly effective COVID-19 control measures and
resumption of production and business. However, there are still uncertainties about the economic recovery on a global scale due to the pandemic situation, and high net worth
individuals still remain cautious in their investment activities. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain
and cannot be predicted, and our business, results of operations and financial condition may be adversely and materially affected if the investors’ demand for wealth management
products reduces due to their less confidence in the outlook of economics, or if our business partners’ ability to consistently supply wealth management products and related
services is significantly impacted, which may negatively affect the amount of one-time commissions and other service fees that we are able to charge from them. However, we will
continue to incur costs for our operations, and therefore our financial condition and results of operations for the fiscal year of 2021 may be adversely and materially affected by the
COVID-19 outbreak.
Furthermore, the global spread of COVID-19 pandemic in a significant number of countries around the world has resulted in, and may intensify, global economic distress,
which may further adversely and materially affect our business, financial condition, results of operation and prospects.
We are also vulnerable to natural disasters and other calamities, including fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war,
riots, terrorist attacks, and any other severe weather conditions or similar event may give rise to loss of personnel, damages to property, server interruptions, breakdowns,
technology platform failures or internet failures, where our operations could be materially and adversely affected.
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A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.
COVID-19 had a severe and negative impact on the Chinese and the global economy in 2020. Whether this will lead to a prolonged downturn in the economy is still
unknown. Even before the outbreak of COVID-19, the global macroeconomic environment was facing numerous challenges. The growth rate of the Chinese economy had already
been slowing since 2010. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks
and financial authorities of some of the world’s leading economies, including the United States and China, even before 2020. Unrest, terrorist threats and the potential for war in the
Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the
surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and
China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in
domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese
economy may materially and adversely affect our business, results of operations and financial condition.
Any financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially and adversely affect our
business, financial condition and results of operations.
The global financial markets experienced significant disruptions in 2008 and the United States, European and other economies went into recession. The recovery from the
lows of 2008 and 2009 was uneven and the global financial markets are facing new challenges, including the escalation of the European sovereign debt crisis since 2011, the
hostilities in the Ukraine, the end of quantitative easing by the U.S. Federal Reserve and the economic slowdown in the Eurozone in 2014, the new tariff and trade policies imposed
by the U.S. to a number of markets in 2018 and 2019, and the U.K. exited the European Union in 2020 and the unsettled negotiation on post-exit arrangement. It is unclear whether
these challenges will be contained and what effects they each may have. Any financial or economic crisis or disruption, or perceived threat of such a crisis or disruption, might lead
to tighter credit markets, increased market volatility, sudden drops in business and market confidence and dramatic changes in business and consumer behaviors, which may
materially and adversely affect our business, financial condition and results of operations.
Risks Related to Our Corporate Structure
If the PRC government finds that the agreements that establish the structure for operating certain of our operations in China do not comply with PRC regulations relating to
the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to
relinquish our interests in those operations.
We sell mutual funds and asset management plans sponsored by mutual fund management companies from time to time. While the distribution of mutual funds and asset
management plans sponsored by mutual fund management companies is not explicitly categorized as restricted to foreign investment, a license is required for the direct sales of
mutual fund and asset management plans sponsored by mutual fund management companies. According to the Administration Measures on Securities Investment Fund Sales issued
by the CSRC, last amended on February 17, 2013, and came into effect on June 1, 2013, to apply for a mutual fund sales license, the shareholders of the applicant shall meet with
certain requirements, including, among others, to maintain a good track record for three consecutive financial years. According to the New Sales Agency Measures, which replaced
the former Administration Measures on Securities Investment Fund Sales, (i) the legal entity shareholders for an independent mutual fund sales agency who hold more than 5%
shares shall have the minimum net asset of RMB50.0 million, (ii) the legal entity controlling shareholder of an independent fund sales agency shall have the minimum total net
asset of RMB200.0 million and shall have been profitable for the last three financial years with sound operation and internal control, and (iii) the individual controlling shareholder
shall have the minimum total financial asset of RMB30.0 million and adequate working experience. In addition, there are financial condition requirements for controlling
shareholder and actual controller. Shareholders who are foreign entities shall be financial institutions with financial assets management or financial investment advisory experience,
and shall be in good standing. Our offshore entities do not meet the qualifications of foreign shareholders of an independent mutual fund sales agency. Therefore, in order to
conduct our direct sales services in the future, we have entered into contractual arrangements through Shanghai Juxiang Investment Management Consulting Co., Ltd., or Shanghai
Juxiang, which is one of our PRC subsidiaries, with Shanghai Jupai. Yumao, a wholly owned subsidiary of Shanghai Jupai, holds such license.
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Part of our business includes conducting market surveys, which is defined by the current Foreign Investment Catalogue as the collection and analysis of information
concerning the performance and prospects of certain commercial products and/or services. Market survey is categorized as restricted to foreign investment in the Special
Administration Measures for Access of Foreign Investment (Negative List) (2020 Version), or the Negative List, pursuant to which market survey is restricted to joint venture
enterprises. Because Shanghai Juxiang is unable to obtain such license, we conduct such activities through Shanghai Jupai, which, as a domestic PRC company, is not required to
obtain such license for market survey.
In terms of our asset management business, although foreign-invested enterprises incorporated in China are not expressly prohibited from providing asset management
services as private investment fund managers in China, in practice, when managing various funds, we may also need to invest in projects or funds at the same time. Some targeted
projects are listed in the Negative List as prohibited or restricted categories for foreign investment. Therefore, besides Shanghai Jupai, we provide asset management services
through contractual arrangements between Baoyi Investment Consulting (Shanghai) Co., Ltd., or Shanghai Baoyi, which is one of our PRC subsidiaries, and Shanghai E-Cheng
Asset Management Co., Ltd., or Shanghai E-Cheng.
Our contractual arrangements with Shanghai Jupai and Shanghai E-Cheng, and their respective shareholders enable us to (i) have power to direct the activities that most
significantly affect the economic performance of Shanghai Jupai and Shanghai E-Cheng; (ii) receive substantially all of the economic benefits from Shanghai Jupai and Shanghai
E-Cheng in consideration for the services provided by Shanghai Juxiang and Shanghai Baoyi, respectively; and (iii) have an exclusive option to purchase all or part of the equity
interests in Shanghai Jupai and Shanghai E-Cheng when and to the extent permitted by PRC law, or request any existing shareholder of Shanghai Jupai and Shanghai E-Cheng to
transfer any or part of the equity interest in Shanghai Jupai and Shanghai E-Cheng to another PRC person or entity designated by us at any time at our discretion. Because of these
contractual arrangements, we are the primary beneficiary of Shanghai Jupai and Shanghai E-Cheng and hence treat each of Shanghai Jupai and Shanghai E-Cheng as our VIE, and
consolidate their and their respective subsidiaries’ results of operations into ours.
If the PRC government finds that our contractual arrangements do not comply with its restrictions on foreign investment, or if the PRC government otherwise finds that
we, Shanghai Jupai, Shanghai E-Cheng or any of their respective subsidiaries or client centers are in violation of PRC laws or regulations or lack the necessary permits or licenses
to operate our business, the relevant PRC regulatory authorities, including the CSRC, would have broad discretion in dealing with such violations or failures, including, without
limitation:
· revoking our business and operating licenses;
· discontinuing or restricting our operations;
· imposing fines or confiscating any of our income that they deem to have been obtained through illegal operations;
· imposing conditions or requirements with which we or our PRC subsidiaries and consolidated entities may not be able to comply;
· requiring us or our PRC subsidiaries and consolidated entities to restructure the relevant ownership structure or operations;
· restricting or prohibiting our use of the proceeds from the initial public offering or other financing activities of Jupai Holdings Limited to finance the business and
operations of our VIEs and their respective subsidiaries; or
· taking other regulatory or enforcement actions that could be harmful to our business.
Any of these actions could cause significant disruption to our business operations, and may materially and adversely affect our business, financial condition and results of
operations. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of any of our consolidated
entities in our consolidated financial statements, if the PRC government authorities find our legal structure and contractual arrangements to be in violation of PRC laws, rules and
regulations. If any of these penalties results in our inability to direct the activities of Shanghai Jupai or Shanghai E-Cheng that most significantly impact its economic performance
and/or our failure to receive the economic benefits from Shanghai Jupai or Shanghai E-Cheng, we may not be able to consolidate Shanghai Jupai or Shanghai E-Cheng into our
consolidated financial statements in accordance with U.S. GAAP.
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We rely on contractual arrangements with our VIEs, and their respective shareholders for a portion of our China operations, which may not be as effective as direct ownership
in providing operational control.
We rely on contractual arrangements with our VIEs, Shanghai Jupai and Shanghai E-Cheng, and their respective shareholders to operate a portion of our operations in
China, including asset management services, market survey and the direct sale of mutual funds and asset management plans sponsored by mutual fund management companies.
These contractual arrangements may not be as effective as direct ownership in providing us with control over our VIEs. For example, our VIEs and their respective shareholders
could breach their contractual arrangements with us by, among other things, failing to operate our business in an acceptable manner or taking other actions that are detrimental to
our interests. These risks exist throughout the period in which we operate our businesses through the contractual arrangements with our VIEs. If we were the controlling
shareholder of the VIEs with direct ownership, we would be able to exercise our rights as shareholders to effect changes to their board of directors, which in turn could implement
changes at the management and operational level. However, under the current contractual arrangements, as a legal matter, if our VIEs or their respective shareholders fail to
perform their obligations under these contractual arrangements, we may have to incur substantial costs to enforce such arrangements, and rely on legal remedies under PRC law,
including contract remedies, which may be time-consuming, unpredictable and expensive. If we are unable to enforce these contractual arrangements, or if we suffer significant
delay or other obstacles in the process of enforcing these contractual arrangements, our business and operations could be severely disrupted, which could materially and adversely
affect our results of operations and damage our reputation. See “—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and
regulations could limit the legal protections available to you and us.”
In 2018, 2019 and 2020, Shanghai Jupai, Shanghai E-Cheng and their respective subsidiaries and branches contributed 31%, 62% and 61% of our total net revenues,
respectively. In the event we are unable to enforce the contractual arrangements, we may not be able to have the power to direct the activities that most significantly affect the
economic performance of Shanghai Jupai, Shanghai E-Cheng and their respective subsidiaries and branches, and our ability to conduct our business may be negatively affected, and
we may not be able to consolidate the financial results of Shanghai Jupai, Shanghai E-Cheng and their respective subsidiaries and branches into our consolidated financial
statements in accordance with U.S. GAAP.
Any failure by our VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have an adverse effect on our business.
If our VIEs or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional
resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and contractual
remedies, which we cannot assure you will be sufficient or effective under PRC law. For example, if the shareholders of our VIEs or our VIEs were to refuse to transfer their equity
interests in or assets of our VIEs to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith
toward us, then we may have to take legal actions to compel them to perform their contractual obligations.
All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these
contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as
developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual
arrangements. These arbitration provisions relate to claims arising from the contractual relationship created by the contractual arrangements, rather than claims under U.S. federal
securities laws, and they do not prevent our shareholders or ADS holders from pursuing claims under U.S. federal securities laws in the United States. See “—Risks Related to
Doing Business in China— Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.” Meanwhile,
there are very few precedents and little formal guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC law. There remain
significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by arbitrators are final,
parties generally cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties
may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are
unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able
to exert effective control over our VIEs, and our ability to conduct our business may be negatively affected.
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The shareholders of our VIEs may have potential conflicts of interest with us, and if any such conflicts of interest are not resolved in our favor, our business may be materially
and adversely affected.
We have designated individuals who are PRC nationals to be the shareholders of Shanghai Jupai and Shanghai E-Cheng. These individuals may have conflicts of interest
with us. Approximately 67.7% equity interest of Shanghai Jupai is held by Mr. Jianda Ni, our chairman and chief executive officer and one of our principal shareholders, and the
remaining 32.3% equity interest of Shanghai Jupai is collectively held by other four individuals. Conflicts of interest may arise between the roles of Mr. Ni as shareholder of our
company and as shareholder of our VIEs. 70.0% equity interest of Shanghai E-Cheng is held by Ms. Qimin Wu, one of our employees, and the remaining 30.0% equity interest of
Shanghai E-Cheng is held by Mr. Tianxiang Hu, one of our principal shareholders. We cannot assure you that when conflicts arise, shareholders of our VIEs will act in the best
interest of our company or that conflicts will be resolved in our favor. These individuals may breach or cause the VIEs to breach the existing contractual arrangements. If we cannot
resolve any conflicts of interest or disputes between us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and
disruptive to our operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.
Our ability to enforce the equity pledge agreements between us and the shareholders of Shanghai Jupai and Shanghai E-Cheng may be subject to limitations based on PRC
laws and regulations.
Pursuant to the equity pledge agreements relating to Shanghai Jupai and the Joinder Agreement relating to Equity Pledge Agreement on July 15, 2018, the shareholders of
Shanghai Jupai pledged their equity interests in Shanghai Jupai to Shanghai Juxiang to secure Shanghai Jupai’s performance of the obligations and indebtedness under the
consulting services agreement. Pursuant to the equity pledge agreements relating to Shanghai E-Cheng, the shareholders of Shanghai E-Cheng pledged their equity interests in
Shanghai E-Cheng to Shanghai Baoyi to secure Shanghai E-Cheng’s performance of the obligations and indebtedness under the consulting services agreement. The equity pledges
under the equity pledge agreements in connection with Shanghai Jupai have been registered with the relevant local branch of the State Administration for Market Regulation, or the
SAMR, except that the equity pledge over Mr. Ni’s equity interest in Shanghai Jupai in favor of Shanghai Juxiang is still under the process of registration with the local branch of
SAMR in Shanghai and has not been completed yet. In addition, the equity pledges under the equity pledge agreements in connection with Shanghai E-Cheng have not been
registered with the relevant local branch of SAMR. Under the PRC Property Law, when an obligor fails to pay its debt when due, the pledgee may choose to either conclude an
agreement with the pledgor to obtain the pledged equity or seek payments from the proceeds of the auction or sell-off of the pledged equity. The PRC Property Law further
provides that the registration with the local branch of SAMR is necessary to create security interest on the equity interests of a PRC limited liability company, which means that
before the equity interest pledge is duly registered with the local branch of SAMR, such pledge is unenforceable even though the relevant equity pledge agreement is binding. The
shareholders of Shanghai E-Cheng are in the process of applying with the local branch of SAMR in Shanghai for registration of their equity interest pledge. However, there is no
guarantee that the shareholders of Shanghai E-Cheng will complete the registration in a timely manner, or at all. If any shareholder fails to complete such registration, then no
security interests will be created and Shanghai Baoyi will not be able to effectively exercise the pledge of such shareholders’ equity interests in Shanghai E-Cheng or at all.
Moreover, if Shanghai Jupai or Shanghai E-Cheng fails to perform its obligations secured by the pledges under the equity pledge agreements, one remedy in the event of default
under the agreements is to require the pledgor to sell the equity interests in Shanghai Jupai or Shanghai E-Cheng, as applicable, in an auction or private sale and remit the proceeds
to our subsidiaries in China, net of related taxes and expenses. Such an auction or private sale may not result in our receipt of the full value of the equity interests in our VIEs. We
consider it very unlikely that the public auction process would be undertaken since, in an event of default, our preferred approach would be to ask our PRC subsidiary that is a party
to the exclusive call option agreement with the VIE’s shareholders, to designate another PRC person or entity to acquire the equity interests in such VIE and replace the existing
shareholders pursuant to the exclusive call option agreement.
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In addition, in the registration forms of the local branch of the SAMR for the pledges over the equity interests under the equity pledge agreements, the amount of
registered equity interests pledged to our PRC subsidiary was stated as the pledgor’s portion of the registered capital of the VIE. The equity pledge agreements with the
shareholders of our VIEs provide that the pledged equity interest constitute continuing security for any and all of the indebtedness, obligations and liabilities of our VIEs under the
relevant contractual arrangements, and therefore the scope of pledge should not be limited by the amount of the registered capital of the applicable VIE. However, there is no
guarantee that a PRC court will not take the position that the amount listed on the equity pledge registration forms represents the full amount of the collateral that has been
registered and perfected. If this is the case, the obligations that are supposed to be secured in the equity pledge agreements in excess of the amount listed on the equity pledge
registration forms could be determined by the PRC court to be unsecured debt, which takes last priority among creditors and often does not have to be paid back at all. We do not
have agreements that pledge the assets of our VIEs and their respective subsidiaries for the benefit of us or our PRC subsidiaries, although our VIEs grant our PRC subsidiaries
options to purchase the assets of our VIEs and their equity interests in their subsidiaries under the exclusive call option agreements.
If any of our VIEs and their subsidiaries becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy their assets, which could
reduce the size of our operations and materially and adversely affect our business.
We do not have priority pledges and liens against the assets of our VIEs. As a contractual and property right matter, this lack of priority pledges and liens has remote risks.
If Shanghai Jupai or Shanghai E-Cheng undergoes an involuntary liquidation proceeding, third-party creditors may claim rights to some or all of its assets and we may not have
priority against such third-party creditors on the assets of our VIEs. If our VIEs liquidate, we may take part in the liquidation procedures as a general creditor under the PRC
Enterprise Bankruptcy Law and recover any outstanding liabilities owed by Shanghai Jupai to Shanghai Juxiang or by Shanghai E-Cheng to Shanghai Baoyi under the applicable
service agreement.
If the shareholders of our VIEs were to attempt to voluntarily liquidate our VIEs without obtaining our prior consent, we could effectively prevent such unauthorized
voluntary liquidation by exercising our right to request the shareholders of our VIEs to transfer all of their respective equity ownership interests to a PRC entity or individual
designated by us in accordance with the option agreement with the shareholders of our VIEs. In addition, under the operation agreement signed by Shanghai Juxiang, Shanghai
Jupai and its shareholders and according to the PRC Property Law, the shareholders of Shanghai Jupai do not have the right to issue dividends to themselves or otherwise distribute
the retained earnings or other assets of Shanghai Jupai without our consent. Similarly, the shareholders of Shanghai E-Cheng do not have the right to issue dividends to themselves
or otherwise distribute the retained earnings or other assets of Shanghai E-Cheng without our consent. In the event that the shareholders of our VIEs initiate a voluntary liquidation
proceeding without our authorization or attempts to distribute the retained earnings or assets of our VIEs without our prior consent, we may need to resort to legal proceedings to
enforce the terms of the contractual arrangements. Any such litigation may be costly and may divert our management’s time and attention away from the operation of our business,
and the outcome of such litigation will be uncertain.
Our contractual arrangements with our VIEs may result in adverse tax consequences to us.
As a result of our corporate structure and the contractual arrangements among our PRC subsidiaries, our VIEs, their respective shareholders and us, we are effectively
subject to the PRC value-added tax at rates of 3% or 6% and related surcharges on revenues generated by our subsidiaries from our contractual arrangements with our VIEs. The
PRC Enterprise Income Tax Law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its affiliates or
related parties to the relevant tax authorities. These transactions may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year during which
the transactions are conducted. We may be subject to adverse tax consequences if the PRC tax authorities were to determine that the contracts between us and our VIEs were not on
an arm’s length basis and therefore constitute favorable transfer pricing arrangements. If this occurs, the PRC tax authorities could request that our VIEs and any of its respective
subsidiaries adjust their taxable income upward for PRC tax purposes. Such a pricing adjustment could adversely affect us by reducing expense deductions recorded by such VIE
and thereby increasing the VIE’s tax liabilities, which could subject the VIE to late payment fees and other penalties for the underpayment of taxes. Our results of operations may
be materially and adversely affected if our VIEs’ tax liabilities increase or if either of them becomes subject to late payment fees or other penalties.
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If we exercise the option to acquire equity interest of our VIEs, the equity interest transfer may subject us to certain limitations and substantial costs.
Pursuant to the contractual arrangements, our WFOEs or their subsidiaries have the irrevocable and exclusive right to purchase all or any part of the relevant equity interests
in our consolidated affiliated entities from our consolidated affiliated entities’ shareholders at any time and from time to time in their absolute discretion to the extent permitted by
PRC laws. This equity transfer may be subject to approvals from, filings with, or reporting to competent PRC authorities, such as the Ministry of Commerce, the MIIT, the State
Administration for Market Regulation, and/or their local competent branches. In addition, the equity transfer price may be subject to review and tax adjustment by the relevant tax
authorities. The equity transfer price to be received by our consolidated affiliated entities under the contractual arrangements may also be subject to enterprise income tax, and these
amounts could be substantial.
In addition, the main foreign investor who invests in a value-added telecommunications business in the PRC must be qualified and have prior experience in operating value-
added telecommunications businesses and a proven track record of business operations overseas. Currently no applicable PRC laws or regulations provide clear guidance or
interpretation on these requirements. If PRC laws change to allow foreign investors to invest in value-added telecommunications enterprises in the PRC, we may be unable to
unwind our contractual arrangements with our VIEs or their shareholders before we are able to comply with these and other requirements.
There may be an impact on our company if our contractual arrangements with our VIEs, their respective subsidiaries and shareholders are not treated as domestic investment.
If the operation of our businesses conducted through our VIEs is subject to any restrictions pursuant to the Special Administrative Measures for Foreign Investment
Access (Negative List 2020) jointly promulgated by the Ministry of Commerce and the NDRC, or the 2020 Negative List, or any successor regulations, and the contractual
arrangements are not treated as domestic investment, the contractual arrangements may be regarded as invalid and illegal. If this were to occur, we would not be able to operate the
relevant businesses through the contractual arrangements and would lose our rights to receive the economic benefits of the VIEs. As a result, we would no longer consolidate the
financial results of the VIEs into our financial results and we would have to derecognize their assets and liabilities according to the relevant accounting standards. If we do not
receive any compensation, we would recognize an investment loss as a result of such derecognition.
Our current corporate structure and part of our business operations may be affected by the newly enacted Foreign Investment Law.
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which took effect on January 1, 2020. Since it is relatively new, substantially
uncertainties exist in relation to its interpretation and implementation. The Foreign Investment Law does not explicitly classify whether VIEs that are controlled through contractual
arrangements would be deemed as foreign invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision under definition of
“foreign investment” that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or the State Council.
Therefore, it still leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign
investment, at which time it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment in
the PRC and if yes, how our contractual arrangements should be dealt with. Therefore, there is no guarantee that our contractual arrangements, the business of our VIEs and our
financial conditions will not be materially and adversely affected.
The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either
“restricted” or “prohibited” from foreign investment in the Special Administrative Measures (Negative List) for Foreign Investment Access jointly promulgated by the Ministry of
Commerce and the NDRC and took effect in July 2020. The Foreign Investment Law provides that foreign-invested entities operating in “restricted” or “prohibited” industries will
require market entry clearance and other approvals from relevant PRC government authorities. If our control over our VIEs through contractual arrangements are deemed as foreign
investment in the future, and any business of our VIEs is “restricted” or “prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed to
be in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over our VIEs may be deemed as invalid and illegal, and we may be
required to unwind such contractual arrangements and/or restructure our business operations, any of which may have an adverse effect on our business operation. If our company
no longer has a sustainable business after an unwinding or disposal or when such requirements are not complied with, the SEC, and/or the NYSE may take enforcement actions
against us, which may have a material adverse effect on the trading of our shares or even result in delisting our company.
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Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements,
we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of
these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and part of our business operations.
Risks Related to Doing Business in China
Adverse changes in the political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could
adversely affect our business.
Substantially all of our assets are located in China and substantially all of our revenues are derived from our operations there. Accordingly, our business, financial
condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies
of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of
resources. While the Chinese economy has experienced significant growth in the past 40 years, the growth has been uneven across different periods, regions and among various
economic sectors of China and the rate of growth has been slowing. We cannot assure you that the Chinese economy will continue to grow, or that if there is growth, such growth
will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on our business.
The PRC government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-
denominated obligations, setting monetary policies and providing preferential treatment to particular industries or companies. It is unclear whether PRC economic policies will be
effective in stimulating growth, and the PRC government may not be effective in achieving stable economic growth in the future. Any slowdown in the economic growth of China
could lead to reduced demand for the products we distribute or manage, which could materially and adversely affect our business, as well as our financial condition and results of
operations.
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is based on written statutes and court decisions have limited precedential value. The PRC legal system is evolving rapidly, and the interpretation of
many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.
In particular, PRC laws and regulations concerning the financial services industry are developing and evolving. Although we have taken measures to comply with the laws
and regulations applicable to our business operations and to avoid conducting any non-compliant activities under these laws and regulations, the PRC governmental authorities may
promulgate new laws and regulations regulating financial services industries. We cannot assure you that our business operations would not be deemed to violate any such new PRC
laws or regulations. Moreover, developments in the financial services industry may lead to changes in PRC laws, regulations and policies or in the interpretation and application of
existing laws, regulations and policies, which in turn may limit or restrict us, and could materially and adversely affect our business and operations.
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From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and administrative authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative
proceeding than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely
affect our business and results of operations.
Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at all, but which
may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property
(including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of financial services businesses, service providers and financial products we
distribute.
The PRC government extensively regulates the financial services industry, including foreign ownership of, and the licensing and permit requirements pertaining to,
companies in the financial services industry, including wealth management and asset management companies. These financial service-related laws and regulations are evolving,
and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be
deemed to be in violations of applicable laws and regulations. Issues, risks and uncertainties relating to PRC regulation of the financial services business include, but are not limited
to, the following:
· The regulations of the wealth management and asset management business in China, including evolving licensing practices, are evolving and subject to
uncertainties. Operations at some of our subsidiaries and consolidated entities may be subject to challenge, or we may fail to obtain permits or licenses that may
be deemed necessary for our operations or we may not be able to obtain or renew certain permits or licenses. See “—Risks Related to Our Business and Industry
—We may fail to obtain and maintain licenses and permits necessary to conduct our operations in China, and our business may be materially and adversely
affected as a result of any changes in the laws and regulations governing the financial services industry in China” and “Item 4. Information on the Company—B.
Business Overview—Regulation.”
· The evolving PRC regulatory system for the financial service industry may lead to the establishment of new regulatory agencies. If these new laws, regulations or
policies are promulgated, additional licenses may be required for our operations. If our operations do not comply with these new regulations after they become
effective, or if we fail to obtain any licenses required under these new laws and regulations, we could be subject to penalties.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the financial services industry
have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, financial services businesses in China,
including our business. There are risks that we may be found in violation of existing or future laws and regulations given the uncertainty and complexity of China’s regulation of
financial services business. In addition, we cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to
maintain our existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new
laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it may levy fines, confiscate our
income, revoke our business licenses, and require us to discontinue our business or impose restrictions on the affected portion of our business. Any of these actions may have a
material adverse effect on our business and results of operations. For details on PRC regulations which may affect our business, see “Item 4. Information on the Company—B.
Business Overview—Regulation.”
Besides, the regulations relating to financial services or products may change, and as a result we may be required to discontinue the supply of certain wealth management
products that we currently distribute or cease managing certain products in our asset management business.
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Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the
U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic
conditions and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the
U.S. dollar in the future. It is difficult to predict how market forces the PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the
future.
Substantially all of our income and expenses are denominated in Renminbi and our reporting currency is Renminbi. Significant revaluation of the Renminbi may have a
material and adverse effect on your investment. For example, if we decide to convert our Renminbi into U.S. dollars for the purpose of paying dividends or for other business
purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amount available to us.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an
effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these
hedges may be limited and we may not be able to hedge our exposure adequately or at all. In addition, our currency exchange losses may be magnified by PRC exchange control
regulations that restrict our ability to convert Renminbi into foreign currency.
Governmental control of conversion of Renminbi into foreign currencies may limit our ability to utilize our revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We
receive substantially all of our income in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC
subsidiaries to fund any cash and financing requirements payable outside of China. Under existing PRC foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying
with certain procedural requirements. Specifically, under the existing exchange restrictions, cash generated from the operations of our PRC subsidiary in China may be used to pay
dividends to our company without prior approval of SAFE. However, approval from or registration with appropriate government authorities is required where Renminbi is to be
converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain
SAFE approval to use cash generated from the operations of our PRC subsidiary and consolidated affiliated entity to pay any debts they may incur in a currency other than
Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.
In addition, if any of our shareholders who is subject to SAFE regulations fails to satisfy the applicable overseas direct investment filing or approval requirement, the PRC
government may restrict our access to foreign currencies for current account transactions. If we are prevented from obtaining sufficient foreign currency to satisfy our foreign
currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.
PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us
from using the proceeds of our initial public offering to make loans to our PRC subsidiaries and consolidated entities or to make additional capital contributions to our PRC
subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our PRC subsidiaries and consolidated entities. In utilizing the proceeds that we received
from our initial public offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiaries only through loans or
capital contributions and to our consolidated entities only through loans.
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Any loans by us to our PRC subsidiary, which is treated as foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan
registrations. For example, loans by us to our wholly owned PRC subsidiary to finance their activities cannot exceed statutory limits and must be registered with the local
counterpart of the SAFE. If we decide to finance our wholly owned PRC subsidiaries by means of capital contributions, these capital contributions must be registered with the
SAMR or its local counterpart. We may also extend loans to our consolidated entities, which are treated as PRC domestic companies under PRC law, and loans must also be
registered with the SAFE or its local branches.
The SAFE promulgated a circular on November 19, 2010, known as Circular No. 59, which tightens the examination of the authenticity of settlement of net proceeds from
our initial public offering and requires that the settlement of net proceeds shall be in accordance with the description in this annual report.
On March 30, 2015, the SAFE issued the Circular on Reform of the Administrative Rules of the Payment and Settlement of Foreign Exchange Capital of Foreign-Invested
Enterprises, or SAFE Circular 19, which became effective on June 1, 2015. Pursuant to SAFE Circular 19, foreign-invested enterprises may either continue to follow the current
payment-based foreign currency settlement system or elect to follow the “conversion-at-will” regime of foreign currency settlement. Where a foreign-invested enterprise follows
the conversion-at-will regime of foreign currency settlement, it may convert part or all of the amount of the foreign currency in its capital account into Renminbi at any time. The
converted Renminbi will be kept in a designated account labeled as settled but pending payment, and if the foreign-invested enterprise needs to make payment from such
designated account, it still needs to go through the review process with its bank and provide necessary supporting documents. SAFE Circular 19, therefore, has substantially lifted
the restrictions on the usage by a foreign-invested enterprise of its RMB registered capital converted from foreign currencies. According to SAFE Circular 19, such Renminbi
capital may be used at the discretion of the foreign-invested enterprise within the business scope of the foreign-invested enterprise following the principles of authenticity and self-
use and the SAFE will eliminate the prior approval requirement and only examine the authenticity of the declared usage afterwards.
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of
Capital Account, or SAFE Circular 16, effective in June 2016. Except for reiteration of some of the rules set forth in SAFE Circular 19, SAFE Circular 16 only prohibits using
changes RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue loans to non-associated enterprises, instead of
prohibiting using such fund to extend RMB entrusted loans to any party as provided under SAFE Circular 19. Violations of SAFE Circular 19 or SAFE Circular 16 could result in
administrative penalties.
In January 2017, SAFE issued the Notice of State Administration of Foreign Exchange on Improving the Check of Authenticity and Compliance to Further Promote
Foreign Exchange Control, or the SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to
offshore entities, including: (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records
and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular
3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when
completing the registration procedures in connection with an outbound investment.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, including SAFE
Circular 19, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all,
with respect to future loans by us to our PRC subsidiaries or consolidated entities or with respect to future capital contributions by us to our PRC subsidiary. Our failure to complete
such registrations or obtain such approvals may negatively affect our ability to use the proceeds we receive from our initial public offering and to capitalize or otherwise fund
operations of our PRC operating entities, Shanghai Juxiang and Shanghai Jupai, and any other new subsidiaries we may establish in the future for business purposes, which could
materially and adversely affect our liquidity and our ability to fund and expand our business.
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Our PRC subsidiaries and VIEs are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity
requirements.
We are a holding company incorporated in the Cayman Islands. We rely on dividends from our PRC subsidiaries as well as consulting and other fees paid to us by our
consolidated entities for our cash and financing requirements, such as the funds necessary to pay dividends and other cash distributions to our shareholders, including holders of our
ADSs, and service any debt we may incur. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in
accordance with PRC accounting standards and regulations. In addition, our PRC subsidiary is required to set aside at least 10% of its after-tax profits after making up previous
years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as
cash dividends. Furthermore, if our PRC subsidiaries and consolidated entities incur debt on their own behalf in the future, the instruments governing the debt may restrict their
ability to pay dividends or make other payments to us, which may restrict our ability to satisfy our liquidity requirements.
In addition, the EIT Law and its implementation rules provide that withholding tax rate of 10% will be applicable to dividends payable by PRC companies to non-PRC-
resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or
regions where the non-PRC-resident enterprises are incorporated.
China’s M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of PRC companies by foreign investors, which could make it more
difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or M&A Rules, and other recently adopted regulations and rules concerning
mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and
complex. For example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC
domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction
will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the
Standing Committee of the National People’s Congress on August 30, 2007 and effective as of August 1, 2008 requires that transactions which are deemed concentrations and
involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10.0
billion and at least two of these operators each had a turnover of more than RMB400.0 million within China, or (ii) the total turnover within China of all the operators participating
in the concentration exceeded RMB2.0 billion, and at least two of these operators each had a turnover of more than RMB400.0 million within China) must be cleared by the
MOFCOM before they can be completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review
System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Circular 6, which officially established a security review system for mergers and
acquisitions of domestic enterprises by foreign investors. Further, on August 25, 2011, the MOFCOM promulgated the Regulations on Implementation of Security Review System
for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Regulations, which became effective on September 1, 2011, to
implement the Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and
mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises with “national security” concerns. Under the MOFCOM Security
Review Regulations, the MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security
review. If the MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under the
Circular 6 led by the NDRC and the MOFCOM under the leadership of the State Council, to carry out security review. The regulations prohibit foreign investors from bypassing
the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no
explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the wealth management or asset management business requires security
review.
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In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant
rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may
delay or inhibit our ability to complete such transactions. The M&A Rules requires a foreign investor to obtain the approval from the MOFCOM or its local counterpart only upon
(i) its acquisition of a domestic enterprise’s equity interest; (ii) its subscription of the increased capital of a domestic enterprise; or (iii) establishes and operates a foreign-invested
enterprise with assets acquired from a domestic enterprise. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or
“national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject
to the security review, in which case our future acquisitions in China, including those by way of entering into contractual control arrangements with target entities, may be closely
scrutinized or prohibited.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary
to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us, or
may otherwise adversely affect us.
The SAFE has promulgated several regulations that require PRC residents and PRC corporate entities to register with and obtain approval from local branches of the
SAFE in connection with their direct or indirect offshore investment activities. These regulations apply to our shareholders who are PRC residents and may apply to any offshore
acquisitions that we make in the future.
Under these foreign exchange regulations, PRC residents who make, or have previously made, prior to the implementation of these foreign exchange regulations, direct or
indirect investments in offshore companies will be required to register those investments. In addition, any PRC resident who is a direct or indirect shareholder of an offshore
company is required to update the previously filed registration with the local branch of the SAFE, with respect to that offshore company, to reflect any material change involving its
round-trip investment, capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger or division. If any PRC shareholder fails to make the required
registration or update the previously filed registration, the PRC subsidiary of that offshore parent company may be prohibited from distributing their profits and the proceeds from
any reduction in capital, share transfer or liquidation to their offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital
into its PRC subsidiary. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC laws for
evasion of applicable foreign exchange restrictions.
We have requested PRC residents holding direct or indirect interest in our company to our knowledge to make the necessary applications, filings and amendments as
required by these foreign exchange regulations. Such PRC resident shareholders and beneficial owners have completed their initial registrations in relation to their ownership in our
company and have also completed amendment registrations in relation to their subsequent ownership changes and the establishment of certain subsidiaries of our company required
by foreign exchange regulations. However, we may not be informed of the identities of all the PRC residents holding direct or indirect interests in our company, and we cannot
provide any assurances that all of our shareholders and beneficial owners who are PRC residents will make, obtain or update any applicable registrations or approvals required by
these foreign exchange regulations. The failure or inability of our PRC resident shareholders to make such registration or truthfully disclose actual controllers of the round-trip
enterprises may subject PRC residents to fines up to RMB300,000 in case of domestic institutions or RMB50,000 in case of domestic individuals. If the PRC resident shareholders
do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital,
share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover,
failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for violating applicable foreign exchange
restrictions.
However, as there is uncertainty concerning the reconciliation of these foreign exchange regulations with other approval requirements, it is unclear how these regulations,
and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot
predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to
our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial
condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the
necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition
strategy and could adversely affect our business and prospects.
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Failure to comply with PRC regulations regarding the registration of share options held by our employees who are “domestic individuals” may subject such employee or us to
fines and legal or administrative sanctions.
Pursuant to Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company issued by the SAFE in February 2012, or the Stock Incentive Plan Rules, “domestic individuals” (both PRC residents and non-PRC residents who reside in China for a
continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) participating in any stock incentive plan
of an overseas listed company according to its stock incentive plan are required, through qualified PRC agents which could be the PRC subsidiary of such overseas-listed company,
to register with the SAFE and complete certain other procedures related to the stock incentive plan.
We and our employees, who are “domestic individuals” and have been granted share options, or the PRC optionees, became subject to the Stock Incentive Plan
Rules when our company became an overseas listed company upon the completion of our initial public offering. We have completed the registration as required under the Stock
Incentive Plan Rules and other relevant SAFE registrations and plan to update the registration on an on-going basis. If we or our PRC optionees fail to comply with the Individual
Foreign Exchange Rule and the Stock Incentive Plan Rules, we and/or our PRC optionees may be subject to fines and other legal sanctions. We may also face regulatory
uncertainties that could restrict our ability to adopt additional option plans for our directors and employees under PRC law. In addition, the General Administration of Taxation has
issued a few circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual
income tax. Our PRC subsidiary has obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those
employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other
PRC government authorities. Furthermore, there are substantial uncertainties regarding the interpretation and implementation of the Individual Foreign Exchange Rule and the
Stock Incentive Plan Rules.
The discontinuation of any of the government incentives and preferential tax treatment currently available to us in China could adversely affect our financial condition and
results of operations.
According to the financial support policy of Jing’an District of Shanghai City, Baoshan District of Shanghai City, and Lin-gang Special Area of the China (Shanghai) Pilot
Free Trade Zone, if the enterprises registered in these areas meet certain conditions, they are entitled to enjoy preferential tax treatments regarding the value-added tax, enterprise
income tax and individual income tax for the financial year ended December 31, 2020. Shanghai Jupai and certain of its subsidiaries and Shanghai E-Cheng and its subsidiaries
enjoy such preferential tax treatment. Nevertheless, the government agencies may decide to reduce, eliminate or cancel subsidies at any time. We cannot assure you of the
continued availability of the government incentives and subsidies currently enjoyed by us. The discontinuation of these governmental incentives and subsidies could adversely
affect our financial condition and results of operations.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite
approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.
We may be deemed as a provider of value-added communication services due to ownership of some of our websites. The PRC government extensively regulates the
internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and
regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to
determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.
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The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have
created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our
internet-based business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our
existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new laws and
regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy
fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of
these actions by the PRC government may have a material adverse effect on our business and results of operations.
The dividends we receive from our PRC subsidiary may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our
financial condition and results of operations. In addition, if we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in
unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.
Pursuant to the PRC Enterprise Income Tax Law and its amendment, or the EIT Law, dividends generated after January 1, 2008 and payable by a foreign-invested
enterprise in China to its foreign investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that
provides for a different withholding arrangement. We are a Cayman Islands holding company and substantially all of our income may come from dividends we receive, directly or
indirectly, from our wholly foreign-owned PRC subsidiary. Since there is currently no such tax treaty between China and the Cayman Islands, dividends we directly receive from
our wholly foreign-owned PRC subsidiary will generally be subject to a 10% withholding tax.
In addition, under the Arrangement between China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income,
where a Hong Kong resident enterprise which is considered a non-PRC tax resident enterprise directly holds at least 25% of a PRC enterprise, the withholding tax rate in respect to
the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%, subject to approval of the PRC local tax
authority. Accordingly, Jupai HongKong Investment Limited, or Jupai HK, and Scepter Holdings Limited may be able to enjoy the 5% withholding tax rate for the dividends it
receives from Shanghai Juxiang and Shanghai Baoyi, respectively, if they satisfy the conditions prescribed in relevant tax rules and regulations, and obtain the approvals as
required. However, if the Hong Kong resident enterprise is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividends may
remain subject to withholding tax at a rate of 10%. If Jupai HK or Scepter Holdings Limited is considered to be a non-beneficial owner for purposes of the tax arrangement, any
dividends paid to them by our wholly foreign-owned PRC subsidiary directly would not qualify for the preferential dividend withholding tax rate of 5%, but rather would be subject
to a rate of 10%. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Tax—Dividend Withholding Tax”.
Furthermore, under the EIT Law and its implementation rules, an enterprise established outside of China with “de facto management body” within the PRC is considered a
PRC resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. See “Item 4. Information on the Company—B. Business Overview
—Regulation—Regulations on Tax—PRC Enterprise Income Tax.” We do not believe that Jupai Holdings Limited or any of its subsidiaries outside of China would be a PRC
resident enterprise as of March 31, 2021. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with
respect to the interpretation of the term “de facto management body”. If the PRC tax authorities determine that we were a PRC resident enterprise for tax purposes, we would be
subject to a 25% enterprise income tax on their global income. In addition, if we were considered a PRC resident enterprise for tax purposes, we may be required to withhold a 10%
withholding tax from dividends we pay to our shareholders that are non-PRC resident enterprises, including the holders of our ADSs. Furthermore, non-PRC resident enterprise
shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated
as sourced from within China. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains
obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it
would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether our non-PRC shareholders would be
able to claim the benefits of any tax treaties between their country of tax residence and China in the event that we are considered as a PRC resident enterprise.
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If we were required under the EIT Law to withhold such PRC income tax, your investment in our ordinary shares or ADSs may be materially and adversely affected.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company,
or immovable properties located in China owned by a non-PRC company.
We face uncertainties on the reporting and consequences on private equity financing transactions, private share exchange transactions and private transfer of shares,
including private transfer of public shares, in our company by non-resident investors. According to the Notice on Strengthening Administration of Enterprise Income Tax for Share
Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration of Taxation on December 10, 2009, or SAT Circular 698, where a non-resident enterprise
transfers the equity interests in a PRC resident enterprise indirectly through a disposition of equity interests in an overseas holding company, or an Indirect Transfer, the non-
resident enterprise, as the seller, may be subject to PRC enterprise income tax of up to 10% of the gains derived from the Indirect Transfer in certain circumstances.
On February 3, 2015, the State Administration of Taxation, or the SAT, issued Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect
Property Transfers by Non-RPC Resident Enterprises, or SAT Notice No. 7, to supersede the existing tax rules in relation to the tax treatment of the Indirect Transfer, while the
other provisions of SAT Circular 698 that are irrelevant to the Indirect Transfer remain in force. SAT Notice No. 7 introduces a new tax regime and extends the SAT’s tax
jurisdiction to capture not only the Indirect Transfer as set forth under SAT Circular 698 but also transactions involving indirect transfer of (i) real properties in China and (ii) assets
of an “establishment or place” situated in China, by a non-PRC resident enterprise through a disposition of equity interests in an overseas holding company. SAT Notice No. 7 also
extends the interpretation with respect to the disposition of equity interests in an overseas holding company. In addition, SAT Notice No. 7 further clarifies how to assess reasonable
commercial purposes and introduces safe harbors applicable to internal group restructurings. However, it also brings challenges to both the foreign transferor and transferee as they
are required to make self-assessment on whether an Indirect Transfer or similar transaction should be subject to PRC tax and whether they should file or withhold any tax payment
accordingly.
On October 17, 2017, the SAT issued the Public Notice on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or the SAT Notice 37,
which came into effect on December 1, 2017. According to SAT Notice 37, where the non-resident enterprise fails to declare its tax payable pursuant to Article 39 of the EIT Law,
the tax authority may order it to pay its tax due within required time limits, and the non-resident enterprise shall declare and pay its tax payable within such time limits specified by
the tax authority. If the non-resident enterprise voluntarily declares and pays its tax payable before the tax authority orders it to do so, it shall be deemed that such enterprise has
paid its tax payable in time.
However, as there is a lack of clear statutory interpretation on these notices, we face uncertainties on the reporting and consequences on the future private equity financing
transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase of shares
in other non-PRC resident companies or other taxable assets by us. Our company and other non-resident enterprises in our group may be subject to filing obligations or being taxed
if our company and other non-resident enterprises in our group are transferors in such transactions, and may be subject to withholding obligations if our company and other non-
resident enterprises in our group are transferees in such transactions. For the transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC
subsidiaries may be requested to assist in the filing under the rules and notices. We may be required to expend costly resources to comply with SAT Notice No. 7 and SAT Notice
No. 37, or to establish a case to be tax exempt under SAT Notice No. 7 and SAT Notice No. 37, which may cause us to incur additional costs and may have a negative impact on the
value of your investment in us.
The PRC tax authorities have discretion under SAT Notice No. 7 and SAT Notice No. 37 to make adjustments to the taxable capital gains based on the difference between
the fair value of the transferred equity interests and the investment cost. We may pursue acquisitions in the future that may involve complex corporate structures. If we are
considered as a non-PRC resident enterprise under the EIT Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Notice No. 7
and SAT Notice No. 37, our income tax expenses associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and
results of operations.
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If the custodians or authorized users of controlling non-tangible assets of our company, including our corporate chops and seals, fail to fulfill their responsibilities, or
misappropriate or misuse these assets, our business and operations could be materially and adversely affected.
Under PRC law, legal documents for corporate transactions, including contracts such as consulting service agreements we enter into with wealth management product
providers, which are important to our business, are executed using the chops or seals of the signing entity, or with the signature of a legal representative whose designation is
registered and filed with the relevant branch of the SAMR.
Although we usually utilize chops to enter into contracts, the designated legal representatives of each of our PRC subsidiaries and consolidated entities have the power to
enter into contracts on behalf of such entities without chops and bind such entities. Almost all designated legal representatives of our PRC subsidiary and consolidated entities,
except four subsidiaries, are members of our senior management team and have signed employment undertaking letters with us or our PRC subsidiary and consolidated entities
under which they agree to abide by various duties they owe to us. In order to maintain the physical security of our chops and the chops of our PRC entities, we generally store these
items in secured locations accessible only by the authorized personnel of each of our PRC subsidiary and consolidated entities. Although we monitor such authorized personnel,
there is no assurance such procedures will prevent all instances of abuse or negligence. Accordingly, if any of our authorized personnel misuse or misappropriate our corporate
chops or seals, we could encounter difficulties in maintaining control over the relevant entities and experience significant disruption to our operations. If a designated legal
representative obtains control of the chops in an effort to obtain control over any of our PRC subsidiary or consolidated entities, we, our PRC subsidiary or consolidated entities
would need to pass a new shareholder or board resolution to designate a new legal representative and we would need to take legal action to seek the return of the chops, apply for
new chops with the relevant authorities, or otherwise seek legal redress for the violation of the representative’s fiduciary duties to us, which could involve significant time and
resources and divert management attention away from our regular business. In addition, the affected entity may not be able to recover corporate assets that are sold or transferred
out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith.
Increases in labor costs and enforcement of stricter labor laws and regulations in China may adversely affect our business and our profitability.
China’s overall economy and the average wage in China have increased in recent years and are expected to continue to grow. The average wage level for our employees
has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased
labor costs to the product providers or corporate borrowers who pay for our services, our profitability and results of operations may be materially and adversely affected.
In addition, we have been subject to stricter regulatory requirements in terms of entering labor contracts with our employees and paying various statutory employee
benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government
agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract law, that became effective in January 2008, as amended on
December 28, 2012 and effective as of July 1, 2013, and its implementation rules that became effective in September 2008, employers are subject to stricter requirements in terms
of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we
decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to
effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. On October 28, 2010, the Standing Committee of
the National People’s Congress promulgated the PRC Social Insurance Law, or the Social Insurance Law, which was amended on December 29, 2018 and became effective on
December 29, 2018. According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment
insurance and maternity insurance and the employers must, together with their employees or separately, pay the social insurance premiums for such employees.
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As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice do not and will not
violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and
regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and
adversely affected.
Recent litigation and negative publicity surrounding China-based companies listed in the United States may negatively impact the trading price of our ADSs.
We believe that recent litigation and negative publicity surrounding companies with operations in China that are listed in the United States have negatively impacted stock
prices of these companies. Certain politicians in the United States have publicly warned investors to shun China-based companies listed in the United States. The SEC and the
Public Company Accounting Oversight Board (United States), or the PCAOB, also issued a joint statement on April 21, 2020, reiterating the disclosure, financial reporting and
other risks involved in the investments in companies that are based in emerging markets, and the limited remedies thereof. Furthermore, various equity-based research organizations
have recently published reports on China-based companies after examining their corporate governance practices, related party transactions, sales practices and financial statements,
and these reports have led to special investigations and listing suspensions on U.S. national exchanges. Any similar scrutiny on us, regardless of its lack of merit, could cause the
market price of our ADSs to fall, divert management resources and energy, cause us to incur expenses in defending ourselves against rumors, and increase the premiums we pay for
director and officer insurance.
Our predecessor auditor is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.
Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, was our predecessor auditor and audited our consolidated
financial statements for the fiscal years ended December 31 between 2012 and 2018. On February 14, 2020, we engaged B F Borgers CPA PC, an independent registered public
accounting firm, as our new auditor.
Auditors of companies that are registered with the SEC and traded publicly in the United States, including our independent registered public accounting firm, must be
registered with the PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United
States and professional standards. B F Borgers CPA PC is registered with the PCAOB and operating in Lakewood, Colorado, the U.S., and is currently subject to PCAOB
rules regarding periodically inspection. However, because we have substantial operations within the People’s Republic of China and the PCAOB is currently unable to conduct
inspections of the work of the auditors who are based in China as it relates to those operations without the approval of the PRC authorities, our predecessor auditor’s work related to
our operations in China was not inspected by the PCAOB.
This lack of PCAOB inspections of audit work performed by auditors based in China prevents the PCAOB from regularly evaluating audit work of auditors based in China
including that performed by our predecessor independent registered public accounting firm. As a result, investors may be deprived of the full benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of audit work performed by auditors based in China makes it more difficult to evaluate the effectiveness and quality of
our predecessor auditor’s audit procedures as compared to auditors in other jurisdictions that are subject to PCAOB inspections on all of their work. Investors may lose confidence
in our reported financial information and procedures and the quality of our financial statements prepared by our predecessor auditor.
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Risks Related to Our ADSs
The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.
The trading price of our ADSs has ranged from US$0.88 to US$2.59 per ADS in 2020. The trading price of our ADSs is likely to be volatile and could fluctuate widely
due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with
business operations located mainly in China that have listed their securities in the United States. A number of PRC companies have listed their securities on U.S. stock markets.
The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading
performances of these PRC companies’ securities after their offerings may affect the attitudes of investors toward PRC companies listed in the United States in general and
consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the
following:
· variations in our revenues, earnings, cash flow and data related to our user base or user engagement;
· announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;
· announcements of new services and expansions by us or our competitors;
· changes in financial estimates by securities analysts;
· detrimental adverse publicity about us or our industry;
· additions or departures of key personnel;
· sales of additional equity securities; and
· potential litigation, regulatory investigations or regulatory developments that are perceived to be adverse to our business.
Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.
From time to time, shareholders of public companies bring securities class action suits against those companies following periods of instability in the market price of their
securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and
require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could
have a material adverse effect on our financial condition and results of operations.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ
significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with
the NYSE corporate governance listing standards.
As a Cayman Islands exempted company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign
private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country,
may differ significantly from the NYSE corporate governance listing standards. Currently, we rely on home country practice with respect to the shareholder approval requirement in
respect of the establishment or material revision of an equity-compensation plan and the requirements of the NYSE corporate governance listing standards that our compensation
committee and nominating and corporate governance committee each be composed of independent directors. Our shareholders may be afforded less protection than they otherwise
would under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.
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The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. As of March 31, 2021, based
on a review of our register of shareholders, we had 199,351,046 ordinary shares outstanding (excluding 8,326,458 ordinary shares issued to our depositary bank for bulk issuance of
ADSs reserved under our share incentive plan). Among these shares, 106,828,326 ordinary shares are in the form of ADSs, which are freely transferable without restriction or
additional registration under the Securities Act. The remaining ordinary shares outstanding will be available for sale, subject to volume and other restrictions as applicable under
Rules 144 and 701 under the Securities Act and the applicable lock-up agreements. Certain holders of our ordinary shares may cause us to register under the Securities Act the sale
of their shares, subject to the applicable lock-up period. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely
tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market
could cause the price of our ADSs to decline.
Because we may not continue to pay dividends in the foreseeable future, you may need to rely on price appreciation of our ADSs as the sole source for return on your
investment.
Although we declared dividend on our ordinary shares in March 2018, we may not continue to do so regularly, or at all. Therefore, you may need to rely on price
appreciation of our ADSs as the sole source for return on your investment.
Our board of directors has discretion as to whether to distribute dividends, subject to our memorandum and articles of association and certain restrictions under Cayman
Islands law. In addition, our shareholders may by ordinary resolution also declare dividends, but no dividend may exceed the amount recommended by our directors. Under
Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstance may a dividend be paid if this
would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends,
the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the
amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.
Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will
appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return or your investment in our ADSs and you may even lose your entire
investment in our ADSs.
We are controlled by a small number of our existing shareholders, whose interests may differ from other shareholders, and our board of directors has the power to discourage
a change of control.
As of March 31, 2021, our executive officers and directors, together with our principal shareholders existing before our initial public offering, beneficially own
approximately 134,807,357 ordinary shares, or 65.5% of our outstanding ordinary shares. Accordingly, our executive officers and directors, together with our shareholders existing
before our initial public offering, could have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for
approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. In cases where their
interests are aligned and they vote together, these shareholders will also have the power to prevent or cause a change in control. Without the consent of some or all of these
shareholders, we may be prevented from entering into transactions that could be beneficial to us. In addition, our directors and officers could violate their fiduciary duties by
diverting business opportunities from us to themselves or others. The interests of our largest shareholders may differ from the interests of our other shareholders. The concentration
in ownership of our ordinary shares may cause a material decline in the value of our ADSs.
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Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and
ADSs.
Our currently effective memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in
change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market
prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority,
without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating,
optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with
terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares,
the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman
Islands law.
We are an exempted company with limited liability incorporated in the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of
association, as amended and restated from time to time, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of our
shareholders to take action against our directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent
governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman
Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of
our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some
jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have
more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a
shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of
shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may
be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to
establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
In addition, certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in
other jurisdictions such as the United States.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board
of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are an exempted company incorporated in the Cayman Islands and all of our assets are located outside of the United States. Substantially all of our current operations
are conducted in China. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the
assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to effect service of process within the United States upon us or
these persons, or to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S.
federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a
judgment against our assets or the assets of our directors and officers.
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It may be difficult for overseas securities regulators to conduct investigations or collect evidence within China.
Shareholder claims or regulatory investigations that are common in the United States (including securities law class actions and fraud claims) generally are difficult to
pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory
investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of
another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be
efficient in the absence of a mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective
in March 2020, no overseas securities regulator may directly conduct investigations or collect evidence and no entities or individuals may provide documents or materials in
connection with securities activities without proper authorization as stipulated under Article 177. While detailed interpretation of or implementation rules under Article 177 have
yet to be promulgated, the inability of an overseas securities regulator to directly conduct investigations or collect evidence within China may further increase difficulties faced by
you in protecting your interests.
Holders of ADSs may have fewer rights than holders of our ordinary shares and must act through the deposit to exercise those rights.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend general meetings of our
shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which are carried by the underlying ordinary shares represented by your ADSs
indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement, as amended and restated from time to time. Under the deposit
agreement, as amended and restated from time to time, you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary
will vote the ordinary shares underlying your ADSs in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying
ordinary shares unless you withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. Under our currently effective
memorandum and articles of association, the minimum notice period required to be given by our company to our registered shareholders to convene a general meeting is seven
calendar days. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to permit you to withdraw the ordinary shares underlying your
ADSs and become the registered holder of such shares to allow you to attend the general meeting and to cast your vote directly with respect to any specific matter or resolution to
be considered and voted upon at the general meeting. Furthermore, under our currently effective memorandum and articles of association, for the purposes of determining those
shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and
such closure of our register of members or the setting of such a record date may prevent you from withdrawing the ordinary shares underlying your ADSs and becoming the
registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the
depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to
ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out
voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the ordinary shares
underlying your ADSs are voted and you may have no legal remedy if the ordinary shares underlying your ADSs are not voted as you requested. In addition, in your capacity as an
ADS holder, you will not be able to call a shareholders’ meeting.
Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement, as amended and restated from time to time.
Under the deposit agreement, as amended and restated from time to time, any action or proceeding against or involving the depositary, arising out of or based upon the
deposit agreement or the transactions contemplated thereby may only be instituted in a state or federal court in New York, New York, and pursuant to the deposit agreement, you, as
a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive
jurisdiction of such courts in any such suit, action or proceeding. Notwithstanding the foregoing, however, the depositary may, in its sole discretion, require that any such action,
controversy, claim, dispute, legal suit or proceeding be referred to and finally settled by an arbitration conducted under the terms described in the deposit agreement subject to
certain exceptions solely related to the aspects of such claims that are related to U.S. securities law, in which case the resolution of such aspects may, at the option of such registered
holder of the ADSs, remain in state or federal court in New York, New York. Also, we may amend or terminate the deposit agreement without your consent. If you continue to hold
your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.
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You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to
you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities
underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the
depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a
distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable
exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions
may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws
any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs,
ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal
or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.
You may experience dilution of your holdings due to inability to participate in rights offerings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, as amended and restated from time to
time, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from
registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to,
attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act,
and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective.
Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in
connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as
a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in
emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books
of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or
under any provision of the deposit agreement, or for any other reason.
We incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as
rules subsequently implemented by the SEC and the NYSE, impose various requirements on the corporate governance practices of public companies. We ceased to qualify as an
“emerging growth company” pursuant to the JOBS Act on the fifth anniversary from the date of our initial listing (i.e., July 16, 2020), and we expect to incur significant expenses
and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations
of the SEC. For example, as a public company, we have adopted policies regarding internal controls and disclosure controls and procedures and incurred substantially higher costs
to obtain the same or similar coverage of directors and officers liability insurance. In addition, as a public company, we have incurred additional costs associated with our public
company reporting requirements and additional costs to have qualified persons to serve on our board of directors or as executive officers.
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In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that
company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and
operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could
harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages,
which could have a material adverse effect on our financial condition and results of operations.
We believe that we were a passive foreign investment company, or PFIC, for United States federal income tax purposes for the taxable year ended December 31, 2020, which
could subject United States investors in our ADSs or ordinary shares to significant adverse United States income tax consequences.
We will be classified as a “passive foreign investment company,” or “PFIC” if, in the case of any particular taxable year, either (a) 75% or more of our gross income for
such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year
produce or are held for the production of passive income.
Based on the market price of our ADSs and the composition of our assets (in particular the retention of a substantial amount of cash), we believe that we were a PFIC for
United States federal income tax purposes for our taxable year ended December 31, 2020, and we will likely be a PFIC for our current taxable year unless the market price of our
ADSs increases and/or we invest a substantial amount of the cash and other passive assets we hold in assets that produce or are held for the production of active income.
If we are classified as a PFIC in any taxable year, a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation”)
may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on
the ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the United States federal income tax rules and such U.S. Holders may
be subject to burdensome reporting requirements. Further, if we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally
will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares. We do not intend to provide information necessary
for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different (and generally less adverse than) the general tax treatment for
PFICs. For more information see “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Rules.”
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We commenced operations in July 2010 through Shanghai Jupai Investment Group Co., Ltd., or Shanghai Jupai, in China. In August 2012, we incorporated Jupai
Investment Group as our offshore holding company in the Cayman Islands and changed our name from Jupai Investment Group to Jupai Holdings Limited, or Jupai, in
December 2014. In August 2012, we also established Jupai HongKong Investment Limited, or Jupai HK, in Hong Kong, which is wholly owned by Jupai.
In November 2013, we established Jupai Investment International Limited, or Jupai BVI, in the British Virgin Islands and transferred the shares of Jupai HK from Jupai to
Jupai BVI in January 2014.
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Due to lack of express permission under PRC law for foreign-invested enterprises to sell mutual fund products or asset management plans and to provide asset
management services in China, we provide asset management services and plan to sell mutual fund products and asset management plans through the subsidiaries of Shanghai
Jupai, a domestic PRC company. In July 2013, we established Shanghai Juxiang Investment Management Consulting Co., Ltd., or Shanghai Juxiang, our wholly-owned subsidiary
in China. Shanghai Juxiang has entered into a series of contractual arrangements with Shanghai Jupai and its shareholders. The contractual arrangements between Shanghai Juxiang
and Shanghai Jupai and its shareholders enable us to (i) exercise effective control over Shanghai Jupai; (ii) receive substantially all of the economic benefits of Shanghai Jupai in
consideration for the consulting services provided by Shanghai Juxiang; and (iii) have an exclusive option to purchase all of the equity interests in Shanghai Jupai when and to the
extent permitted under PRC laws and regulations.
As a result of these contractual arrangements, we are considered the primary beneficiary of Shanghai Jupai, and we treat it as our VIE under U.S. GAAP. We have
consolidated the assets, liabilities, revenues, expenses and cash flows that are directly attributable to Shanghai Jupai and its subsidiaries in our consolidated financial statements in
accordance with U.S. GAAP.
In 2013, in conjunction with the establishment of Shanghai Juxiang, we completed an internal business migration whereby almost all of our wealth management advisory
services personnel became employees of Shanghai Juxiang. We also started to use Shanghai Juxiang as the operating entity of our wealth management advisory services business
that are not subject to foreign investment restrictions. After this internal business migration, Shanghai Juxiang is a party to the business contracts related to our wealth management
advisory services and is the entity that receives one-time commissions and recurring service fees from this business. This internal migration caused no substantive change in the
management or operation of the relevant business because those business operations remain under the leadership of the same management team of our company and are operated
through almost identical wealth management advisory services personnel.
In July 2015, concurrently upon the completion of our initial public offering, we acquired Scepter Pacific, the holding company of E-House Capital. As consideration, we
issued 16,565,592 and 15,915,960 ordinary shares to E-House (China) Capital Investment Management Limited, or E-House Investment, and Reckon Capital Limited, respectively.
E-House Investment is a wholly owned subsidiary of E-House and Reckon Capital Limited is majority owned by Mr. Xin Zhou, our director.
E-House Capital’s business is conducted through Shanghai E-Cheng and its subsidiaries. Shanghai E-Cheng is a VIE of Scepter Pacific through the contractual
arrangements between Shanghai Baoyi and Shanghai E-Cheng and its shareholders. The contractual arrangements between Shanghai Baoyi and Shanghai E-Cheng and its
shareholders enable us to (i) exercise effective control over Shanghai E-Cheng; (ii) receive substantially all of the economic benefits of Shanghai E-Cheng in consideration for the
consulting services provided by Shanghai Baoyi; and (iii) have an exclusive option to purchase all of the equity interests in Shanghai E-Cheng when and to the extent permitted
under laws and regulations of China.
As a result of these contractual arrangements, we treat Shanghai E-Cheng as our VIE under U.S. GAAP. We have consolidated the assets, liabilities, revenues, expenses
and cash flows that are directly attributable to Shanghai E-Cheng and its subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.
In January 2016, we issued 9,591,000 ordinary shares and 2,880,000 ordinary shares to Julius Baer Investment Ltd. and SINA, respectively, at US$1.83 per share, in a
private placement.
In March 2016, we acquired 34% equity interest in and 70% contractual earning distribution right of UP Capital Management Limited, or UP Capital, which directly holds
100% equity interest in Juhui Financial Securities Limited, a Hong Kong entity holding the required license to provide financial services to the high-net-worth clients in Hong
Kong. We acquired additional 45% equity interest in UP Capital in 2017, and therefore owned 79% ownership and corresponding economic rights in UP Capital since then. In
December 2019, we transferred all of our equity interests in UP Capital to a subsidiary of E-House. In May 2016, we acquired 85% equity ownership of Non-Linear Investment
Management Limited which directly holds 100% equity interest in Jucheng Insurance Broker Ltd., a Hong Kong entity holding the required license to provide the insurance
brokerage services in Hong Kong.
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In connection with our investment in UP Capital and acquisition of Non-Linear Investment Management Limited in 2016, we opened our Hong Kong office in May 2016
to expand our overseas business.
In September 2016, we acquired 100% equity interest in Shanghai Jupai Yongyu Insurance Brokers Co., Ltd. (previously known as Jiangsu Kang’an Insurance Brokers
Co. Ltd.), a PRC entity holding the required license to provide the insurance brokerage services in China.
In September 2017, we completed the acquisition of a non-controlling interest in Runju, a company primarily operates an online platform which facilitates the transfer of
debt and equity securities, from Shanghai Kushuo Information Technology Limited and an individual shareholder. Shanghai Kushuo Information Technology Limited is a
subsidiary of E-House.
Our principal executive offices are located at Global Creative Center, T2, 15/F, No 166 Min Hong Road, Minhang District, Shanghai 201100, the People’s Republic of
China. Our telephone number at this address is +86-21-5226-5851. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO
Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC on
http://www.sec.gov. You can also find information on our website http://jupai.investorroom.com.
B. Business Overview
We are a leading third-party wealth management service provider focusing on distributing wealth management products and providing quality product advisory services to
high-net-worth individuals in China. In China, third-party wealth management service providers generally refer to those service providers who are not associated with any financial
institutions. Our integrated business model features an established wealth management product advisory services operation that is complemented by our growing in-house asset
management capabilities. The asset management business, which we started in 2013, not only diversifies our wealth management product offerings and increases our
competitiveness, but also enhances our overall profitability.
We provide our wealth management product advisory services mainly to China’s high-net-worth individuals who have investable assets in excess of RMB3.0 million or
have an average annual income in excess of RMB500,000 for the past three years. With our network of 31 client centers in 30 economically vibrant cities as of December 31, 2020,
we strategically bring our services closer to our clients by maintaining a physical presence in key markets in mainland China and Hong Kong. We maintained a large high-net-
worth client base. In 2018, 2019 and 2020, we had 8,638, 2,973 and 1,700 active clients, respectively.
Our typical wealth management service team is centered around an experienced wealth management product advisor who maintains regular contact with and facilitate the
execution of transactions for our clients. Each wealth management product advisor is supported by several client managers, who are tasked with searching for and making contact
with potential clients, and a centralized client care unit that specializes in maintaining client relationships. Our wealth management product advisors, many of whom possess
industry-recognized qualifications, are primarily recruited from reputable institutions in the wealth management industry and have an average of approximately 9 years of industry
experience. We believe our wide spectrum of value-added services offered, before, during and after distribution of wealth management products have helped us generate client
loyalty. Among our active clients in 2018, 2019 and 2020, approximately 73.5%. 75.0% and 83.1% of them had previously purchased wealth management products that we
distribute at least once before their latest purchase, demonstrating our client retention ability.
We serve as a one-stop wealth management product aggregator. In addition to the products that we develop and manage in-house, we also source products from third
parties. In 2019, we sourced third-party products from eight domestic and one overseas product providers for recommendation to our clients. Our product choices include fixed
income products, private equity and venture capital funds, public market products and other products such as insurance products and tailored alternative investments. In 2018, 2019
and 2020, the aggregate value of wealth management products we distributed reached RMB30.3 billion, RMB9.8 billion and RMB6.5 billion (US$1.0 billion), respectively. Our
brand is built upon our rigorous risk management and product selection standards, which ensures the quality of products that we distribute. We draw on in-house and external
expertise to carefully screen each product we distribute from legal and commercial perspectives.
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Our wealth management product advisory services are complemented by our ability to provide asset management services in the management and advisory of real estate
or related funds, other specialized fund products and funds of funds. As of December 31, 2020, the amount of total assets under our sole or shared management was RMB33.8
billion (US$5.2 billion), compared to RMB41.8 billion as of December 31, 2019. By participating in the management of a fund where our clients are some of the investors, we are
well positioned to develop ongoing relationships with our clients and improve our understanding of their varied expectations for investment products, which in turn helps us and the
product providers to design more attractive and competitive products.
We generate our revenues in connection with our wealth management product related services from one-time commissions and recurring service fees paid by third-party
product providers, corporate borrowers and our own clients. The one-time commissions are calculated based on the value of wealth management products we distribute to our
clients. Where we act as the product provider for our self-developed products, we generate revenues from one-time commissions from the corporate borrowers and product
provider. During the life cycle of some of the public market products and fund products, we charge product providers or corporate borrowers recurring service fees for our ongoing
services. Prior to 2015, one-time commissions received from distribution of fixed income products in connection with our wealth management product advisory services accounted
for substantially all of our revenues. We also generate revenues from one-time commissions for our fund formation services and from recurring management fees for managing the
funds. These fees are typically computed as a percentage of the capital contribution in the funds. We expect the recurring management fees to also include performance fees or
carried interest paid by funds that we manage or co-manage mostly upon maturity of the relevant funds. Starting from 2016, we offered consulting services to some peer firms in
the asset management industry and other companies seeking for equity investments. We charged those firms consulting service fees for our services, which are negotiated on a case-
by-case basis depending on the nature and extent of our services.
Our revenues of 2020 declined as compared to that of 2019 primarily due to the uncertainty of macro-economic conditions and the regulatory changes of the industry. Our
net revenues decreased from RMB1.3 billion in 2018 to RMB0.8 billion in 2019 and to RMB0.4 billion (US$59.5 million) in 2020. We recorded a net loss attributable to our
shareholders of RMB387.7 million, RMB164.7 million and RMB31.4 million (US$4.8 million) in 2018, 2019 and 2020, respectively. Our net revenues in 2020 from one-time
commissions, recurring management fees, recurring services fees and other service fees were RMB162.2 million (US$24.9 million), RMB98.0 million (US$15.0 million),
RMB128.0 million (US$19.6 million) and nil, respectively.
Our Services
We provide wealth management product advisory, asset management and other services. These complementary service capabilities enable us to offer customized, value-
adding and integrated services to our high-net-worth clients. Our clients’ sizeable amount of investable assets makes us an attractive and reliable source of funds to investment
product providers. Our ability to design products further expands our clients’ investment options, and our participation in the ongoing management of investment projects helps
forge long-term relationships with both our clients and product providers and corporate borrowers.
Wealth management product advisory services
To help our high-net-worth clients attain their diversified financial objectives, we provide third-party advice on how their investable assets should be allocated. We provide
our clients with a wide spectrum of value-added services before, during and after distribution of wealth management products by assisting our clients in crafting their wealth
management plans in light of their risk appetite, recommending investment opportunities carefully selected from a vast array of competitive products including fixed income
products, private equity and venture capital funds products, public market funds and other products and keeping them informed of the latest market and product intelligence. We
require our wealth management service personnel to advise our clients based on their investment needs. For our clients who need advice on product selection, we require our wealth
management service personnel to select and suggest products with features and terms that best suit the investor’s risk appetite and investment horizon. When, for instance, a client
decides to invest in one-year term fixed income products, we recommend the specific product that we believe is of the highest quality among those products. To help achieve this,
we offer our wealth management service personnel with the same internal commission rates for all products with similar feature and term notwithstanding the varying levels of
external commission rates we receive from different product providers. Our clients enter into contractual arrangements with the product providers to purchase investment products
directly from them. We generally charge product providers or the underlying corporate borrowers a one-time commission based on the investment amount made by our clients.
Where we act as the product provider for our self-developed products, we generate revenues from one-time commissions from the corporate borrowers and product provider. We
also charge recurring service fees during the life cycle of certain wealth management products from the underlying product providers or corporate borrowers for services we
provide, such as investor coordination, investment advisory services and distribution of periodic product performance reports.
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We consider the following aspects of our services key to the operation of our wealth management product advisory services:
Our high-net-worth clients
We provide our wealth management product advisory services mainly to China’s high-net-worth individuals who have investable assets in excess of RMB3.0 million or
have an average annual income in excess of RMB500,000 for the past three years. Our client base consists of entrepreneurs, corporate executives, professionals and other investors.
In 2018, 2019 and 2020, we provided wealth management product advisory services to 8,638, 2,973 and 1,700 active clients, respectively. In 2018, 2019 and 2020, the aggregate
value of wealth management products we distributed reached RMB30.3 billion, RMB9.8 billion and RMB6.5 billion (US$1.0 billion), respectively. We believe our clients are loyal
to our brand and services. Among our active clients in 2018, 2019 and 2020, approximately 73.5%, 75.0% and 83.1% of them previously purchased wealth management products
that we distribute at least once before their latest purchase, demonstrating our client retention abilities.
Our client service model
We operate under a proven and cost-efficient client service model, which features a team approach that covers the full service cycle for each client, as illustrated by the
diagram below. A typical wealth management service team is centered around an experienced wealth management product advisor who maintains regular contact and facilitates the
execution of transactions with our clients, and each wealth management product advisor is supported by several client managers and a centralized client care unit. The client
managers are tasked with sourcing potential clients and introducing our services to them. The client managers leverage various resources in performing their task, including their
social connections and referrals from existing clients. Assisted by these client managers, our wealth management product advisors meet individually with potential clients to assess
their risk profile, understand their financial objectives and craft tailored wealth management plans for them. We have a vast array of investment products for our wealth
management product advisors and clients to choose from in order to develop tailored portfolios. To sustain and further improve our service quality, we also have a centralized client
care unit dedicated to the ongoing maintenance of client relationships and collection of client feedback. Members of the client care unit communicate with our clients on a regular
basis to evaluate their level of satisfaction and to explore the need for further services. This integrated client service model facilitates new client development, ensures quality and
consistent professional services and promotes long-term relationships with our existing clients.
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We place heavy emphasis on recruiting, training and motivating our advisors and other client service team members. Our wealth management product advisors are
primarily recruited from private banking teams of both domestic and foreign banks, and other domestic third-party wealth management service providers with an average of
approximately 9 years of wealth management product advisory industry experience. Our wealth management product advisors are qualified to provide wealth management services,
while many of them possess industry-recognized certifications, including CFP, CFA and qualifications to conduct securities, fund and insurance businesses. We require these wealth
management product advisors to possess necessary knowledge of financial products and a good understanding of the PRC economy and various market trends. We sponsor
regularly scheduled information sessions, seminars, workshops and other training events for various levels of our service teams to keep them informed of the latest market trends,
familiarize them with new product types and improve their marketing and advisory skills. From time to time, we organize company-wide conferences where our in-house experts
work with third-party consultants to design and offer comprehensive training to our mid-level-and-above management. In addition, by implementing a team structure for our client
services, we consciously encourage virtuous competition among the client managers to retain the personnel with the best client development abilities. Compensation of our service
team members is largely performance-based. A large part of their compensation is linked to the number of new clients that they bring in and the amount of investment made by our
clients following their advice.
Our coverage networks
With our network of 31 client centers in 30 economically vibrant cities in mainland China and Hong Kong as of December 31, 2020, we bring our services closer to our
clients by maintaining a physical presence in key markets in China, primarily covering the Bohai Rim, the Yangtze River Delta and the Pearl River Delta. We strategically locate
our client centers in cities with high concentrations of high-net-worth individuals, strong growth potential and sufficient supply of industry talents. As of December 31, 2020, we
operated two client centers in Shanghai and one client center in 29 other cities in mainland China and Hong Kong.
Asset management services
Our wealth management product advisory services are complemented by our asset management services in the management and advisory of real estate or related funds,
other specialized fund products and funds of funds. We substantially strengthened our asset management services with our acquisition of E-House Capital in 2015. We provide fund
management services as well as advisory and administrative services, serving as the general partner or co-general partner alongside another management company, to limited
partnership funds. Serving as the general partner, co-general partner or manager of the funds under management, we charge a recurring management fee for actively managing the
fund’s investments. We share performance fees or carried interest towards the successful completion of the investment projects. Our ability to provide these asset management and
advisory services provides us with an additional source of revenue.
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By participating in the management of a fund where our clients are some of the investors, we are well positioned to develop ongoing relationships with our clients and
improve our understanding of our clients’ expectations for investment products. A significant portion of the products that we help to develop are in the form of private investment
funds with real estate as the underlying asset. For those products, the real estate developers benefit from the combination of our industry knowledge and understanding of financial
products. Whereas products designed by other providers are typically financed with debt instruments, we are able to design innovative products that feature equity or a combination
of debt and equity elements. Products with equity elements are increasingly welcomed by real estate developers because of the higher flexibility in satisfying their financial needs.
Along with the trends of the regulatory changes, we have increased our emphasis on products of equity investment in real-estate projects since 2018. At the same time, those self-
developed real estate investment products offer our clients with an alternative to invest in the sharing of long-term profits instead of fixed returns. For the products that we develop
and manage in-house, we invest the product proceeds pursuant to the use of proceeds as provided for under the respective product’s subscription documents.
The table below lists the funds under our management invested in each product category for the three years ended December 31, 2020.
Product Categories (Asset Under Management
Fixed Income Products
Private equity and venture capital fund products
Public Market Products
Other Products
(1)
)
2018
%
As of December 31,
2019
%
2020
%
35
60
3
2
32
63
2
3
30
63
3
4
(1) Our “Assets Under Management”, or “AUM”, refers to the amount of capital contributions made by investors to the funds we manage, for which we are entitled to receive
management fees. The amount of our AUM is recorded and carried based on the historical cost of the contributed assets instead of fair market value of assets for almost all our
AUM. Our total AUM was RMB56.8 billion, RMB41.8 billion and RMB33.8 billion (US$5.2 billion) as of December 31, 2018, 2019 and 2020, respectively.
Other services
Starting from 2016, we offered consulting services to some peer firms in the asset management industry and other companies seeking for equity investments. We provide
consulting services to them and charge them service fees determined on a case-by-case basis. In addition, we work closely with reputable insurance companies or brokerage firms
to distribute insurance products to China’s high-net-worth population, including basic coverage policies and annuities, as well as products that come with investment attributes.
With our competitive real estate background, we often work closely with developers to structure new products, offering advice on financial as well as commercial terms and serving
an advisory role in financing activities.
Our Product Offerings
Product Categories
We serve as a one-stop wealth management product aggregator and recommend both third-party and self-developed products to our clients. In addition to the products that
we develop and manage in-house, we also source products from third parties. In 2020, we sourced products from six domestic and one overseas product providers for
recommendation to our clients. Our wealth management product advisors are required to select and recommend products with the goal of maximizing our clients’ interests. We
select, evaluate and recommend the following categories of products, whose underlying assets may overlap with each other:
· Fixed income products, which refer to projects that are distributed or managed by us with potential prospective fixed rates of return and which mainly include
investments in corporate bonds, including real estate-related bonds, or government bonds, either directly or via vehicles such as asset management plans
sponsored by mutual fund management companies or securities companies and fund of funds products where the fund recipients or corporate borrowers are not
yet defined at the time of investment. The underlying borrowers of the government or corporate bonds mainly include top-ranking real estate developers and
urban investment companies that are affiliated with local governments that have good credit ratings. To date, fixed income products, particularly real estate or
related fund products, account for a significant portion of our wealth management.
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· Private equity and venture capital funds, including (i) direct investments in private equity and venture capital funds sponsored by leading domestic or international
asset management companies and indirect investments in such funds via participation in asset management plans sponsored by mutual fund management
companies or securities companies, and (ii) funds investing in real estate related projects through equity investment vehicles managed by us.
· Public market products, which refer to a type of wealth management products that invest in publicly traded securities and mutual funds in China and which mainly
including investments in securities publicly traded on the capital markets via vehicles such as privately raised funds investing in publicly traded stocks and bonds,
sponsored by leading asset management companies in China.
· Other products, including overseas insurance products and foreign-currency denominated alternative investments. We work with insurance companies and
insurance brokerage firms both in China and overseas to introduce products such as whole life coverage and universal life coverage. Our product development
team often participates in the product design process to develop customized and innovative financing structures and offer foreign-currency denominated products
that are an alternative to traditional investments.
The fixed income products we distributed that have real estate developers as corporate borrowers accounted for 68%, 100% and 100% of the total transaction value of all
fixed income products we distributed in 2018, 2019 and 2020, respectively. The total transaction value of the private equity and venture capital products accounted for around 16%
of the total transaction value of all the products we distributed in 2020. Almost all of the total transaction value of all private equity and venture capital products we distributed in
2020 were invested in real-estate related assets. The total transaction value of the real estate-related products we distributed (including fixed income products and private equity and
venture capital products) accounted for 79% of the total transaction value of all products we distributed in 2020. More than 80% of those products are secured by the equity
interests of the project company or the guarantees provided by the project company’s affiliates. Such real estate development-related products are predominantly products relating
to residential apartment complexes and commercial properties in urban areas with demonstrated growth potential. To cater to the investment preferences of our clients, many of the
real estate development-related products that we select have underlying projects in economically developed areas in China or other populous areas in China with promising
economic growth potential. In 2018, 2019 and 2020, 17.5%, 5.4% and 13.7% of the aggregate amount of the real estate development-related products we distributed were to fund
projects in Beijing, Xi’an, Shanghai and Suzhou, respectively.
To date, fixed income products, particularly real estate or related fund products, account for a significant portion of our wealth management product related revenue
streams. This concentration correlates with the relatively conservative investment appetite and deeply rooted perception among Chinese investors that real estate investments
provide more investment transparency and security. In recent years, we started to design unconventional or non-traditional investment products in niche markets to cater to the
individualized investment needs and tastes of some of our clients.
The products we distribute may take on a variety of legal structures, including contractual funds, limited partnership funds, the asset management plans or private bond
funds administered by a local exchange. “Contractual fund” refers to the rights and obligations regarding investment management among the investor, the manager of the investor’s
funds and the custodian of such funds in accordance with the contractual fund contracts, under which the fund manager manages the investor’s fund as its agent. Instead of being
owned by a separate legal entity, the funds to be invested remain the legal property of the investor held in a custody account separate from the fund manager’s own assets or other
funds under its management. The custodian oversees the usage of the fund by the fund manager. “Asset management plan” refers to an investment arrangement under which a
mutual fund management company or its subsidiary (unless otherwise indicated, collectively referred to as mutual fund management company) or securities company, in its
capacity as trustee, manages funds entrusted to it by multiple sources for the interest of the entrusting parties by investing the entrusted funds in pre-determined assets or projects to
generate returns for the beneficiaries. Investments in asset management plans are referred to as asset management products. “Private bond fund” refers to an investment fund that
invests in debt instruments which are placed via non-public means to qualified investors and which are regulated by and traded on authorized exchanges in China.
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In products we develop and manage in-house or some of the third-party products we help design, we may provide asset management services as a manager of the
contractual funds or take on the role of general partner or co-general partner in the limited partnership fund. In products where there is a guarantee provided by the parent of the
underlying borrowing entity or a third-party guarantee company, the guarantor would typically provide the guarantee to the contractual funds, limited partnership funds or private
bond funds, as the case may be. In terms of fund settlement, the proceeds raised may be released to the borrowing entities through a number of structures, including for example, a
unilateral trust arrangement or direct equity investment in an entity set up by the corporate borrower along with a shareholder loan to that entity in accordance with PRC laws and
regulations.
Thirteen of the products that we distributed in 2020 were subject to redemption by our clients, and the aggregate value of these products that remained subject to possible
redemption amounted to RMB6.4 billion, RMB0.6 billion and RMB0.7 billion (US$0.1 billion) as of December 31, 2018, 2019 and 2020, respectively. None of these products, if
redeemed, will require a refund of the applicable fees we collected.
Product Development and Distribution
We have a team focused on product development, a majority of whom have experience in fund raising and management operations or real estate related work experience.
As of December 31, 2020, the team was comprised of 126 members. We started to develop products in-house in 2013. In terms of value, approximately RMB28.2 billion, RMB9.2
billion and RMB6.4 billion (US$1.0 billion) of the products that we distributed in 2018, 2019 and 2020, respectively, were either products developed and managed by us or third-
party products that we helped design. To date, we have distributed a majority of the wealth management products that were developed and managed by us and a majority of the
wealth management products that we participated in designing.
For sizable projects with demanding fund-raising timetables, we sometimes use third-party distribution channels in addition to our in-house sales force. These third-party
channels consist primarily of third-party wealth management service providers that operate on a smaller scale compared to us. We select them based on market reputation and our
prior working experience with them, and we pay channel fees to these third-party distribution channels based on the value of products distributed by them.
Product Selection, Risk Management and Compliance Control
We draw on in-house and external expertise and follow strictly implemented procedures to carefully screen each product we distribute from legal and commercial
perspectives. Specialists from our product development, finance and legal departments perform rigorous due diligence on each product candidate. Each product candidate is
evaluated from multiple aspects including potential financial performance, corporate structure and history of the sponsor qualifications of the investment manager and legal, tax and
employment matters. In particular, we stress the importance of product compliance with applicable PRC laws, rules and regulations. A team of our legal staff carefully reviews the
registration or approval documents and registration or filing requirement that are applicable to each product to confirm regulatory compliance. When necessary, we engage external
professionals to avail ourselves of their expertise in various specialized areas.
Our risk control and viability review committee, which is comprised of our executive officers, other senior managers and heads of legal and financial teams, holds regular
sessions to review product selection. In addition to reviewing due diligence findings, this committee also obtains input from our manager sponsoring such products and other in-
house experts. A prospective product needs to be approved by at least a majority of the committee members before it is launched. Diagram A below illustrates our strictly
implemented product screening procedures that a third-party product is subject to before our wealth management product advisors can recommend it to our clients.
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For a product that we develop in-house, in addition to the selection procedures applicable to third-party products, we also require that it undergo a viability test conducted
by our risk control and viability review committee as shown in the following Diagram B. We actively participate in the initial project study, site visit, financing model development
and profit projection of the products that we develop and manage in-house, leveraging our expertise in areas such as real estate development and utilizing leading databases and
reports, including CRIC. We analyze the project’s self-generated cash flow, impose third-party guarantee requirements and establish minimum collateralization levels to select only
those products that can weather adverse market changes.
Marketing and Brand Promotion
We believe word-of-mouth is an especially effective marketing tool for the wealth management product advisory business, which mainly targets high-net-worth
individuals. We intend to engage in nationwide marketing initiatives to further raise our brand awareness while continuing to improve client satisfaction to strengthen our word-of-
mouth referrals. We also encourage our employees to introduce or recommend new clients to us by providing incentive bonus.
In addition to word-of-mouth and internal referrals and recommendations, we also enhance our brand recognition and attract potential high-net-worth clients through a
variety of offline and online marketing methods:
Offline Marketing Activities. In order to attract new clients and foster client loyalty, all of our clients are members of our high-end membership club, Paikehui (派客会).
The membership is free of charge. Through Paikehui we organize frequent and targeted high-profile events, such as product roadshows in cities across China and one-on-one
wealth management salons from time to time. These events enable us to present our market outlook and introduce products while affording our members the opportunity to
socialize with other Paikehui members. These events are often co-organized by our business partners and well-established industry players, such as top-ranked real estate
developers, financial institutions and reputable opinion leaders to provide in-depth and up-to-date market insights and knowledge to our clients. In 2017, we organized a series of
investment strategy conferences and forums. In 2018, we held the first Lujiazui Real Estate Finance Forum and a series of investment strategy conferences and forums. In 2019, we
co-hosted a finance forum with Shanghai Development Research Foundation under the theme of challenges and responses to maintaining stable economic growth. In 2020, we co-
hosted the 2020 China Economy Forum with Shanghai Development Research Foundation under the theme of China’s 14th national five-year plan. Some of our clients are also
members of the J+ Club, a high-end membership club designated for our ultra-high-net-worth clients. We aim to build a financial ecosystem for those ultra-high-net-worth
individuals through J+ Club by connecting them with famous economists, business leaders and successful investors. In August 2016, we organized our first group of members to
attend the investment seminar hosted by the Wharton Business School in the United States. In August 2017, we held first annual celebration event of J+ Club in Sanya, Hainan
Province.
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Online Marketing Activities. To further promote our brand, we also take advantage of the Internet and various mobile social network applications, such as WeChat and
Weibo, through which we introduce basic services information, market research and updates to our members. For example, one of our WeChat official accounts, Jupai Research
Institution, delivers research results to its subscribers regularly. In 2020, we hosted most of our activities online due to the outbreak of COVID-19, and we invited certain
economists to provide a series of online investment analysis through WeChat official accounts to our subscribers.
Information Technology Infrastructure
We currently use a combination of commercially available and custom-developed software and hardware systems, including (i) “Jupai Online,” a mobile application that
integrates our online system in assisting our client managers to provide services on the mobile platform for our clients and also collect and analyze our clients’ individualized
transaction information; and our office automation system; (ii) “iJupai,” a system platform which is empowered by the DingTalk system of Alibaba Group and independently
developed by us that integrates our internal work streams and information flow on one single platform and increases our employees’ work efficiency; and (iii) the Asset Risk
Control Management Platform, a platform which assists us in investment project process management, post-investment management and information disclosure. We will further
enhance our technology infrastructure to improve the operation and communication efficiency. We use big data analytics to further strengthen our product design and customer
service capabilities, and we hold online training sessions for our client managers through our e-learning system. We expect to continue upgrading our system and IT infrastructure
to further enhance our client service and product management capabilities. We expect to continue focusing on the establishment and development of a financial technology platform
to innovate products, optimize processes and upgrade services.
Competition
While the wealth management services industry in China is growing rapidly, it is still at an early stage of development and is highly fragmented. We operate in an
increasingly competitive environment and compete for clients on the basis of product choice, client service, reputation and brand recognition. Our principal competitors include:
· Third-party wealth management service providers. Our direct competition comes from other third-party wealth management service providers, some of which are
relatively well developed, such as Noah Holdings Limited and Hywin Holdings Ltd. We believe that we can compete effectively due to the quality of our client-
oriented and customized services, our product sourcing and development capabilities and our rigorous risk management systems, in light of the great potential of
the wealth management services market.
· Commercial banks, trust companies and insurance companies. Many commercial banks, trust companies and insurance companies rely on their own wealth
management arms and sales forces or establish subsidiaries primarily engaged in wealth management to distribute their products. We believe that we compete
effectively with commercial banks, trust companies and insurance companies due to a number of factors, including our independence, which positions us as a
centralized wealth management product aggregator to provide and recommend suitable wealth management product advice and product combinations that suit our
clients’ financial objectives.
· Asset management service providers. A number of mutual fund management companies, securities companies and other fund managers have emerged in the asset
management business in China in recent years. We believe that we compete effectively due to the quality of our services, our fund sourcing capabilities from third
parties and our in-depth experience in industries such as real estate development.
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· Internet financial service providers. As the wealth management industry rapidly evolves and moves online, we may face competition from new market entrants
that distribute wealth management products through websites or mobile platforms.
Intellectual Property
Our brand, trade names, trademarks, trade secrets, proprietary database and research reports and other intellectual property rights distinguish the products we distribute and
our services from those of our competitors and contribute to our competitive advantage in the high-net-worth wealth management services industry. We rely on a combination of
trademark and trade secret laws as well as confidentiality agreements and non-compete covenants with our wealth management product advisors and other employees, our third-
party wealth management product providers and other contractors. We have 14 registered trademarks in China and seven registered domain names. Our registered domain names
include jpinvestment.cn, jp-fund.com and jupaionline.com, among others.
Insurance
We participate in government sponsored social security programs including pension, unemployment insurance, childbirth insurance, work-related injury insurance,
medical insurance and housing insurance. We do not maintain business interruption insurance or key-man life insurance. We consider our insurance coverage to be in line with that
of other wealth management companies of similar size in China.
Regulation
This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.
Regulations on Asset Management Plans
According to the CSRC, qualified mutual fund management companies, securities companies and other financial institutions may be entrusted by clients to engage in asset
management business.
Asset Management Plans by Securities Companies
In April 2018, the PBOC, the CBIRC, the CSRC and SAFE joint issued the Asset Management Guidance. Pursuant to the Asset Management Guidance, investors of asset
management plans are divided into non-specific public and qualified investors. Qualified investors shall be natural persons, legal entities or other organizations that have
corresponding risk identification ability and risk-taking ability to invest in a single asset management production no less than a certain amount and meets certain requirements. The
implicit guarantee of the minimum amount of return, the break-even return of principal or the minimum amount or rate of loss to investors is not allowed under such guidance.
In October 2018, the CSRC promulgated Administration Measures on Privately Offered Asset Management Business of Securities and Futures Operation Institutions, or
the Asset Management Administration Measures. The Asset Management Administration Measures replaced former administration measures on assets management business of
fund companies, securities companies and futures companies.
The Asset Management Administration Measures apply to privately offered asset management plans established and managed by securities and futures operation
institutions (including securities company, fund management company, futures companies and subsidiaries established by the aforesaid institutions that engage in privately offered
asset management business) through private placement of funds or acceptance of property entrustment, with a custodian institution acting as the asset custodian, and makes
investments according to the asset management agreement. Securities and futures operation institutions engaging in privately offered asset management business shall be approved
by the CSRC. The securities and futures operation institutions may sell its asset management plans on its own or through an agency qualified to sell mutual funds. The securities
and futures operation institutions, custodian, selling agency shall ensure the authenticity, accuracy, completeness and promptness of information disclosure. The assets management
plans shall be raised to qualified investors in a non-public manner, and securities and futures operation institutions and selling agencies shall perform appropriate management
obligations. Selling agency shall provide investors’ information to the securities and futures operation institutions within prescribed time limit. For the sale of asset management
plan, selling agency shall strictly fulfill the appropriate management obligations, fully know the investors and classify the investors, conduct risk assessment on the asset
management plan, follow the risk match principle, recommend appropriate products to investors. Selling agency is not allowed to mislead investors to purchase products not
matching their risk tolerance, to sell asset management plans to investors with lower risk identification capabilities and lower risk tolerances below the product risk levels. Records
relating to the sale of asset management plans shall be kept at least 20 years from the termination date of the asset management plans. The Asset Management Administration
Measures provided for a transition period ending on December 31, 2020 for rectification, which has been further extended to December 31, 2021.
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On October 2018, the CSRC promulgated Administration Measures on Operation of Privately Offered Asset Management Plan of Securities and Futures Operation
Institutions, or the Asset Management Plan Operation Measures, which prescribed the raise, investment, risk management, valuation, information disclosure and other operation
activities of asset management plans by securities and futures operation institutions. Securities and futures operation institutions and their entrusting selling agencies shall fully
acknowledge investors’ capital source, individual and family financial assets and debts, and shall adopt necessary measure to verify. The Asset Management Plan Operation
Measures provided for a transition period ending on December 31, 2020 for rectification, which has been further extended to December 31, 2021.
On July 3, 2020, the PBOC promulgated the Rules for Identification of Standardized Debt Assets to clarify the criteria of standardized debt assets, pursuant to which the
definition of non-standardized debt assets is more stringent compared to the current industry practice.
On November 8, 2019, the Supreme People’s Court released the Summaries of the National Conference for the Work of Courts in the Trial of Civil and Commercial Cases,
or the Summaries, which, among others, imposes additional obligations on institutional sellers, including but not limited to additional suitability obligations and additional
information disclosure and explanation obligations to financial customers. According to the Supreme Court’s Summaries, institutional sellers include issuers of financial products,
sellers of financial products, and financial services providers. Each institutional seller has suitability obligations, which refer to the obligations to know the customers, know the
products and sell or provide appropriate financial products or services to a suitable financial consumer, where the institutional sellers are obliged to perform their duties in the sale
of, among others, high-risk financial products such as bank wealth management products, insurance investment products, trust wealth management products, brokerage collective
wealth management plans, leveraged fund shares, options and other over-the-counter derivatives to financial consumers. Under certain circumstances, an issuer of financial product
and a seller of financial product may be deemed jointly and severally liable for the losses suffered by the financial customers due to their purchase of such financial product, if
either of the issuer or the seller of the financial product fails to perform its corresponding suitability obligations to the financial customers. If any financial customers suffer the
losses in the purchase of any financial products, resulted from any financial services provider’s failure to perform the suitability obligations, the financial services providers are
obliged to compensate the financial customers for their losses. When deciding if an institutional seller has fulfilled its information disclosure and explanation obligations to
financial customers, the court may combine the objective standard, meaning that if a rational person could understand, together with a subjective standard, meaning that if a
financial customer could understand, based on the risk of the financial products and investment activities and the actual condition of the financial consumer in question. The
Supreme Court’s Summaries is the practical guidance for the courts when handling disputes relating to certain newly emerged issues in civil and commercial trials.
On December 28, 2019, the Standing Committee of the National People’s Congress has enacted the amended Securities Law of the PRC, which came into effect on
March 1, 2020. The amended Securities Law of the PRC provides that, among others, asset management products should be deemed as securities and the rules of issuance and
trading of asset management products should be set out by the State Council. Therefore, the regulations relating to asset management plans and mutual funds are expected to be
further changed in accordance with the amended Securities Law of the PRC in the future.
On January 1, 2021, the Civil Code of the PRC came into effect, which was promulgated by the National People’s Congress. The Civil Code of the PRC provides that,
among other, when a form of standard terms and conditions is used for signing a contract, the party providing such standard terms and conditions shall take reasonable measures to
remind the counterparty of any of these standard terms which will waive or limit the liabilities of the providing party or have major interests with the counterparty. If the providing
party fails to perform this obligation, the counterparty may claim that these standard terms are invalid. The Civil Code of the PRC also has provisions relating to personal
information protection, including, among other, prohibition on infringing individuals’ personal life by call, message or email, and requirement for individuals’ prior consent for
collection, storage and use of their personal information.
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Regulations on Private Equity Investment Products
In China, Renminbi denominated private equity funds are typically formed as limited liability companies or partnerships, and therefore, their establishment and operation
is subject to the PRC company laws or partnership laws. The PRC Partnership Enterprise Law was revised in August 2006 when it expanded the scope of eligible partners in
partnerships from individuals to legal persons and other organizations and added limited partnerships as a new form of partnership. A limited partnership shall consist of limited
partners and at least one general partner. The general partners shall be responsible for the operation of the partnership and assume joint and several liabilities for the debts of the
partnership, and the limited partners shall assume liability for the partnership’s debts limited by the amount of their respective capital commitment.
CSRC is now in charge of the supervision and regulation of private funds, including, but not limited to, private equity funds, private securities investment funds, venture
capital funds and other forms of private funds. Further, CSRC authorized the Asset Management Association of China, or AMAC, to supervise the registration of private fund
managers, record filing of private funds and perform its self-regulatory role. Thus, the AMAC formulated the Measures for the Registration of Private Investment Fund Managers
and Filling of Private Investment Funds (for Trial Implementation), or the Measures, which became effective as of February 7, 2014, setting forth the procedures and requirements
for the registration of private fund managers and filing of private funds to perform self-regulatory administration of privately placement funds. On August 21, 2014, CSRC
promulgated the Interim Provisions for the Supervision and Management of Private Equity Funds, which further clarified the self-regulatory requirements for private funds. Local
governments in certain cities, such as Beijing, Shanghai and Tianjin, have promulgated local administrative rules to encourage and regulate the development of private equity
investment in their areas. These regulations typically provide preferential treatment to private equity funds registered in the cities or districts that satisfy the specified requirements.
Such local administrative rules may be changed or preempted according to the new regulations to be issued by CSRC. We have completed the private fund manager registration and
filing of private funds under our management with AMAC for the relevant entities that act as private fund managers, including three asset management companies that Shanghai
Jupai owns equity interests in and four asset management companies or partnerships that Shanghai Baoyi owns equity interests or capital interests in.
In April 2016, AMAC issued the Measures for the Administration of the Fund Raising Conducts of the Private Investment Funds, or the Fund Raising Measures.
According to the Fund Raising Measures, only two types of institutions are qualified to conduct fund raising activities for private investment funds: (i) private fund managers which
have registered with AMAC (only allowed to raise fund for the funds established and managed by such fund managers); and (ii) the fund distributors that have are the members of
AMAC and obtained the fund distribution license. In addition, the Fund Raising Measures set out detailed procedures for conducting fund raising business and introduced new
process such as “cooling-off period” and the “re-visit”. We are qualified to conduct the fund raising activities of the funds managed by us and are complying with such procedures
when raising the fund.
In February 2017, AMAC released the No. 4 Filing Rules to regulate the securities and futures institution’s investment into the real estate area. According to the No. 4
Filing Rules, private fund managers shall follow relevant rules when investing into real estate development enterprises or projects. Among others, the No.4 Filing Rules specify that
AMAC will not accept the filing application of private asset management plans or private funds investing in ordinary residential properties in “popular cities”, including Beijing,
Shanghai, Guangzhou, Shenzhen, Xiamen, Hefei, Nanjing, Suzhou, Wuxi, Hangzhou, Tianjin, Fuzhou, Wuhan, Zhengzhou, Jinan and Chengdu, by way of debt investment, the
specific types of which are identified in the No. 4 Filing Rules. The No. 4 Filing Rules will influence our business in this regard and we have adjusted our investment strategies and
started to increase our investment in real estate or related assets in the cities other than the “popular cities”. We currently are not able to tell how far the influence will be and
whether the filing rule for private real estate investment fund will change in the future.
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In January 2018, AMAC issued Notice regarding Filing of Private Investment Fund, or the Filing Notice. The Filing Notice provides that private investment funds are
prohibited from raising funds from unqualified investors. It also provides that private investment fund manager should file the contracts and other documents of the fund with
AMAC on a timely basis and keep proper records of all filing materials. In addition, the Filing Notice also provides that private investment funds should not make debt
investments, including (i) investing in private loans, small loans or factoring facilities or other assets or beneficiary interests of which the nature is borrowing; (ii) lending money
through entrusted bank loans or trusts; and (iii) conducting the aforementioned activities through the form of special purpose vehicle or investment enterprise. AMAC will not
approve the filing of private investment funds that are engaged in the unpermitted debt investment activities. Starting from February 2018, we have ceased to make any new
investment in debt assets through our private investment funds.
In August 2018, AMAC issued an explanation specifying requirements for application for private fund manager engaging in cross-class investment, which covers
requirements on actual controller, equity structure stability, senior management, and initial fund raising scale.
In September 2018, AMAC issued the Notice on Strengthening the Self-Regulatory Administration of Information Disclosure by Private Investment Fund, which
emphasizes the information disclosure obligations of private fund manager. Pursuant to the notice, starting from November 1, 2018, failure to comply with relevant private fund
information disclosure obligations can lead to suspension on receiving the private investment fund filing application of the relevant private fund manager.
In December 2018, AMAC updated Notice for Registration of Private Fund Manager. Among others, the notice further clarifies the requirements of authenticity and
stability of shareholders, related parties and other requirements for application for registration as a private fund manager, and the requirements of continuous operation and internal
control requirements for registered private fund manager.
On December 23, 2019, the AMAC issued the Filing Notice on Privately Offered Investment Funds, or the 2019 Filing Notice, which clarifies, among others, that the
negative scope of financial products that are unable to be registered as private investment funds and the special filing or registration requirements on different types of private
investment funds. The 2019 Filing Notice further emphasizes, among others, that (i) the fund manager or any of its actual controller, shareholder, affiliates or fundraising agencies
is prohibited to promise the minimum amount of return, the break-even return of principal or the minimum amount or rate of loss to investors; and (ii) the fund manager is
prohibited to set up several investment units or tranches in the private investment funds, which accept investments from different investors and make investments in different assets
for the purposes of avoiding any filing or registration obligation.
On December 30, 2020, the CSRC promulgated Several Provisions on Strengthening Supervision of Private Investment Fund, which, among other, (i) clarifies
requirements on the name, business scope and line of business of private investment fund managers, (ii) updates the supervision on group private equity fund managers and
specifies information disclosure requirements, (iii) specifies requirements on private offerings and qualified investors, (iv) prohibits from using property of the funds to engage in
non-private investment activities, such as borrowing, loans or guarantees, extending loans under a cover of shareholding, or investing in prohibited or restricted projects, and
(v) prohibiting private fund managers and practitioners from illegal self-financing, unfair treatment to fund properties and investors, and other similar activities.
Regulations on Insurance Brokerages
The primary regulation governing the insurance intermediaries is the PRC Insurance Law enacted in 1995 and further amended in 2002, 2009, 2014 and 2015. According
to the PRC Insurance Law, the China Insurance Regulatory Commission, or the CIRC, is the regulatory authority responsible for the supervision and administration of the PRC
insurance companies and the intermediaries in the insurance sector, including insurance agencies and brokers.
The principal regulation governing insurance brokerage is the Provisions on the Supervision and Administration of Insurance Brokerage Agency, or the Insurance
Brokerage Agency Provisions, promulgated by the CIRC in September 2009, amended and effective as of April 27, 2013 and October 19, 2015. According to the Insurance
Brokerage Agency Provisions, an insurance brokerage agency refers to an entity that receives commissions for providing intermediary services to policyholders and sponsors to
facilitate their entering into insurance contracts based on the interests of the policyholders. An insurance brokerage agency established in China must meet the qualification
requirements specified by the CIRC and obtain a license to operate an insurance brokerage business issued by the CIRC. Among others, the minimum registered capital for an
insurance brokerage agency shall be no less than RMB50.0 million and must be fully paid in. The license of an insurance brokerage agency is valid for a period of three years, and
can be renewed subject to the approval of the CIRC.
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An insurance brokerage agency is subject to CIRC reporting obligations for corporate events such as amendment of constitutional documents, changes in name and
address and changes in shareholding.
An insurance brokerage agency may conduct the following insurance brokerage businesses:
· making insurance proposals, selecting insurance companies and handling the insurance application procedures for insurance applicants;
· assisting the insured or the beneficiary in insurance claims;
· reinsurance brokering business;
· providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk management; and
· other business activities approved by the CIRC.
The senior managers of an insurance brokerage agency must meet certain qualification requirements set forth in the Insurance Brokerage Agency Provisions. Appointment
of the senior managers of an insurance brokerage agency is subject to review and approval by the CIRC. Personnel of an insurance brokerage agency who engage in any of the
insurance brokerage businesses described above must meet the requirements prescribed by the CIRC and obtain the qualification certificate issued by the CIRC.
On February 1, 2018, CIRC issued the Provisions on the Supervision and Administration of Insurance Broker, or the Insurance Broker Provision, to replace Insurance
Brokerage Agency Provisions and became effective upon May 1, 2018. Under Insurance Broker Provisions, the definition and licensing requirements of an insurance broker are
substantially similar to those of an insurance brokerage agency as provided under the Insurance Brokerage Agency Provisions. The insurance broker shall meet following
requirements for the operation of the insurance brokerage business, including, among others, (i) the shareholders must meet the requirement stipulated under Insurance Broker
Provision and all paid-in capitals must be self-owned and not from any bank loans or others; (ii) certain material aspects of the company, including the registered capital
requirement, capital under the custody, business scopes, articles of associations, company name, constitution of management, corporate governance and internal control, and
information management system, must meet relevant legal requirements; and (iii) information management system for business and finance complying with regulations of CIRC.
The Insurance Broker Provisions also specify that insurance broker that provide personal insurance services nationwide must establish branch offices, and an insurance broker must
segregate its reinsurance business from other insurance business. A subsidiary of our VIEs, Shanghai Jupai Yongyu Insurance Brokers Co., Ltd. (previously known as Jiangsu
Kang’an Insurance Brokers Co. Ltd.) has obtained the license for insurance brokerage business.
In April 2018, the China Banking and Insurance Regulatory Commission, or CBIRC, issued a Notice on Opening Business Scope of Foreign Invested Insurance Brokerage
Company, pursuant to which the licensed foreign invested insurance brokerage companies are allowed to engage in the same insurance brokerage businesses as those of domestic
insurance brokerage companies upon handling changing procedures.
Regulations on the Sale of Mutual Funds
On December 28, 2012, the Standing Committee of the PRC National People’s Congress promulgated the Law on Securities Investment Funds, or the New SIF Law,
which became effective on June 1, 2013 and replaced the Securities Investment Funds Law effective since June 1, 2004. The New SIF Law not only imposes detailed regulations
on mutual funds but also includes new rules on the fund services agencies for the first time. Agencies that engage in sales and other fund services related to mutual funds are
required to register or file with the securities regulatory authority.
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Correspondingly, on March 15, 2013, the CSRC amended the Administrative Measures on the Sales of Securities Investment Funds, or the Fund Sales Measures, which
became effective on June 1, 2013. The Fund Sales Measures specify that it only applies to the sales of mutual funds. Commercial banks, securities companies, futures companies,
insurance companies, securities investment consultation agencies, independent fund sales agencies and other agencies permitted by the CSRC may apply with the local branches of
the CSRC for the license related to mutual fund sales. In order to obtain such license, an independent fund sales agency shall meet certain requirements, including without
limitation: (i) having a paid-in capital of no less than RMB20.0 million; (ii) the senior executives shall have obtained the fund practice qualification, be familiar with fund sales
business, and have two or more years of work experience in fund practice or five or more years of work experience in other relevant financial institutions; (iii) having at least 10
employees qualified to engage in fund related business; and (iv) not being involved in any material changes that have impacted or are likely to impact the normal operation of
organizations, or other material issues such as litigations and arbitrations.
When dealing with fund sales business, fund sales agencies may collect subscription fee, purchase fee, redemption fee, switching fee, sales service fee, and other relevant
fees from the investors according to fund contracts and prospectuses. When providing value-added services to fund investors, fund sales agencies may charge the fund investors
value-added service fee. In addition, they shall not charge investors extra fees unless otherwise agreed in fund contracts, prospectuses and fund sales service contracts.
On August 28, 2020, the CSRC promulgated the Supervision Measures on Public Offering Securities Investment Funds Sales Agencies and its implementation
rules (collectively, the “New Sales Agency Measures”). The New Sales Agency Measures define fund selling as opening fund transaction accounts for fund investors, promoting
fund sales, handling fund units sale, and handling subscription, redemption and account information inquiry. Pursuant to the New Sales Agency Measure, the requirements for an
independent fund sales agency include, among others: (i) having a total net asset of no less than RMB50.0 million; (ii) each senior executive shall have fund practitioner
qualification, meet with the senior management qualifications set by CSRC and be familiar with fund sales management; specific compliance risk control senior executive shall be
specified; (iii) neither the controlling shareholder nor the actual controller shall remain unchanged within the three years after the sales agency qualification is obtained. The
application for the sales agency qualification shall be submitted to the CSRC. In addition, shareholders who own more than 5% shares of the sales agency shall, among others, meet
the following requirements: (i) if the shareholder is a legal entity or organizations, its total net asset shall be no less than RMB50.0 million; (ii) if the shareholder is an individual,
they must have more than five years working experience in management of securities fund department or no less than three years working experience as senior management in
securities fund industry. There are also financial condition requirements for controlling shareholders and actual controllers: (i) if the controlling shareholder and actual controller is
a legal entity or organizations, its total net asset shall be no less than RMB200.0 million, it must have a consistently profitable track for the past three fiscal years, its net asset
should be more than 50% of its paid-in capital, and its contingent liability should be less than 50% of its net assets; (ii) if the controlling shareholder and actual controller is an
individual, they shall have total financial assets no less than RMB30.0 million and must have more than ten years working experience in management of securities fund department
or no less than five years working experience as senior management in securities fund industry. If the shareholder is a foreign entity, it shall be a financial institution in good
standing with financial assets management or financial investment advisory experience. The sales agency shall obtain Securities and Futures Operation License, the validity period
of which is three years, and the renewal of which is subject to approval of CSRC and its local agency. The average daily sales holding volume and the sales agency will be taken
into consideration for renewal. The shareholder, the controlling shareholder of the shareholder and the actual controller of an independent sales agency shall not hold equity
interests in more than two independent sales agencies, in which the number of independent sales agency under control of such shareholder cannot exceed one. The actual controller
of independent sales agencies shall be included into the scope of regulatory supervision. The New Sales Agency Measures provides that independent sales agencies can only sell
mutual funds and private securities investment funds, unless otherwise provided by the CSRC. For the independent sales agencies who also sell other products before the
promulgation of New Sales Agency Measures, they will have a two-year rectification period starting from October 1, 2020, during which the independent sales agency must keep
the volume of those products decreasing. The New Sales Agency Measures also provides requirements on compliance and internal control, upper limit of client maintenance costs,
cooperation with third party online platform, and sales of private equity investment funds.
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On December 20, 2019, the PBOC, the CBIRC, the CSRC and the SAFE jointly issued the Circular on Further Regulating Financial Marketing Campaigns, or the
Regulations on Financial Marketing Campaigns, which became effective on January 25, 2020. According to the Regulations on Financial Marketing Campaigns, financial product
operators or financial service providers, including financial institutions in the banking, securities and insurance industries and other institutions engaged in the financial business or
finance-related business, should carry out financial marketing activities within the scope of financial business permitted by the competent governmental authorities and may not
carry out financial marketing activities beyond such permitted scope of business. Entities are not allowed to carry out marketing activities related to the financial business if they do
not obtain the corresponding qualifications for such financial business, except for information release platforms or media entrusted by the financial product operators or financial
service providers who have obtained appropriate qualifications for the financial business. The Regulations on Financial Marketing Campaigns further provides that, among others,
the financial product operators or financial service providers must (i) prudently determine the form of cooperation with business partners in accordance with the applicable laws,
(ii) stipulate the responsibilities of themselves and the business partners in financial marketing activities, and (iii) jointly ensure that the relevant financial marketing campaigns
comply with laws and regulations. “Financial marketing campaigns” refers to the promotion or marketing activities carried out by financial product operators or financial service
providers for financial products or financial services by using various promotion tools or methods.
On August 28, 2020, the CSRC promulgated the Interim Provisions on Administration of Promotion and Marketing Materials of Public Offering Securities Investment
Funds, which includes detailed disclosure requirements on promotion materials used for funds, including disclosures of historical performance of the fund and the fund manager
and the shareholders’ information, and the promotion materials should also comply with the Advertisement Law of the PRC, the Anti-unfair Competition Law of the PRC and the
Anti-Monopoly Law of the PRC.
Yumao, a subsidiary of Shanghai Jupai, has obtained a license from the CSRC for mutual fund sales on December 15, 2014. Yumao has started to sell mutual fund
products and other regulated fund products since 2017. Pursuant to the New Sales Agency Measures, Yumao has obtained the securities and futures operation license from the
CSRC for fund sales on November 1, 2019. To comply with the requirements under the New Sales Agency Measures, Yumao have adopted various rectification measures,
including but not limited to updating the network information technology system, changing the types of products and adjusting the general sale strategy.
Regulation on Entrusted Loan of Commercial Bank
In January 2018, CBRC issued the Notice of the China Banking Regulatory Commission on Promulgation of the Administrative Measures for Entrusted Loans undertaken
by Commercial Banks, or Entrusted Loan Measure. According to the Entrusted Loan Measures, the “entrusted loan” refers to the loan provided by a trustor and granted by a
commercial bank (trustee) on behalf of the trustor to a borrower determined by the trustor, and the purpose, amount, currency, duration and interest rate of such loan are determined
by the trustor. A commercial bank shall not accept any of the following types of funds for entrusted loans: (i) funds from others that entrusted the trustors to manage, (ii) bank
loans, (iii) various special funds of special purposes (unless otherwise required by relevant authorities under the State Council), (iv) other borrowings (unless otherwise required by
relevant authorities under the State Council), or (v) funds of which the source cannot be proved. The above restriction, however, is not applicable to the funds raised by a corporate
group for bond issuance or applied within a group. Starting from January 2018, the private investment funds managed by us have ceased to make debt investment through the
structure of entrusted loans.
Regulations on Labor Protection
On June 29, 2007, the Standing Committee of the National People’s Congress, or the SCNPC, promulgated the Labor Contract Law, as amended on December 28, 2012,
which formalizes employees’ rights concerning employment contracts, overtime hours, layoffs and the role of trade unions and provides for specific standards and procedure for the
termination of an employment contract. In addition, the Labor Contract Law requires the payment of a statutory severance pay upon the termination of an employment contract in
most cases, including in cases of the expiration of a fixed-term employment contract. In addition, under the Regulations on Paid Annual Leave for Employees and its
implementation rules, which became effective on January 1, 2008 and on September 18, 2008 respectively, employees are entitled to a paid vacation ranging from 5 to 15 days,
depending on their length of service and to enjoy compensation of three times their regular salaries for each such vacation day in case such vacation days are deprived by
employers, unless the employees waive such vacation days in writing. Although we are currently in compliance with the relevant legal requirements for terminating employment
contracts with employees in our business operation, in the event that we decide to lay off a large number of employees or otherwise change our employment or labor practices,
provisions of the Labor Contract Law may limit our ability to effect these changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our
business and results of operations.
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Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a
medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the
plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at
locations where they operate their businesses or where they are located. According to the Social Insurance Law, an employer that fails to make social insurance contributions may
be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee of 0.05% of the amount overdue per day from the original due date by the
relevant authority. If the employer still fails to rectify the failure to make social insurance contributions within such stipulated deadline, it may be subject to a fine ranging from one
to three times the amount overdue. According to Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to
rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement.
Regulations on Foreign Investment
The State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation jointly promulgated the
Foreign Investment Industrial Guidance Catalogue, or the Foreign Investment Catalogue, in 2005, which was subsequently revised from time to time. The Foreign Investment
Catalogue sets forth the industries in which foreign investment are encouraged, restricted, or forbidden. Industries that were not indicated as any of the above categories under the
Foreign Investment Catalogue are permitted areas for foreign investment. The last effective version of the Foreign Investment Catalogue came into effect in July 2017. The
industries listed in this version are divided into two categories: encouraged industries and the industries with special entry administration measure, or the Negative List. The
Negative List is further divided into two sub-categories: restricted industries and prohibited industries. Establishment of wholly foreign-owned enterprises is generally allowed in
industries outside of the Negative List. For the restricted industries within the Negative List, some are limited to equity or contractual joint ventures, while in some cases Chinese
partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to government approvals and certain special
requirements. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Foreign Investment Catalogue are generally open to
foreign investment unless specifically restricted by other PRC regulations. The list of encouraged industries for foreign investment under the Foreign Investment Catalogue has
been replaced by the Encouraged Foreign Investment Catalogue, jointly promulgated by the NDRC and the Ministry of Commerce (the “MOC”). The prevailing Encouraged
Foreign Investment Catalogue is 2020 version, which came effect as from January 27, 2021.
In October 2016, the Ministry of Commerce issued the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested
Enterprises, or FIE Record-filing Interim Measures, which was further revised in July 2017. Pursuant to FIE Record-filing Interim Measures, the establishment and change of an
FIE are subject to record-filing procedures, instead of prior approval requirements, provided that the establishment or change does not involve special entry administration
measures. If the establishment or change of FIE matters involve the special entry administration measures, the approval of the Ministry of Commerce or its local counterparts is still
required. The FIE Record-filing Interim Measures has been replaced by the Measures for Reporting of Foreign Investment Information, or the FIE Information Reporting
Measures, which became effective on January 1, 2020. Pursuant to the FIE Information Reporting Measures, a foreign investor or an FIE should provide the investment information
by submission of initial report, report of changes, report of de-registration and annual report. Information that a foreign investor should provide in its initial report includes basic
corporate information of the FIE, information of the investor and its actual controller, and investment transaction information.
On June 28, 2018, NDRC and MOFCOM jointly issued Special Administration Measures for Access of Foreign Investment or the Negative List, as last amended on
June 23, 2020 and became effective on July 23, 2020, which listed special requirements for foreign investment, including shareholding percentage limits and qualification for
senior management for certain fields. Foreign investors are not allowed to invest into prohibited industries for foreign investors listed in the Negative List. For investment into other
industries listed in the Negative List, access approval is required. However, foreign investment into fields not listed in the Negative List generally enjoys the same conditions as
domestic entities.
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Pursuant to the currently effective or the amended Negative List, market survey, a business activity that we currently engage in through our VIE, is restricted for foreign
investment. As market survey may be constantly involved during our development and expansion, we may continue this business activity through contractual arrangements with
our consolidated subsidiary, Shanghai Jupai.
In addition, if our PRC subsidiary and consolidated entities plan to engage in promoting or distributing wealth management plans through the Internet, or allows our
clients to purchase wealth management products on any of our websites, such business is likely to be deemed as value-added telecommunications service and call for approvals
from relevant authorities. Foreign investment in telecommunications businesses is governed by the State Council’s Administrative Rules for Foreign Investments in
Telecommunications Enterprises, issued by the State Council in December 2001 and amended in February 2016, under which a foreign investor’s beneficial equity ownership in an
entity providing value-added telecommunications services in China cannot exceed 50%. In addition, for a foreign investor to acquire any equity interest in a business providing
value-added telecommunications services in China, it must demonstrate a positive track record and experience in providing such services. The MIIT’s Notice Regarding
Strengthening Administration of Foreign Investment in Operating Value-Added Telecommunication Businesses, or the MIIT Notice, issued on July 13, 2006 prohibits holders of
these services licenses from leasing, transferring or selling their licenses in any form, or providing any resource, sites or facilities, to any foreign investors intending to conduct such
businesses in China. Although MIIT promulgated its Notice on Lifting Foreign Investment Restrictions on Online Data and Deal Processing Business in June 2015, which permits
foreign ownership, in whole or in part, of online data and deal processing business, a sub-type of value-added telecommunications service, we still expect our potential business of
online promotion and distribution of wealth management products to face foreign investment restrictions or uncertainties, since it is not clear whether our potential business will be
deemed as online data and deal processing.
We plan to engage in the direct sales of mutual funds and asset management plans sponsored by mutual fund management companies. While the distribution of mutual
funds and asset management plans sponsored by mutual fund management companies is not explicitly categorized as restricted to foreign investment, a license is required for the
direct sales of mutual fund and asset management plans sponsored by mutual fund management companies. According to the Administration Measures on Securities Investment
Fund Sales issued by the CSRC that was last amended on February 17, 2013 and came into effect on June 1, 2013, in order to apply for a mutual fund sales license, the shareholders
of the applicant shall meet with certain requirements, including, among others, to maintain a good track record for three consecutive financial years. According to the New Sales
Agency Measure, the legal entity shareholders for an independent mutual fund sales agency holding more than 5% shares shall have the minimum net asset of RMB50.0 million,
the legal entity controlling shareholder shall have the minimum net asset of RMB200.0 million and shall have been profitable for the last three financial years with sound operation
and internal control. There are other financial condition requirements for controlling shareholders and actual controllers. If the shareholder is a foreign entity, it shall be a financial
institution in good standing with financial assets management or financial investment advisory experience. Given that our foreign shareholder is not qualified as a foreign
shareholder of an independent mutual fund sales agency, in order to conduct our direct sales services in the future, we have entered into contractual arrangements through Shanghai
Juxiang, our PRC subsidiary, with Shanghai Jupai, our PRC variable interest entity. In December 2014, Yumao obtained the mutual fund sales license, and accordingly, we have
started the sale of mutual fund products and other regulated fund products through Yumao since 2017.
Our PRC subsidiary was not allowed to engage in insurance brokerage businesses prior to the promulgation of the Notice on Opening Business Scope of Foreign Invested
Insurance Brokerage Company on April 27, 2018. Therefore, our insurance brokerage related business is carried out principally through Jupai HK and our consolidated entities. In
2016, we acquired 85% equity ownership of Non-Linear Investment Management Limited, which directly holds 100% equity interest of a Hong Kong entity with the required
license to provide the insurance brokerage services in Hong Kong, and 100% equity interest in Shanghai Jupai Yongyu Insurance Brokers Co., Ltd. (previously known as Jiangsu
Kang’an Insurance Brokers Co. Ltd.), a PRC entity holding the required license to provide the insurance brokerage services in China, and we plan to engage in the insurance
brokerage businesses in the PRC relying on licenses held by these consolidated entities.
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E-House Capital relies on similar contractual arrangements with Scepter Pacific’s variable interest entities in China to conduct its asset management services. Although
foreign-invested enterprises incorporated in China are not expressly prohibited from providing asset management services in China, in practice, when acting as the general partner
of various funds, Scepter Pacific may also need to invest in projects or funds as a limited partner at the same time. Some targeted projects are in the Negative List. Therefore, E-
House Capital to provide asset management services through contractual arrangements between Scepter Pacific’s wholly-owned PRC subsidiary and its variable interest entities in
China.
Other than those disclosed above, we are not aware of any other PRC legal restriction or prohibition for foreign investment in the business activities that we and E-House
Capital engage in.
In the opinion of Yuan Tai Law Offices, our PRC legal counsel:
· the ownership structures of Shanghai Jupai, Shanghai Juxiang, and Jupai are in compliance with all existing PRC laws and regulations,
· the contractual arrangements governed by PRC laws among Shanghai Juxiang, Shanghai Jupai and its shareholders establishing the corporate structure for our
wealth management and asset management businesses are valid, binding and enforceable in accordance with their terms, and will not result in a violation of PRC
laws or regulations currently in effect; and
· the contractual arrangements governed by PRC laws among Shanghai Baoyi, Shanghai E-Cheng and its shareholders establishing the corporate structure for E-
House Capital’s asset management service business are valid, binding and enforceable in accordance with their terms, and will not result in a violation of PRC
laws or regulations currently in effect.
We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC
laws, regulations and rules, including the laws and regulations governing the enforcement and performance of our contractual arrangement in the event of any imposition of
statutory liens, bankruptcy and criminal proceedings. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC
counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our business do not
comply with PRC governmental restrictions on foreign investment in our businesses, we could be subject to severe penalties, including being prohibited from continuing
operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and
regulations could limit the legal protections available to you and us.”
Regulations on Foreign Exchange
Foreign exchange regulations in China are primarily governed by the following rules:
· Foreign Exchange Administration Rules (1996), as amended, or the Exchange Rules; and
· Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
Under the Exchange Rules, Renminbi is convertible for current account items, including the distribution of dividends, interest and royalty payments, trade and service-
related foreign exchange transactions. Conversion of Renminbi for capital account items, such as direct investment, loan, securities investment and repatriation of investment,
however, is still subject to the approval of SAFE.
Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign exchange business
after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE. Capital investments by foreign-invested
enterprises outside of China are also subject to limitations, including approval by the Ministry of Commerce, SAFE and the National Development and Reform Commission or
their local counterparts.
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On November 16, 2011, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues Relating to Further Clarification and Regulation of
Certain Capital Account Items under Foreign Exchange Control, or SAFE Circular 45, to further strengthen and clarify its existing regulations on foreign exchange control under
SAFE Circular 142. Circular 45 expressly prohibits foreign invested entities, including wholly foreign owned enterprises such as Shanghai Juxiang, from converting registered
capital in foreign exchange into Renminbi for the purpose of equity investment, granting certain loans, repayment of inter-company loans, and repayment of bank loans which have
been transferred to a third party. Further, SAFE Circular 45 generally prohibits a foreign invested entity from converting registered capital in foreign exchange into Renminbi for
the payment of various types of cash deposits. If our VIE requires financial support from us or our wholly owned subsidiary in the future and we find it necessary to use foreign
currency-denominated capital to provide such financial support, our ability to fund our VIE’s operations will be subject to statutory limits and restrictions, including those described
above.
On May 10, 2013, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by
Foreign Investors and the Supporting Documents, which specifies that the administration by SAFE or its local branches over foreign direct investment in the PRC shall be
conducted by way of registration. Institutions and individuals shall register with SAFE and/or its branches for their direct investment in China. Banks shall process foreign
exchange business relating to the direct investment in China based on the registration information provided by SAFE and its branches.
In February 2015, SAFE promulgated the Circular of Further Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct
Investment, or Circular 13, which became effective on June 1, 2015. Upon the implementation of Circular 13, the current foreign exchange procedures will be further simplified,
foreign exchange registrations of direct investment will be handled by designated foreign exchange settlement banks instead of SAFE and its branches.
On March 30, 2015, SAFE issued the Circular on Reform of the Administrative Rules of the Payment and Settlement of Foreign Exchange Capital of Foreign-Invested
Enterprises (“SAFE Circular 19”), which became effective on June 1, 2015. Pursuant to SAFE Circular 19, foreign-invested enterprises may either continue to follow the current
payment-based foreign currency settlement system or elect to follow the “conversion-at-will” regime of foreign currency settlement. Where a foreign-invested enterprise follows
the conversion-at-will regime of foreign currency settlement, it may convert part or all of the amount of the foreign currency in its capital account into Renminbi at any time. The
converted Renminbi will be kept in a designated account labeled as settled but pending payment, and if the foreign-invested enterprise needs to make payment from such
designated account, it still needs to go through the review process with its bank and provide necessary supporting documents. SAFE Circular 19, therefore, has substantially lifted
the restrictions on the usage by a foreign-invested enterprise of its RMB registered capital converted from foreign currencies. According to SAFE Circular 19, such Renminbi
capital may be used at the discretion of the foreign-invested enterprise and SAFE will eliminate the prior approval requirement and only examine the authenticity of the declared
usage afterwards. Nevertheless, foreign-invested enterprises like our PRC subsidiary are still not allowed to extend intercompany loans to our PRC consolidated entities. In
addition, as Circular 19 was promulgated recently, there remain substantial uncertainties with respect to the interpretation and implementation of this circular by relevant
authorities.
On June 9, 2016, SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“Circular 16”),
which became effective simultaneously. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to RMB on self-
discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital
and foreign debts) on self-discretionary basis which applies to all enterprises registered in the PRC. Circular 16 reiterates the principle that RMB converted from foreign currency-
denominated capital of a company may not be directly or indirectly used for purpose beyond its business scope or prohibited by PRC Laws or regulations, while such converted
RMB shall not be provide as loans to its non-affiliated entities. As Circular 16 is newly issued and SAFE has not provided detailed guidelines with respect to its interpretation or
implementation, it is uncertain how these rules will be interpreted and implemented.
On January 26, 2017, SAFE issued the Notice of State Administration of Foreign Exchange on Improving the Check of Authenticity and Compliance to Further Promote
Foreign Exchange Control, or the Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore
entities, including: (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and
audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular 3,
domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing
the registration procedures in connection with an outbound investment.
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Regulations on Dividend Distribution
The principal regulations governing dividend distributions of wholly foreign-owned companies include:
· Wholly Foreign-Owned Enterprise Law, as most recently amended on September 3, 2016;
· Wholly Foreign-Owned Enterprise Law Implementing Rules, as most recently amended on February 19, 2014;
· Company Law of China, as most recently amended on October 26, 2018;
· Foreign Investment Law, as promulgated on March 15, 2019 and became effective on January 1, 2020; and
· Foreign Investment Law Implementing Rules, as promulgated on December 26, 2019 and became effective on January 1, 2020.
Under these laws and regulations, wholly foreign-owned companies in China may pay dividends only out of their accumulated profits as determined in accordance with
PRC accounting standards and regulations. In addition, these wholly foreign-owned companies are required to set aside at least 10% of their respective accumulated profits each
year, if any, to fund certain reserve funds, until the accumulative amount of such fund reaches 50% of its registered capital. Although the statutory reserves can be used, among
other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash
dividends except in the event of liquidation.
Regulations on Offshore Investment by PRC Residents
Pursuant to the SAFE’s Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Round Trip Investment
via Overseas Special Purpose Companies and its subsequent amendments, supplements or implementation rules, or SAFE Circular 75, issued on October 21, 2005, a PRC resident
(whether a natural person or legal persons) shall register with the local branch of the SAFE before it establishes or controls an overseas SPV, with assets or equity interests in a PRC
company, for the purpose of overseas equity financing. On July 4, 2014, SAFE issued the SAFE’s Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC
Residents to Engage in Outbound Investment and Financing and Inbound Investment via Special Purpose Vehicles (“SPV”), or SAFE Circular 37, which has superseded SAFE
Circular 75. According to SAFE Circular 37, the PRC domestic resident shall apply for SAFE registration for overseas investment before paying capital to SPV by using his, her or
its legal assets whether overseas or domestic. The SPV is defined as “offshore enterprise directly established or indirectly controlled by the domestic residents (including domestic
institutions and individuals) with their legally owned assets and equity of the domestic enterprise, or legally owned offshore assets or equity, for the purpose of offshore investment
and financing”. In addition, in the event that the SPV undergoes changes of its basic information such as the individual shareholder, name, operation term, etc., or material events
including increase or decrease by domestic individual shareholder in investment amount, equity transfer or swap, merge, spin-off, etc., the domestic resident shall timely complete
the change of foreign exchange registration formality for offshore investment.
According to SAFE Circular 37, failure to make such registration or truthfully disclose actual controllers of the round-trip enterprises may subject PRC residents to fines
up to RMB300,000 in case of domestic institutions or RMB50,000 in case of domestic individuals. If the registered or beneficial shareholders of the offshore holding company who
are PRC residents do not complete their registration with the local SAFE branches, the PRC subsidiary may be prohibited from distributing their profits and proceeds from any
reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC
subsidiary. Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for violating applicable
foreign exchange restrictions.
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Regulations on Stock Incentive Plans
On December 25, 2006, the People’s Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, setting forth the respective
requirements for foreign exchange transactions by individuals (both PRC or non-PRC citizens) under either the current account or the capital account.
On February 15, 2012, SAFE issued the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan
of Overseas Publicly-Listed Company, or the Stock Incentive Plan Rules. The purpose of the Stock Incentive Plan Rules is to regulate foreign exchange administration of PRC
domestic individuals who participate in employee stock holding plans and stock option plans of overseas listed companies. According to the Stock Incentive Plan Rules, if PRC
“domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding the foreign diplomatic
personnel and representatives of international organizations) participate in any stock incentive plan of an overseas listed company, a PRC domestic qualified agent, which could be
the PRC subsidiary of such overseas listed company, shall, among others things, file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with
respect to such stock incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option
exercises. In addition, SAFE Circular 37 also provides certain requirements and procedures of foreign exchange registration in relation to equity incentive plan of SPV before
listing. In this regard, if a non-listed SPV grants equity incentives to its directors, supervisors, senior officers and employees in its domestic subsidiaries, the relevant domestic
individual residents may register with SAFE before exercising their rights.
The Stock Incentive Plan Rules and SAFE Circular 37 were promulgated only recently and many issues require further interpretation. If we or our PRC employees fail to
comply with the Stock Incentive Plan Rules, we and our PRC employees may be subject to fines and other legal sanctions. In addition, the General Administration of Taxation has
issued a few circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual
income tax. Our PRC subsidiary has obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those
employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or other PRC
government authorities.
Regulations on Privacy Protection and Network Security
Internet content providers, or ICPs, are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that
infringes upon the lawful rights and interests of others. Depending on the nature of the violation, ICPs may face criminal charges or sanctions by PRC security authorities for such
acts and may be ordered to suspend temporarily their services or have their licenses revoked.
Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT on December 29, 2011, ICPs are also prohibited from
collecting any user personal information or providing any such information to third parties without the consent of a user. ICPs must expressly inform the users of the method,
content and purpose of the collection and processing of such user personal information and may only collect such information necessary for its services. ICPs are also required to
properly maintain the user personal information, and in case of any leak or likely leak of the user personal information, ICPs must take remedial measures immediately and report
any material leak to the telecommunications regulatory authority.
In addition, the Decision on Strengthening Network Information Protection promulgated by the Standing Committee of the National People’s Congress on December 28,
2012 emphasizes the need to protect electronic information that contains individual identification information and other private data. The decision requires ICPs to establish and
publish policies regarding the collection and use of personal electronic information and to take necessary measures to ensure the security of the information and to prevent leakage,
damage or loss. Furthermore, MIIT’s Rules on Protection of Personal Information of Telecommunications and Internet Users promulgated on July 16, 2013 contain detailed
requirements on the use and collection of personal information as well as the security measures to be taken by ICPs.
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The PRC government retains the power and authority to order ICPs to provide an Internet user’s personal information if such user posts any prohibited content or engages
in any illegal activities through the Internet.
In addition, General Rule of Civil Law promulgated on March 15, 2017, became effective on October 1, 2017, expressly provides that natural persons enjoy the right of
privacy.
We will be subject to the ICP regulation and other privacy regulation if and when we begin to sell mutual fund products online.
Furthermore, the PRC Network Security Law, which took effect in June 2017, requires a network operator, including among others, the owners, administrator and service
providers of network, to adopt technical measures and other necessary measures in accordance with applicable laws and regulations as well as compulsory national and industrial
standards to safeguard the safety and stability of network operations, effectively respond to network security incidents, prevent illegal and criminal activities, and maintain the
integrity, confidentiality and availability of network data. The Network Security Law emphasizes that any individuals and organizations that use networks must not endanger
network security or use networks to engage in unlawful activities such as those endangering national security, economic order and the social order or infringing the reputation,
privacy, intellectual property rights and other lawful rights and interests of others. The Network Security Law has also reaffirmed certain basic principles and requirements on
personal information protection previously specified in other existing laws and regulations, including those described above. Any violation of the provisions and requirements
under the Network Security Law may subject an internet service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown
of websites or even criminal liabilities.
On April 11, 2017, the Cyberspace Administration of China announced the Measures for the Security Assessment of Personal Information and Important Data to be
Transmitted Abroad (consultation draft), or the Consultation Draft of Security Assessment Measures. The Consultation Draft of Security Assessment Measures requires network
operators to conduct security assessments and obtain consents from owners of personal information prior to transmitting personal information and other important data abroad.
Moreover, under the Consultation Draft of Security Assessment Measures, the network operators are required to apply to the relevant regulatory authorities for security assessments
under several circumstances, including but not limited to: (i) if data to be transmitted abroad contains personal information of more than 500,000 users in aggregate; (ii) if the
quantity of the data to be transmitted abroad is more than 1,000 gigabytes; (iii) if data to be transmitted abroad contains information regarding nuclear facilities, chemical biology,
national defense or military projects, population and health, or relates to large-scale engineering activities, marine environment issues or sensitive geographic information; (iv) if
data to be transmitted abroad contains network security information regarding system vulnerabilities or security protection of critical information infrastructure; (v) if key
information infrastructure network operators transmit personal information and important data abroad; or (vi) if any other data to be transmitted abroad contains information that
might affect national security or public interest and are required to be assessed as determined by the relevant regulatory authorities.
The Office of the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, and the State
Administration for Market Regulation jointly promulgated the Notice on Rectification of Illegal Collection of Personal Information on Application, or the Notice on Illegal
Collection on January 23, 2019, which requires application operators to strictly comply with the PRC Network Security Law and strengthens the personal information protection.
Application operators should, among others, (i) clearly state the authorized purpose, methods and scope of the collection and usage of personal information and obtain the consent
of users for collecting and processing such users’ personal information, and (ii) establish appropriate user information protection systems with remedial measures. On April 10,
2019, the Ministry of Public Security issued the Guidance of Security Protection of Internet Personal Information, which provides internet service providers more guidance
regarding personal information protection. To further implement and interpret the Notice on Illegal Collection, the Measures on Identifying Illegality of Personal Information
Collection Conducts on Application was promulgated on November 28, 2019.
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Regulations on Tax
PRC Enterprise Income Tax
The PRC Enterprise Income Tax Law, which was amended on December 29, 2018, imposes the enterprise income tax on the enterprises and organizations (excluding the
sole proprietorship enterprises and partnership enterprises) that have earned income within the territory of China. The general corporate income tax rate is 25%, which is reduced to
20% for the small profit enterprises and 15% for the high-tech enterprises. The enterprise income tax is calculated based on the PRC resident enterprise’s global income as
determined under PRC tax laws and accounting standards. If a non-resident enterprise sets up an organization or establishment in the PRC, it will be subject to enterprise income
tax for the income derived from such organization or establishment in the PRC and for the income derived from outside the PRC but with an actual connection with such
organization or establishment in the PRC.
According to the Announcement of the State Administration of Taxation No. 2, 2019, effective from January 1, 2019 to December 31, 2021, as for enterprise income tax
for small-profit enterprises, they enjoy a discount of 25% for the part less than RMB1.0 million and a discount of 50% for the part ranging from RMB1.0 million to RMB3.0
million for their annual taxable income, with a preferential tax rate of 20%.
PRC Value Added Tax
On November 19, 2017, PRC State Counsel promulgated the Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and issued the amendment
to Interim Regulations of PRC Value Added Taxes, or the VAT Regulation, pursuant to which entities and individuals that sell goods or labor services of processing, repair or
replacement, sell services, intangible assets, or immovables, or import goods within the territory of the PRC are taxpayers of VAT, and shall pay VAT. The VAT Regulation was
followed with several complementary and concessionary policies. In March 2019, the Ministry of Finance, or the MOF, SAT and the General Administration of Customs jointly
issued the Circular on Relevant Policies for Deepening the Value-Added Tax Reform, or the Circular 39, which became effective on April 1, 2019. The tax rate for VAT shall be,
among others, (i) 13% for taxpayers engaged in sale of goods, labor services, lease of tangible movables or importation of goods, unless otherwise stipulated in VAT Regulation;
(ii) 9% for taxpayers engaged in sale of transportation, postal, basic telecommunications, construction, lease of immovables, sale of immovable, transfer of land use rights, sale or
importation of certain types of goods; (iii) 6% for taxpayers engaged in sale of services and intangible assets; and (iv) 3% leviable rate for small-scale taxpayers using simple tax
collection method, unless otherwise stipulated in VAT Regulation.
In 2017, MOF and SAT issued Notice on Issues Relating to VAT on Asset Management Products, or Circular 56, which became effective in January 2018. According to
Circular 56, VAT taxable transactions in the operations of asset management products by their managers should temporarily use simple tax computation method and be levied at
3%. In order to be qualified for the 3% VAT rate, the asset management product managers are required to separate the audit of revenues and VAT taxable amount of the operations
of assets management products business from other businesses. The management services provided by the managers as entrusted by the investors or by the trustee to the entrusted
assets should still apply ordinary VAT rate in accordance with the relevant laws and regulations.
PRC Dividend Withholding Tax
Pursuant to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign
enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different
withholding arrangement.
For a discussion of applicable PRC tax regulations, also see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Taxation.”
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C. Organizational Structure
The following chart illustrates our company’s organizational structure, including our significant subsidiaries and other entities that are material to our business, as of
March 31, 2021:
Notes:
(1) The remaining 15% of the equity interest is owned by an unrelated party.
(2) Shanghai Jupai is one of our VIEs. Mr. Jianda Ni, Dr. Weishi Yao, Mr. Keliang Li, Ms. Yacheng Shen and Ms. Yichi Zhang hold 67.7%, 10%, 8.3%, 8% and 6% of the equity
interest in Shanghai Jupai, respectively.
(3) Shanghai E-Cheng is one of our VIEs. Ms. Qimin Wu and Mr. Tianxiang Hu hold 70% and 30% of the equity interest in Shanghai E-Cheng. Ms. Qimin Wu is our employee.
(4) The remaining 15% of the equity interest is owned by an unrelated party.
(5) The remaining 15% of the equity interest is owned by an unrelated party.
Contractual Arrangement with Shanghai Jupai
In January 2014, we amended and restated the contractual arrangements that we previously entered into with Shanghai Jupai in September 2013. The following is a
summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Shanghai Juxiang, our VIE, Shanghai Jupai, and the shareholders of
Shanghai Jupai.
Operating Agreement. Pursuant to the amended and restated operating agreement among Shanghai Juxiang, Shanghai Jupai and the shareholders of Shanghai Jupai dated
January 8, 2014, Shanghai Jupai and the shareholders of Shanghai Jupai agreed not to enter into any transaction that could materially affect Shanghai Jupai’s assets, obligations,
rights or operations without prior written consent from Shanghai Juxiang, including but not limited to the amendment of the articles of association of Shanghai Jupai. Shanghai
Jupai and its shareholders agree to accept and follow our corporate policies provided by Shanghai Juxiang in connection with Shanghai Jupai’s daily operations, financial
management and the employment and dismissal of Shanghai Jupai’s employees. Shanghai Jupai agreed that it should seek guarantee from Shanghai Juxiang first if any guarantee is
needed for Shanghai Jupai’s performance of any contract or loan in the course of its business operation. The agreement shall be effective as long as Shanghai Jupai exists. None of
Shanghai Jupai and its shareholders can terminate this agreement. Shanghai Juxiang may terminate the agreement by giving a 30-day prior written notice.
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Call Option Agreement. Under the amended and restated call option agreement among Shanghai Juxiang, Shanghai Jupai and the shareholders of Shanghai Jupai dated
January 8, 2014, each of the shareholders of Shanghai Jupai irrevocably granted to Shanghai Juxiang or its designee an option to purchase at any time, to the extent permitted under
PRC law, all or a portion of his equity interests in Shanghai Jupai. Also, Shanghai Juxiang or its designee has the right to acquire any and all of its assets of Shanghai Jupai.
Without Shanghai Juxiang’s prior written consent, Shanghai Jupai’s shareholders cannot transfer their equity interests in Shanghai Jupai, and Shanghai Jupai cannot transfer its
assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. Shanghai
Juxiang may terminate the agreement early, whereas none of Shanghai Jupai and its shareholders can terminate this agreement.
Equity Interest Pledge Agreement. Under the amended and restated equity pledge agreement among Shanghai Juxiang, Shanghai Jupai and the shareholders of Shanghai
Jupai dated October 9, 2014, the shareholders pledged all of their equity interests in Shanghai Jupai to Shanghai Juxiang to guarantee Shanghai Jupai’s performance of relevant
obligations and indebtedness under the consulting services agreement. In addition, the shareholders of Shanghai Jupai have completed the registration of the equity pledge under
the agreement with the competent local authority. If Shanghai Jupai breaches its obligation under the consulting services agreement, Shanghai Juxiang, as pledgee, will be entitled
to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed.
Voting Rights Proxy Agreement. Under the amended and restated voting rights proxy agreement among Shanghai Juxiang and the shareholders of Shanghai Jupai dated
January 8, 2014, each shareholder of Shanghai Jupai irrevocably appointed Shanghai Juxiang as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that
such shareholder has in respect of his equity interests in Shanghai Jupai, including but not limited to the power to vote on its behalf on all matters of Shanghai Jupai requiring
shareholder approval in accordance with the articles of association of Shanghai Jupai. The proxy agreement will remain in effect unless Shanghai Juxiang terminates the agreement
by giving a 30-day prior written notice or gives its consent to the termination by Shanghai Jupai.
Consulting Services Agreement. Pursuant to the amended and restated consulting services agreement between Shanghai Jupai and Shanghai Juxiang dated January 8,
2014, Shanghai Juxiang has the exclusive right to provide consulting services to Shanghai Jupai relating to Shanghai Jupai’s business, including but not limited to business
consulting services, human resources development, and business development. Shanghai Juxiang exclusively owns any intellectual property rights arising from the performance of
this agreement. Shanghai Juxiang has the right to determine the service fees based on Shanghai Jupai’s actual operation on a quarterly basis. This agreement will be effective as
long as Shanghai Jupai exists. Shanghai Juxiang may terminate this agreement at any time by giving a prior written notice to Shanghai Jupai.
Amendment to Agreements. Pursuant to the Amendment to Agreements entered into by Shanghai Jupai, the shareholders of Shanghai Jupai and Shanghai Juxiang dated
October 9, 2014, the Operating Agreement was amended, pursuant to which, the shareholders of Shanghai Jupai must appoint candidates recommended by Shanghai Juxiang as the
director, general manager, CFO and other senior managers.
Equity Transfer and Joinder Agreements. Pursuant to the Equity Transfer Agreement between Hu Tian Xiang and Ni Jian Da dated July 15, 2018, Mr. Tianxiang Hu
transferred all of his 67.7% equity interest in Shanghai Jupai to Mr. Jianda Ni. By entering into a series of joinder agreement with Shanghai Juxiang and Shanghai Jupai on July 15,
2018, Mr. Ni, as a shareholder Shanghai Jupai, agrees to undertake all rights, responsibilities and obligations of the shareholder of Shanghai Jupai prescribed under the operating
agreement, call option agreement, equity interest pledge agreement and voting rights proxy agreement among Shanghai Juxiang, Shanghai Jupai and the shareholders of Shanghai
Jupai as described above.
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Contractual Arrangement with Shanghai E-Cheng
We entered into a series of contractual arrangements with Shanghai E-Cheng and its previous shareholders in May 2014. In March 2017, upon the completion of equity
transfer of Shanghai E-Cheng, we terminated the previous contractual arrangements with its previous shareholders, and entered into another set of contractual arrangements with its
new shareholders. The following is a summary of the currently effective contractual arrangements by and among Shanghai Baoyi, Shanghai E-Cheng, and the shareholders of
Shanghai E-Cheng.
Exclusive Support Agreement. Pursuant to the exclusive support agreement between Shanghai Baoyi and Shanghai E-Cheng dated May 13, 2017, Shanghai Baoyi
provides Shanghai E-Cheng with a series of consulting services on an exclusive basis and is entitled to receive related fees. This agreement will be effective as long as Shanghai E-
Cheng exists. Shanghai Baoyi is entitled to terminate the agreement early if (i) the Shanghai E-Cheng breaches the agreement, and within 30 days upon written notice, fails to
rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach, and compensate for any losses incurred by the breach; (ii) the applicable
consolidated VIE is bankrupt or is subject to any liquidation procedures and such procedures are not revoked within seven days; or (iii) due to any event of force majeure, Shanghai
E-Cheng’s failure to perform its obligations under the agreement lasts for over 20 days. Except as provided in the preceding sentence, Shanghai Baoyi is entitled to terminate the
agreement early at any time by sending a written notice 20 days in advance, for any reason. The agreement does not include a provision for early termination by Shanghai E-Cheng.
Unless expressly provided by this agreement, without prior written consent of Shanghai Baoyi, Shanghai E-Cheng may not engage any third party to provide the services offered by
Shanghai Baoyi under this agreement.
Loan Agreements. Pursuant to the loan agreement among Shanghai Baoyi and the shareholders of Shanghai E-Cheng dated March 13, 2017, Shanghai Baoyi made loans
in an aggregate amount of RMB1.0 million to the shareholders of Shanghai E-Cheng solely for the incorporation and capitalization of Shanghai E-Cheng. Pursuant to the loan
agreement, the shareholders must repay the loans one time upon the maturity date of the loan and Shanghai Baoyi has the right to use the loan to, or designate a third party to, buy
all of the equity interests in Shanghai E-Cheng held by the shareholders. The loan is interest free and the term of the loan is (i) the expiration of 20 years from the date of the loan
agreement, (ii) the expiration of Shanghai Baoyi’s operation term or (iii) the expiration of Shanghai E-Cheng’s operation term whichever is the earliest. Shanghai Baoyi can require
the shareholders to and the shareholders may apply to repay all or a portion of the loan before the maturity date with a 30 days prior written notice. Under each of the
circumstances, Shanghai Baoyi is entitled to, or designate a third party to, buy all or a portion of the shareholders’ equity interests in Shanghai E-Cheng on a pro rata basis based on
the amount of the repaid principal of the loan.
Exclusive Call Option Agreement. Under the exclusive call option agreement among Shanghai Baoyi, Shanghai E-Cheng and the its shareholders dated March 13, 2017,
each of the shareholders of Shanghai E-Cheng irrevocably and unconditionally granted to Shanghai Baoyi or its designee an option to purchase at any time, to the extent permitted
under PRC law, all or a portion of his equity interests in Shanghai E-Cheng. Also, Shanghai Baoyi or its designee has the right to acquire any and all of the assets of Shanghai E-
Cheng. Without Shanghai Baoyi’s prior written consent, Shanghai E-Cheng’s shareholders cannot transfer their equity interests in Shanghai E-Cheng, and Shanghai E-Cheng
cannot transfer its assets. The acquisition price for the shares or assets will be the corresponding capital contribution in Shanghai E-Cheng’s registered capital or the corresponding
assets’ net booking value, or, if the minimum amount of consideration permitted under the PRC law is higher than the capital contribution or the net booking value, will be such
minimum amount at the time of the exercise of the option. The agreement will not be terminated until after all of the equity interest and assets of Shanghai E-Cheng have been
transferred to Shanghai Baoyi or its designee.
Equity Interest Pledge Agreement. Under the equity pledge agreement among Shanghai Baoyi, Shanghai E-Cheng and its shareholders dated March 13, 2017, the
shareholders pledged all of their equity interests in Shanghai E-Cheng to Shanghai Baoyi to guarantee the performance of all the obligations of Shanghai E-Cheng and its
shareholders under the loan agreement, exclusive option agreement, voting rights proxy agreement and the equity interest pledge agreement. If Shanghai E-Cheng or its
shareholders breach any of their respective obligations under any of these agreements, Shanghai Baoyi, as pledgee, will be entitled to certain rights, including the right to sell the
pledged equity interests. Upon the due registration, this pledge will remain effective until all the contractual obligations are performed and the guaranteed loan has been paid off.
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Shareholder Voting Rights Proxy Agreement. Under the voting rights proxy agreement among Shanghai Baoyi, Shanghai E-Cheng and its shareholders dated March 13,
2017, each shareholder of Shanghai E-Cheng irrevocably appointed a nominee authorized by Shanghai Baoyi as its attorney-in-fact to exercise on such shareholder’s behalf any
and all rights that such shareholder has in respect of his equity interests in Shanghai E-Cheng, including but not limited to the power to vote on its behalf on all matters of Shanghai
E-Cheng requiring shareholder approval in accordance with the articles of association of Shanghai E-Cheng. The initial term of the proxy agreement is 20 years and it may be
automatically extended with a 30-day prior written notice given by Shanghai E-Cheng in a yearly basis.
In the opinion of our PRC counsel, Yuan Tai Law Offices, the contractual arrangements with respect to Shanghai Jupai and Shanghai E-Cheng are valid, binding and
enforceable in accordance with their terms under current PRC laws. However, as advised by our PRC legal counsel, there are substantial uncertainties regarding the interpretation
and application of current and future PRC laws, regulations and rules, including the laws and regulations governing the enforcement and performance of our contractual
arrangement in the event of any imposition of statutory liens, bankruptcy and criminal proceedings. Accordingly, the PRC regulatory authorities may in the future take a view that
is contrary to the above opinion of our PRC counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the
structure for operating our business do not comply with PRC government restrictions on foreign investment in our businesses, we could be subject to severe penalties, including
being prohibited from continuing operations. See “ Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may fail to obtain and maintain
licenses and permits necessary to conduct our operations in China, and our business may be materially and adversely affected as a result of any changes in the laws and regulations
governing the financial services industry in China” and “ Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties in the
interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
D. Property, Plant and Equipment
Our principal executive offices are located on premises comprising approximately 6,922 square meters in Shanghai, China. As of December 31, 2020, we have in
aggregate 31 client centers in 30 cities in mainland China and Hong Kong. We lease most of our premises from unrelated third parties. Most of the lessors for the leased premises
either has valid title to the property and each lessor has proper authorization from the title owner to sublease the property. Below is a summary of the term of our leases by cities
and we may renew these leases when they expire or relocate upon equal or more favorable leasing terms:
Property
Shanghai premises
Beijing premises
Hangzhou premises
Tianjin premises
Dongguan premise
Hong Kong premise
Suzhou premises
Xiamen premise
Shenzhen premise
Chengdu premise
Chongqing premise
Guangzhou premise
Qingdao premise
Zhuhai premise
Quanzhou premise
Wuhan premise
Changzhou premise
Fuzhou premise
Yiwu premise
Xi’an premise
Jiangyin premise
Zhengzhou premise
Hefei premise
Dalian premise
Changshu premise
Zhangjiagang premise
Yangzhou premise
Huhhot premise
Putian premise
Ningbo premise
Starting from
Expiring from
Term
June 1, 2019
July 31, 2021
December 1, 2018
October 1, 2019
January 1, 2020
April 1, 2020
January 16, 2020
March 1, 2018
August 1, 2018
November 1, 2019
November 1, 2018
February 15, 2020
June 6, 2018
April 1, 20210
February 13, 2020
May 1, 2018
June 1, 2020
February 1, 2020
August 1, 2018
February 1, 2020
December 8, 2019
February 26, 2019
March 1, 2019
January 11, 2020
October 1, 2018
July 20, 2020
July 1, 2019
April 16, 2017
February 22, 2018
September 25, 2018
January 1, 2018
71
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
August 1, 2020
October 31, 2022
November 30, 2021
September 30, 2022
December 31, 2022
March 31, 2022
January 15, 2022
February 28, 2023
July 31, 2021
October 31, 2021
October 31, 2021
February 14, 2022
June 15, 2021
March 31, 2022
February 12, 2022
April 30, 2021
May 31, 2022
January 31, 2022
July 31, 2022
January 31, 2022
December 31, 2021
February 25, 2024
February 28, 2022
January 10, 2023
September 30, 2021
July 19, 2021
June 30, 2021
December 31, 2021
April 10, 2021
January 31, 2022
December 31, 2020
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The lease agreements typically have terms of approximately one to five years that are renewable by the parties subject to early termination. We believe that we will be able
to obtain adequate facilities, principally through leasing, to accommodate our future expansion plans.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the
related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and
uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item
3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.
A. Operating Results
Overview
We are a leading third-party wealth management service provider focusing on distributing wealth management products and providing product advisory services to high-
net-worth individuals in China. We provide our wealth management product advisory services mainly to China’s high-net-worth individuals who have investable assets in excess of
RMB3.0 million or have an average annual income in excess of RMB500,000 for the past three years. In 2018, 2019 and 2020, the aggregate value of wealth management products
we distributed to our clients reached RMB30.3 billion, RMB9.8 billion and RMB6.5 billion (US$1.0 billion), respectively. Our established wealth management product advisory
services operation is complemented by our asset management capabilities. The amount of assets under our sole or shared management reached RMB33.8 billion (US$5.2 billion) as
of December 31, 2020.
In connection with our wealth management product related services, we charge product providers, corporate borrowers or our clients one-time commissions calculated as a
percentage of the wealth management products purchased by our clients. Where we act as the product provider for our self-developed products, we generate revenues from one-
time commissions from the corporate borrowers and product provider. During the life cycle of some of the public market products, private equity fund products and certain fixed
income products, we also charge product providers or corporate borrowers recurring service fees for our ongoing services, such as investment relationship maintenance and
coordination and product reports distribution. In connection with our asset management services, we charge one-time commissions for fund formation services and recurring
management fees for managing the fund as general partner, co-general partner or manager. These fees are typically computed as a percentage of the capital contribution in the
funds. The recurring management fees also include performance fees or carried interest paid by funds that we manage or co-manage mostly upon maturity of the relevant funds.
Prior to 2015, we derived substantially all of our revenues from one-time commissions received from distribution of fixed income products in connection with our wealth
management product related services. As we grow our asset management capabilities and further diversify our product offerings, we derive an increasingly larger proportion of
recurring management fees for our wealth management product related and asset management services beginning in 2013. Starting from 2016, we offered consulting services to
some peer firms in the asset management industry and other companies seeking for equity investments. We charged those firms and companies service fees for our services, which
are negotiated on a case-by-case basis depending on the nature and extent of our services. In 2018, 2019 and 2020, our one-time commissions and other service fees in combination
accounted for 62.1%, 42.3% and 41.8% of our total net revenues, respectively; and our recurring service, and recurring management fees combined accounted for 37.9%, 57.7%
and 58.2% of our total net revenues, respectively. We started to receive carried interest in the first quarter of 2015. Such carried interest, as part of our recurring service and
management fees, amounted to RMB24.3 million (US$3.7 million) and accounted for 6.3% of our total net revenues in 2020.
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Our net revenues decreased from RMB1.3 billion in 2018 to RMB0.8 billion in 2019 and to RMB0.4 billion (US$59.5 million) in 2020. We recorded a net loss
attributable to our shareholders of RMB387.7 million, RMB164.7 million and RMB31.4 million (US$4.8 million) in 2018, 2019 and 2020, respectively.
Key Components of Our Results of Operations
Net Revenues
We derive net revenues mainly from the provision of wealth management product related services and asset management services. Prior to 2015, one-time commissions
received from distribution of fixed income products in connection with our wealth management product related services accounted for substantially all of our revenues. In 2013, we
started to provide asset management services. In 2016, we provided consulting services to some peer firms in the asset management industry and charged them consulting service
fees determined on a case-by-case basis depending on the nature and extent of our services. We also categorize revenues into third-party revenues and related-party revenues. Our
related-party revenues consist primarily of one-time commissions and recurring management fees paid by limited partnership funds where we serve as general partner or co-general
partner or other funds where we serve as managers. The following table sets forth the principal components of our net revenues by amounts and percentages of our net revenues for
the periods indicated:
2018
Year Ended December 31,
2019
RMB
%
RMB
%
RMB
2020
US$
%
737,482,046
522,605,724
214,876,322
64,345,376
1,252,314
63,093,062
435,522,503
435,522,503
—
84,393,738
28,209,606
56,184,132
1,321,743,663
55.7
39.5
16.2
4.9
0.1
4.8
33.0
33.0
—
6.4
2.1
4.3
100.0
318,853,996
60,352,190
258,501,806
114,542,160
1,424,854
113,117,306
338,646,568
338,646,568
—
13,904,488
—
13,904,488
785,947,212
40.5
7.7
32.8
14.6
0.2
14.4
43.1
43.1
—
1.8
—
1.8
100.0
162,151,804
58,151,175
104,000,629
128,028,205
20,138,903
107,889,302
97,991,734
97,991,734
—
—
—
—
388,171,743
24,850,852
8,912,058
15,938,794
19,621,181
3,086,422
16,534,759
15,017,890
15,017,890
—
—
—
—
59,489,923
41.8
15.0
26.8
33.0
5.2
27.8
25.2
25.2
—
—
—
—
100.0
Net revenues:
One-time commission
Related party
Third party
Recurring service fee
Related party
Third party
Recurring management fees
(1)
Related party
Third party
Other service fee
Related party
Third party
Net revenues
Note:
(1) We recognized RMB61.9 million, RMB159.0 million and RMB24.3 million (US$3.7 million) carried interest as part of our recurring service and management fees in 2018,
2019 and 2020, respectively.
One-Time Commissions. We generate a majority of one-time commissions from our wealth management product related services where we charge product providers,
corporate borrowers or our clients a commission calculated as a percentage of the wealth management products purchased by our clients. We also charge one-time commissions for
fund formation as part of our asset management services. We have experienced consecutive declines from 2018 to 2020, primarily due to decreases in the aggregate value of wealth
management products we distributed. One-time commission as a percentage of our total net revenues remain above 40%.
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Recurring Service Fees. During the life cycle of some private equity fund products, public market products and certain fixed income products, we charge product
providers or corporate borrowers recurring service fees for our ongoing services. Our services typically include investor relationship maintenance and coordination and product
reports distribution. Our recurring service fees are calculated as a percentage of the value of investments in the wealth management products purchased by our clients calculated at
the time of establishment of the wealth management products. For certain products, recurring service fees may also include a variable performance fee contingent upon the
performance of the underlying investment, which is not recognized until the contingent criteria are met. In 2018, 2019 and 2020 we recorded RMB0.3 million, RMB2.1 million and
RMB10.6 million (US$1.6 million) of such performance fees, respectively. From 2018 to 2020, recurring service fee increased as we provide on-going services to more product
suppliers.
Recurring Management Fees. We generate recurring management fees from our asset management services in our capacity such as general partner, co-general partner or
manager of a fund where we charge such fund recurring management fees computed as a percentage of the capital contribution in the fund. Our recurring management fees also
include performance fees or carried interest paid by funds that we manage or co-manage when these funds mature to share profits of the underlying investment. The amount of
recurring management fee revenues declined from 2018 to 2020 due to decreased value of AUM. The amount of assets under our sole or shared management declined from
RMB56.8 billion in 2018 to RMB41.8 billion in 2019 and to RMB33.8 billion (US$5.2 billion) in 2020. As a component of our recurring management fees, the amount of revenue
from performance fees or carried interest was RMB61.6 million, RMB156.9 million and RMB13.7 million (US$2.1 million) in 2018, 2019 and 2020, respectively.
Other Service Fees. Other service fees refers to revenue generated from consulting services provided to peers in asset management industry and other companies seeking
for equity investments. Service fees are negotiated case by case, and are specified in agreements before service are provided. Revenue is recognized upon completion of the
services and when it becomes probable that a significant impact in the amount of revenue will not occur. In 2018, 2019 and 2020, the amount of other service fees was RMB84.4
million, RMB13.9 million and nil, respectively.
While we expect that our one-time commissions and recurring management fees will continue to account for a significant portion of our net revenues, we saw a decline in
revenues from one-time commissions due to a decrease in the aggregate value of wealth management products we distributed.
For sizable projects with demanding fund-raising timetables, we sometimes use third-party distribution channels in addition to our in-house sales force to expedite fund
raising for the related projects. These third-party channels consist primarily of third-party wealth management service providers that operate on a smaller scale compared to us. We
select them based on market reputation and our prior working experience with them. We pay channel fees to these third-party distribution channels based on the value of products
distributed by them and our total revenues are net of these channel fees. In 2018, 2019 and 2020, we incurred channel fees in the amount of RMB202.0 million, RMB19.1 million
and RMB2.0 million (US$0.3 million), respectively.
We monitor and strive to improve the following key business metrics to generate higher net revenues:
Number of Active Clients. Our core business is the provision of wealth management product advisory services to high-net-worth clients in China. Our active clients are
those who, during any given period, purchased wealth management products that we distribute at least once during that period. Our ability to attract new clients and to encourage
repeat purchases by existing clients depends on our ability to provide high-quality wealth management product advisory services and products. To achieve this, we constantly strive
to increase the level of expertise of our wealth management product advisors, enrich our product selection, increase our market presence and carry out effective sales and marketing
campaigns. We also strive to attract new clients by maintaining a physical presence in key markets
Average Transaction Value Per Client. Average transaction value per client for any given period refers to the simple average of the value of wealth management products
distributed by us to each active client during that period. The average transaction value per client is related to the total amount of wealth management products we distribute, which
is a function of the number of active clients and the average transaction value per client. A change in the total amount of wealth management products we distribute may affect the
one-time commissions and recurring fees we earn, which in turn drives our revenue growth. The average transaction value per client is also affected by our clients’ amount of
investable assets and the level of satisfaction of our clients with our wealth management product advisory services.
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Our Product Mix. Our product mix affects our sources of revenues and the amount of revenues we are able to generate. We source a wide array of third-party wealth
management products and also develop wealth management products in-house. These include four types of products: (i) fixed income products; (ii) private equity and venture
capital fund products; (iii) public market products; and (iv) other products, such as insurance products and overseas investments. The table below sets forth the total value of
different types of products that we distributed, both in absolute amount and as a percentage of the total value of all products distributed during the periods indicated:
Product type
Fixed income products
Private equity and venture capital fund products
Public market products
Other products
All products
2018
RMB in
millions
(1)
%
Year Ended December 31,
2019
RMB in
millions
(1)
%
RMB in
millions
2020
US$ in
millions
8,560
19,038
1,129
1,546
30,273
28.3
62.9
3.7
5.1
100.0
7,219
1,526
291
791
9,827
73.5
15.5
3.0
8.0
100.0
4,116
1,017
1,173
147
6,453
630
156
180
23
989
(1)
%
63.7
15.8
18.2
2.3
100.0
(1) The sum of the following percentages do not necessarily equal 100% due to rounding.
The composition and amount of revenues generated from our wealth management product related services and, to a lesser extent, revenues generated from our asset
management services are affected by the types of products we distribute. We earn one-time commission on all types of products that we distribute and charge recurring services fees
on some of the private equity and venture capital fund products, public market products and certain fixed income products. We participate in the investment management of our
self-developed products. To the extent that we distribute more of our self-developed products, our recurring management fees will also increase. We started to develop products in-
house in 2013. In terms of value, approximately RMB28.2 billion, RMB9.2 billion and RMB6.4 billion (US$1.0 billion) of the products that we distributed in 2018, 2019 and 2020,
respectively, were either products developed and managed by us or third-party products that we helped design.
Prior to 2015, we derived substantially all of our revenues from one-time commissions received from distribution of fixed income products in connection with our wealth
management product related services. From 2015 to 2017, the amount of fixed income products as a percentage of all products has remained high primarily due to their more
manageable risk profile, which is preferred by many of our clients. In 2018, the absolute amount of private equity and venture capital fund products and its percentage of all
products increased significantly as we strategically adjust the mix of products in response to the regulatory changes. As our clients prefer products with lower risk profile, we
decided to provide fixed income products to them again due to their more manageable risk profile. We intend to continue to increase the percentage of our self-developed products
in the future in order to increase the recurring management fees.
Amount of Assets Under Our Management. We provide asset management services in the capacity as general partner, co-general partner or manager to investment funds.
The amount of our recurring management fees, including any potential performance fee or carried interest, is affected by the amount of assets under our management. We believe
the amount of assets under our management will become a more important factor affecting our results of operations as we anticipate the percentage and absolute amount of
revenues generated from recurring management fees to grow in the foreseeable future.
Our “assets under management” or “AUM” refers to the amount of capital contributions made by investors to the funds we manage, for which we are entitled to receive
management fees. The amount of our AUM is recorded and carried based on the historical cost of the contributed assets instead of fair market value of assets for almost all our
AUM. For assets denominated in currencies other than Renminbi, the AUM are translated into Renminbi upon their contribution, without interim value adjustments solely due to
changes in foreign exchange rates. As a result, our management fees for almost all our AUM are calculated based on the historical cost balance of the AUM and where the AUM is
denominated in currencies other than Renminbi, its historical cost balance is translated into Renminbi upon contribution. The tables below set forth the roll-forward of different
types of our AUM, including the inflows (asset growth) and outflows (asset expiration or liquidation upon maturity) of the AUM during the periods indicated:
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2020 compared to 2019
Product type
Fixed income products
Private equity and venture capital fund
products
Public market products
Other products
All products
2019
Balance
(RMB in
millions)
13,454.4
26,294.0
928.7
1,147.4
41,824.5
(1)
%
32.2
62.9
2.2
2.7
100.0
Inflows
(RMB in
millions)
As of December 31,
Outflows
(RMB in
millions)
Balance
(RMB in
millions)
4,116.4
1,017.0
342.0
20.3
5,495.7
(7,421.9)
10,148.9
(5,761.8)
(302.5)
(4.8)
(13,491.0)
21,549.2
968.2
1,162.9
33,829.2
2020
Balance
(US$ in
millions)
1,555.4
3,302.6
148.4
178.2
5,184.6
(1)
%
30.0
63.7
2.9
3.4
100.0
(1) The sum of the following percentages does not necessarily equal 100% due to rounding.
The total amount of assets under management was RMB33.8 billion (US$5.2 billion) as of December 31, 2020, a decrease of RMB8.0 billion (US$1.2 billion), or 19%,
from RMB41.8 billion as of December 31, 2019. The net decrease was due to:
Inflows of RMB5.5 billion (US$0.8 billion) contributions related to:
· RMB4.1 billion (US$0.6 billion) in fixed income products primarily due to RMB4.1 billion (US$0.6 billion) raised for products with underlying assets in real
estate;
· RMB1.0 billion (US$0.2 billion) in private equity and venture capital fund products contributed by RMB1.0 billion (US$0.2 billion) raised for products in real
estate, and the remaining in various industries, such as consumer discretionary industry, healthcare, telecommunication, media and technology industry;
Outflows of RMB13.5 billion (US$2.1 billion) attributable to:
· RMB7.4 billion (US$1.1 billion) in fixed income products primarily due to RMB7.4 billion (US$1.1 billion) liquidation of products with underlying assets in real
estate upon maturity; and
· RMB5.8 billion (US$0.9 billion) in private equity and venture capital fund products primarily due to liquidation of products in real estate of RMB4.3 billion
(US$0.7 billion).
2019 compared to 2018
Product type
Fixed income products
Private equity and venture capital fund products
Public market products
Other products
All products
2018
Balance
(RMB in
millions)
19,845.8
34,033.0
1,657.5
1,215.5
56,751.9
(1)
%
35.0
60.0
2.9
2.1
100.0
As of December 31,
Inflows
(RMB in
millions)
7,219.6
1,525.5
1.0
180.9
8,927.0
Outflows
(RMB in
millions)
(13,611.1)
(9,264.5)
(729.8)
(249.0)
(23,854.4)
2019
Balance
(RMB in
millions)
13,454.4
26,294.0
928.7
1,147.4
41,824.5
(1)
%
32.2
62.9
2.2
2.7
100.0
(1) The sum of the following percentages does not necessarily equal 100% due to rounding.
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The total amount of assets under management was RMB41.8 billion as of December 31, 2019, a decrease of RMB14.9 billion, or 26.3%, from RMB56.8 billion as of
December 31, 2018. The net decrease was due to:
Inflows of RMB8.9 billion contributions related to:
· RMB7.2 billion in fixed income products primarily due to RMB7.2 billion raised for products with underlying assets in real estate;
· RMB1.5 billion in private equity and venture capital fund products contributed by RMB1.0 billion raised for products in real estate, and the remaining in various
industries, such as consumer discretionary industry, healthcare, telecommunication, media and technology industry;
Outflows of RMB23.9 billion attributable to:
· RMB13.6 billion in fixed income products primarily due to RMB12.4 billion liquidation of products with underlying assets in real estate upon maturity;
· RMB9.3 billion in private equity and venture capital fund products primarily due to liquidation of products in real estate of RMB7.1 billion;
· RMB0.7 billion in public market products primarily due to liquidation of products mainly related to private investments in public companies.
2018 compared to 2017
Product type
Fixed income products
Private equity and venture capital fund products
Public market products
Other products
All products
2017
Balance
(RMB in millions)
35,557.9
18,867.9
2,372.0
734.4
57,532.2
(1)
%
61.8
32.8
4.1
1.3
100.0
As of December 31,
Inflows
(RMB in
millions)
8,508.1
16,182.4
1,128.7
1,545.4
27,364.7
Outflows
(RMB in
millions)
(24,220.1)
(1,017.3)
(1,843.2)
(1,064.4)
(28,145.0)
2018
Balance
(RMB in
millions)
19,845.8
34,033.0
1,657.5
1,215.5
56,751.9
(1)
%
35.0
60.0
2.9
2.1
100.0
(1) The sum of the following percentages does not necessarily equal 100% due to rounding.
The total amount of assets under management was RMB56.8 billion as of December 31, 2018, a decrease of RMB0.8 billion, or 1.4%, from RMB57.5 billion as of
December 31, 2017. The net decrease was due to:
Inflows of RMB27.4 billion contributions related to:
· RMB8.5 billion in fixed income products primarily due to RMB6.3 billion raised for products with underlying assets in real estate;
· RMB16.2 billion in private equity and venture capital fund products contributed by RMB15.0 billion raised for products in real estate, and the remaining in
various industries, such as consumer discretionary industry, healthcare, telecommunication, media and technology industry;
Outflows of RMB28.1 billion attributable to:
· RMB24.2 billion in fixed income products primarily due to RMB19.0 billion liquidation of products with underlying assets in real estate upon maturity;
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· RMB1.8 billion in public market products primarily due to liquidation of products mainly related to private investments in public companies.
Fee Rates. Our one-time commissions are a function of the amount of products we distribute to our clients and our commission rate. Similarly, our recurring fees are a
function of the amount of underlying assets and the applicable recurring fee rates. We refer to our commission rates and recurring fee rates collectively as our fee rates. Our net
revenues are affected by our fee rates, which are based on individually negotiated service contracts with product providers or corporate borrowers or fund management agreements
individually negotiated with each fund for which we provide asset management services. The risk profiles of each individual product are the main factor affecting the exact fee rates
within the same category of products. The fee rates for fixed income products that have similar repayment terms and structure, for instance, have remained stable over the years.
The tenure of fixed income products we distributed in 2020 typically ranges from six months to fifteen months. The one-time commission rates we charge on fixed income products
typically range from 0.5% to 3.5%. The recurring service fee rates that we charge on fixed income products are within the range of 0.3% to 2.0% per year. The tenure of equity
related products we distributed in 2020 typically ranges from one year to four years. The one-time commission rates we charge on equity related products, including PE, VC and
public market fund products, typically range from 1% to 4.5%. The recurring service fee rates that we charge on equity related products are within the range of 0.2% to 2.5%
annually. We do not charge our counterparts fees at fixed rates for our consulting service to earn other service fee. Each cooperation’s fee level is subject to deal-by-deal negotiation
depending on the nature and extent of the relevant cooperation.
The table below sets forth the weighted average recurring management fee rates (the annualized recurring management fee divided by period-end fee-earning assets under
our management) of different types of products under our management during the periods indicated:
Product type
Fixed income products
Private equity and venture capital fund products
Public market products
Other products
All products
Operating Costs and Expenses
2018
%
Year Ended December 31,
2019
%
2020
%
0.60
0.71
1.21
0.95
0.65
0.56
0.62
0.56
0.72
0.60
0.44
0.61
0.66
0.59
0.56
Our financial condition and operating results are directly affected by our operating costs and expenses, which consist of cost of revenues, selling expenses and general and
administrative expenses. Our operating costs and expenses are primarily affected by our staff size and rental expenditures.
Our staff decreased from 1,926 as of December 31, 2018 to 911 as of December 31, 2019 and further decreased to 580 as of December 31, 2020. As the industry
experienced a difficult time due to the uncertain economic prospect, we strived to optimize our organizational structure and control the labor costs to improve the overall
operational efficiency.
We had 76, 51 and 31 client centers as of December 31, 2018, 2019 and 2020, respectively. Our rental expenses in 2020 have also decreased in line with the decrease in
the total office area of our client centers.
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The following table sets forth the components of our operating costs and expenses, both in absolute amount and as a percentage of net revenues for the periods indicated:
Operating costs and expenses:
Cost of revenues
Selling expenses
General and administrative and
expenses
Impairment loss of goodwill
Government subsidies
Total operating costs and expenses
2018
Year Ended December 31,
2019
RMB
%
RMB
%
RMB
684,558,659
303,170,575
274,782,664
267,917,575
(48,742,897)
1,481,686,576
51.8
22.9
20.8
20.3
(3.7)
112.1
481,746,067
206,777,405
265,527,496
—
(31,429,802)
922,621,166
61.3
26.3
33.8
—
(4.0)
117.4
205,634,704
84,903,304
153,650,898
—
(21,590,703)
422,598,203
2020
US$
31,514,897
13,012,001
23,548,030
—
(3,308,920)
64,766,008
%
53.0
21.9
39.6
—
(5.6)
108.9
Cost of Revenues. Our cost of revenues consists of compensation to wealth management product advisors, product development team members and client managers and
social welfare and share-based compensation.
Selling Expenses. Our selling expenses primarily include operating expenses attributable to general marketing and promotional activities, compensation of our marketing
team, office rentals and office supplies.
General and Administrative Expenses. Our general and administrative expenses primarily include compensation of managerial and administrative staff, rental and other
expenses of our headquarters and professional service fees.
Government Subsidies. Government subsidies is cash subsidies received from local governments as incentives for registering and operating business in certain local
districts, typically granted based on the amount of value-added tax and income tax payments we make in these local districts in a given period. These subsidies do not entail other
obligations on our part and allow us full discretion in utilizing the funds, which we use for general corporate purposes. The local governments may decide to reduce, eliminate or
cancel these subsidies at any time. See “Item 3. Key Information—D. Risk Factors—Risk Related to Doing Business in China—The discontinuation of any of the government
incentives and preferential tax treatment currently available to us in China could adversely affect our financial condition and results of operations.”
Taxation
The Cayman Islands and the British Virgin Islands
Under the current laws of the Cayman Islands and the British Virgin Islands, we are not subject to tax on our income or capital gains. In addition, the Cayman Islands and
the British Virgin Islands do not impose withholding tax on dividend payments.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiary is subject to the 8.25% profits tax rate for assessable profits not exceeding $2 million
and 16.5% profits tax rate for assessable profits exceeding $2 million from April 1, 2018, on their taxable income generated from operations in Hong Kong. Under the Hong Kong
tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiary to us are not subject
to any Hong Kong withholding tax.
PRC
Our PRC subsidiary and the VIEs are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on their taxable income in accordance
with the relevant PRC income tax laws. Under the Law of the People’s Republic of China on Enterprise Income Tax, or the EIT Law, which became effective on January 1, 2008
and most recently amended on December 29, 2018 and its amendment promulgated on February 24, 2017 and most recently amended on April 23, 2019, domestically-owned
enterprises and foreign-invested enterprises are subject to a uniform tax rate of 25%. Additionally, in accordance with the EIT Law, dividends, which arise from profits of foreign-
invested corporations earned after January 1, 2008, are subject to a 5% to 10% withholding income tax.
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Critical Accounting Policies
We prepare our consolidated financial statements in conformity with the U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenue and expenses during
each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other
conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making
judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results
could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes
in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most
significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
We derive revenue primarily from one-time commissions and recurring service fees paid by product providers for whom we distribute wealth management products, and
recurring management fee and carried interest paid by funds we manage. Starting from the second half of 2016, we also began to earn other service fees for consulting services
provided to other companies. There is no material impact of the adoption of ASC 606 on January 1, 2018 using the modified retrospective method to its consolidated financial
statements.
Under the guidance of ASC 606, we are required to: (i) identify the contracts with a customer, (ii) identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligations in the contracts, and (v) recognize revenue when the entity satisfies a performance obligation.
Revenues are recorded, net of sales related taxes and surcharges.
We sometimes engage third party agents in promoting products and pay a channel fee accordingly, as such we recognize revenue on a net basis by deducting the channel
fee we pay to the third party agents.
One-Time Commissions
We enter into one-time commission agreements with product providers or underlying corporate borrowers, which specifies the key terms and conditions of the
arrangement. Such agreements do not include rights of return, credits or discounts, rebates, price protection or other similar privileges. Upon establishment of a wealth management
product, we earn a one-time commission from product providers or underlying corporate borrowers, calculated as a percentage of the wealth management products purchased by
our clients. We define the “establishment of a wealth management product” for our revenue recognition purpose as the time when both of the following two criteria are met: (i) our
client has entered into a purchase or subscription contract with the relevant product provider and, if required, the client has transferred a deposit to an escrow account designated by
the product provider, and (ii) the product provider has issued a formal notice to confirm the establishment of a wealth management product. After the contract is established, there
are no significant judgments made when determining the one-time commission price.
Recurring Service Fees
Recurring service fee includes service fee and carried interest. It arises from on-going services provided to product providers after the distribution of wealth management
product including investment relationship maintenance and coordination and product reports distribution. It is calculated as a percentage of the total value of investments in the
wealth management products purchased by our clients, calculated at the establishment date of the wealth management product. As we provide these services throughout the
contract term, revenue is recognized over the contract term, assuming all other revenue recognition criteria have been met. For certain products, recurring service fees may also
include a performance-based fee based on the extent by which the fund’s investment performance exceeds a certain threshold. Such performance-based fees earned based on the
performance of us are a form of variable consideration in our contracts with customers to provide investment management services. Recurring service agreements do not include
rights of return, credits or discounts, rebates, price protection or other similar privileges.
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Recurring Management Fees
Recurring management fee arises from the fund management services provided to funds we manage, including management fee and carried interest. Management fees are
computed as a percentage of the capital contribution in a fund and are recognized as earned over the specified contract period. Carried interest represents preferential allocation of
profits that are composed of our general partnership interest and fund managing interests in the limited partnership and contractual funds, and is a form of variable consideration
and recognized as revenue typically at the end of the fund’s contract term when the uncertainty associated with the variability is resolved. Management fee received in advance of
the specified contract period and in the limited circumstances carried interest received before the end of the fund’s contract term are recorded as deferred revenue.
Other Service Fees
Other service fee refers to revenue generated from consulting services provided to peers in asset management industry and other companies seeking for equity investment.
Service fees are negotiated case by case, and are specified in agreements before services are provided. Revenue is recognized upon completion of the services and when it becomes
probable that a significant reversal in the amount of revenue will not occur.
Contract Modifications
Contract modifications occur when we and our customers agree to modify existing customer contracts to change the scope or price (or both) of the contract or when a
customer terminates some, or all, of the existing services provided by us. When a contract modification occurs, it requires us to exercise judgment to determine if the modification
should be accounted for as: (i) a separate contract, (ii) the termination of the original contract and creation of a new contract, or (iii) a cumulative catch up adjustment to the original
contract. Further, contract modifications require the identification and evaluation of the performance obligations of the modified contract, including the allocation of revenue to the
remaining performance obligations and the period of recognition for each identified performance obligation. In 2018, we modified certain contracts for changes in transaction price
for the services that are not distinct from the existing contract. As such, these modifications are accounted for as if they were part of the existing contract, and therefore, the effect
of the modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a
cumulative catch-up basis in the period of modification. The amount of cumulative adjustment to revenue recorded in 2018, 2019 and 2020 as a result of contract modification was
RMB122.7 million, nil and nil, respectively.
Transaction Price Allocation among Performance Obligations
We enter into contracts with product providers or underlying corporate borrowers to provide both wealth management marketing and recurring services or other services.
We also provide wealth management marketing, recurring services and other services to funds that it serves as general partner/co-general partner or fund manager.
Each of the wealth management marketing service, recurring service, and other service represent a separate performance obligation. We allocate the total consideration
among various performance obligations at inception of contracts based on their relative stand-alone selling price (“SSP”). We have observable SSP for its wealth management
marketing services and other services for certain products as it provides such services separately to other similar customers. We have not sold its recurring services separately. We
adopt either the adjusted market assessment approach or the residual approach when the SSP is not directly observable and is either highly variable or uncertain. Revenue for the
respective performance obligation is recognized in the same manner as described above.
Contract Balances
We enter into contracts with customers, of which obligations are performed over a period. We record contract liabilities in deferred revenue when payments are received in
advance of the performance obligations being satisfied. Certain contracts require that a portion of the payment be deferred until the end of the wealth management product’s life or
other specified contingencies.
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As of December 31, 2019 and 2020, total amount of deferred revenue are RMB83.0 million and RMB31.7 million (US$4.8 million), respectively, of which RMB77.7
million and RMB19.0 million (US$2.9 million) estimated to be recognized within one year, RMB5.2 million and RMB12.7 million (US$1.9 million) over one year to two years.
Investments in Affiliates
Affiliated companies are entities over which we do not control. Under the equity method, our share of the post-acquisition profits or losses of affiliated companies is
recognized in the statements of operations and our shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive income. An
impairment loss is recorded when a loss in value of the investment that is other than temporary, which is recorded in loss from equity in affiliates. We consider, among other factors,
general market conditions, government economic plans, business operation plan to determine whether an other-than-temporary impairment has occurred. We recorded impairment
loss of RMB104.1 million, RMB2.7 million and RMB1.3 million (US$0.2 million) for the years ended December 31, 2018, 2019 and 2020, respectively. Please refer to Note 6 to
Consolidated Financial Statements for our assessment on each investment in affiliates.
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed.
Goodwill is not depreciated or amortized but is tested for impairment on an annual basis as of December 31, and in between annual tests when an event occurs or circumstances
change that could indicate that the asset might be impaired.
Prior to January 1, 2018, we performed a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, we compare the fair value of the reporting unit
with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, we perform Step 2 and compares the implied fair value of goodwill
with the carrying amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the reporting unit
exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting unit. Starting from January 1, 2018, we early adopted ASU
2017-04. A reporting unit is identified as a component for which discrete financial information is available and is regularly reviewed by management. As we operate in a sole
segment, which is value-added wealth management and asset management services, the management concluded that it had only one reporting unit, and therefore the goodwill
impairment testing was performed on consolidation level. The impairment test was performed as of year-end or if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount by comparing the fair value of a reporting unit with its carrying value. If the fair value of the reporting
unit exceeds its carrying amount, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, an impairment
charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit.
Based on our impairment assessment review, we recorded goodwill impairment of RMB267.9 million, nil and nil for the years ended December 31, 2018, 2019 and 2020,
respectively, for the goodwill from acquisition of Scepter as the volatile market environment continued to negatively impact our operations and business outlook.
Accounts receivable and amounts due from related parties
Accounts receivable and amounts due from related parties mainly represent loan to related parties, amounts due from product providers, underlying corporate borrowers or
funds managed by us and are recorded net of allowance for doubtful accounts. We consider many factors in assessing the collectability of our accounts receivable and amounts due
from related parties, such as the age of the amounts due, the product providers or underlying corporate borrowers’ payment history, creditworthiness, financial conditions of the
product providers or underlying corporate borrowers and industry trend. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable.
We also make specific allowance if there is strong evidence indicating that the accounts receivable or amounts due from related parties are likely to be unrecoverable. We recorded
allowance for doubtful accounts of RMB60.4 million, RMB59.2 million and RMB11.1 million (US$1.7 million) for the years ended December 31, 2018, 2019 and 2020,
respectively.
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Consolidation of Variable Interest Entity
As foreign-invested companies engaged in market survey are subject to stringent requirements compared with Chinese domestic enterprises under the current PRC laws
and regulations, our PRC subsidiary, Shanghai Juxiang, and its subsidiaries, as foreign-invested companies, do not meet all such requirements and therefore none of them is
permitted to engage in such business in China. Therefore, we elected to conduct such business in China through Shanghai Jupai, our variable interest entity, and its subsidiaries,
which are PRC domestic companies beneficially owned by our founders. According to the Administration Measures on Securities Investment Fund Sales issued by the CSRC, last
amended on February 17, 2013, and came into effect on June 1, 2013, to apply for a mutual fund sales license, the shareholders of the applicant shall meet with certain
requirements, including, among others, to maintain a good track record for three consecutive financial years. According to the New Sales Agency Measures, the legal entity
shareholders for an independent mutual fund sales agency who hold more than 5% shares shall have the minimum registered capital, capital contribution or net asset of RMB100.0
million, and shall have been profitable for the last three financial years with sound operation and internal control. In addition, there are financial condition requirements for
controlling shareholder and actual controller. Shareholders who are foreign entities shall be financial institutions with financial assets management or financial investment advisory
experience, and shall be in good standing. Our foreign entity shareholders do not meet the qualifications of foreign shareholders of an independent mutual fund sales agency. As a
result, we entered into contractual arrangements between Shanghai Juxiang, our PRC subsidiary, and Shanghai Jupai, our PRC variable interest entity for the proposed sale of
relevant mutual funds and asset management plans in China.
Since we do not have any equity interests in Shanghai Jupai, in order to exercise effective control over its operations, through Shanghai Juxiang, we have entered into a
series of contractual arrangements with Shanghai Jupai and its shareholders, pursuant to which we are entitled to receive effectively all economic benefits generated from Shanghai
Jupai. The call option agreements and voting rights proxy agreement provide us effective control over Shanghai Jupai and its subsidiaries, while the equity interest pledge
agreement secure the equity owners’ obligations under the relevant agreements. Because we have both the power to direct the activities of Shanghai Jupai that most significantly
affect its economic performance and the right to receive substantially all of the benefits from Shanghai Jupai, we are deemed the primary beneficiary of Shanghai Jupai.
Accordingly, we have consolidated the financial statements of Shanghai Jupai. The aforementioned contractual agreements are effective agreements between a parent and a
consolidated subsidiary, neither of which is accounted for in the consolidated financial statements (i.e., a call option on subsidiary shares under the call option agreement or a
guarantee of subsidiary performance under the equity interest pledge agreement) or are ultimately eliminated upon consolidation (i.e., service fees under the operating agreement
and consulting service agreement).
Since we acquired Scepter Pacific in July 2015, Scepter Pacific, its subsidiaries, the VIE of Shanghai Baoyi and that VIE’s subsidiaries have been included in our
consolidated financial statements. Scepter Pacific is engaged in the asset management service business. Foreign-invested enterprises incorporated in China are not expressly
prohibited from providing asset management services in China. However, according to local business practice, as a general partner of a fund, Scepter Pacific must invest into the
fund as a general partner. Some investments of the fund managed by the Scepter Pacific are in the industries listed in the Negative List and as a result, none of the investors can be
foreign-invested enterprises. Therefore, Scepter Pacific provides asset management services through its VIE and the VIE’s subsidiaries. To provide Scepter Pacific effective control
over, and the ability to receive substantially all of the economic benefits of, its VIE and its subsidiaries, Shanghai Baoyi entered into a series of contractual arrangements with
Shanghai E-Cheng and the shareholders of Shanghai E-Cheng.
We believe that our contractual arrangements with our VIEs are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system
could limit our ability to enforce these contractual arrangements. The interests of the shareholders of our VIEs may diverge from that of our company, which may potentially
increase the risk that they would seek to act contrary to the contractual terms.
We also make equity investments in entities that are considered VIEs and perform evaluation on an ongoing basis to determine whether we are the primary beneficiary of
any of these investments. We have early adopted ASU 2015-02 “Amendments to the Consolidation Analysis” in the year ended December 31, 2015, which was subsequently
modified by ASU 2016-17 “Interests Held through Related Parties under Common Control”. The new guidance among other things, (i) modifies the evaluation of whether limited
partnerships and similar legal entities are VIEs, (ii) eliminated the presumption that a general partner should consolidate a limited partnership, and (iii) modifies the consolidation
analysis of reporting entities that are involved with VIEs through fee arrangements and related party relationships. In adopting the new guidance, we re-evaluated the existing
consolidated VIEs and non-consolidated VIEs and assessed that the adoption neither changes the conclusion of the consolidated VIEs and nor bring about new VIEs to be
consolidated.
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Income Taxes
Current income taxes are provided for in accordance with the relevant statutory tax laws and regulations.
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences
between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all
available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results
of recent operations. If we determine that we deferred tax assets are realizable in the future in excess of our net recorded amount, we would make an adjustment to the deferred tax
asset valuation allowance, which would reduce the provision for income taxes. According to ASU 2015-17, we recognized deferred tax assets and liabilities as non-current assets
and liabilities.
As of December 31, 2020, operating loss carried forward amounted to RMB255.7 million (US$39.2 million) for the PRC and HK income tax purposes. The loss carrying
forward will begin to expire this year. Valuation allowance of RMB63.6 million (US$9.7 million) was recorded as of December 31, 2020 for the entities that are not more likely
than not to realize the net operating loss carry forwards and deferred tax assets.
Recently Issued and Adopted Accounting Standards
A list of recently issued accounting pronouncements that are relevant to us is included in “Summary of Principal Accounting Policies — (ac) Recently issued accounting
pronouncements” of our audited consolidated financial statements included elsewhere in this annual report.
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts and as percentages of our net
revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations
in any period are not necessarily indicative of the results that may be expected for any future period.
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Revenues:
Third-party revenues
Related party revenues
Total revenues
Business taxes and related surcharges
Net revenues
Operating cost and expenses:
Cost of revenues
Selling expenses
General and administrative expenses
Impairment loss of goodwill
Government subsidies
Total operating cost and expenses
Loss from operations
Other income:
Interest income
Investment (loss) income
Gain from deconsolidation of subsidiaries
Exchange gain
Total other income
Loss before taxes and loss from equity in affiliates
Income tax expense
Loss from equity in affiliates
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to ordinary shareholders
2020 Compared to 2019
2018
RMB
335,246,612
990,820,793
1,326,067,405
(4,323,742)
1,321,743,663
(684,558,659)
(303,170,575)
(274,782,664)
(267,917,575)
48,742,897
(1,481,686,576)
(159,942,913)
3,990,096
(292,384)
561,528
4,227,896
8,487,136
(151,455,777)
(129,855,367)
(113,486,155)
(394,797,299)
7,053,281
(387,744,018)
For the Years Ended December 31,
2019
RMB
RMB
2020
US$
387,870,253
402,889,899
790,760,152
(4,812,940)
785,947,212
(481,746,067)
(206,777,405)
(265,527,496)
—
31,429,802
(922,621,166)
(136,673,954)
6,136,600
12,627,142
—
3,409,000
22,172,742
(114,501,212)
(52,944,639)
(5,015,063)
(172,460,914)
7,774,839
(164,686,075)
212,783,752
177,025,427
389,809,179
(1,637,436)
388,171,743
(205,634,704)
(84,903,304)
(153,650,898)
—
21,590,703
(422,598,203)
(34,426,460)
5,162,441
(7,333,446)
—
2,382,302
211,297
(34,215,163)
(796,524)
(1,612,759)
(36,624,446)
5,256,798
(31,367,648)
32,610,537
27,130,334
59,740,871
(250,948)
59,489,923
(31,514,897)
(13,012,001)
(23,548,030)
—
3,308,920
(64,766,008)
(5,276,085)
791,179
(1,123,900)
—
365,104
32,383
(5,243,702)
(122,073)
(247,166)
(5,612,941)
805,640
(4,807,301)
Net Revenues. Our net revenues decreased by 50.6% from RMB0.8 billion in 2019 to RMB0.4 billion (US$59.5 million) in 2020.
Our net revenues from one-time commissions decreased by 49.1% from RMB318.9 million in 2019 to RMB162.2 million (US$24.9 million) in 2020, primarily
attributable to a decrease in the aggregate value of wealth management products distributed.
Our net revenues from recurring service fees increased by 11.8% from RMB114.5 million in 2019 to RMB128.0 million (US$19.6 million) in 2020 because we provided
ongoing services to more products in 2020. As part of the recurring services fees, our recognized variable performance fees increased from RMB2.1 million in 2019 to RMB10.6
million (US$1.6 million) in 2020.
Our net revenues from recurring management fees decreased by 71.1% from RMB338.6 million in 2019 to RMB98.0 million (US$15.0 million) in 2020, which was
primarily attributable to the decrease in the value of AUM in 2020 as compared with 2019. In 2019 and 2020, RMB156.9 million and RMB13.7 million (US$2.1 million) carried
interest was recognized as part of our recurring management fees, respectively.
Starting from 2016, we began to earn other service fees from providing consulting services to peer firms in the asset management industry and other companies seeking for
equity investments. In 2019 and 2020, we generated other services fees of RMB13.9 million and nil, respectively.
Operating Costs and Expenses. Our total operating costs and expenses decreased by 54.2% from RMB922.6 million in 2019 to RMB422.6 million (US$64.8 million) in
2020, primarily due to the decreases in cost of revenues and selling expenses.
· Cost of Revenues. Cost of revenues decreased by 57.3% from RMB481.7 million in 2019 to RMB205.6 million (US$31.5 million) in 2020, primarily due to a
decrease in the total headcount of wealth management advisors and client managers, as well as a decrease in the aggregate value of wealth management products.
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· Selling Expenses. Our selling expenses decreased by 58.9% from RMB206.8 million in 2019 to RMB84.9 million (US$13.0 million) in 2020, primarily due to
decreases in marketing and promotion expenses, primarily attributable to our decrease of revenues.
· General and Administrative Expenses. Our general and administrative expenses decreased by 42.1% from RMB265.5 million in 2019 to RMB153.7 million
(US$23.6 million) in 2020, due to the continuous improvement in our operating efficiency.
· Government Subsidies. Government subsidies decreased by 31.3% from RMB31.4 million in 2019 to RMB21.6 million (US$3.3 million) in 2020.
Other Income and Expenses. Our total other income decreased from RMB22.2 million in 2019 to RMB0.2 million (US$32.4 thousand) in 2020, primarily due to a
decrease of RMB20.0 million in investment income.
Loss from Equity in Affiliates. Our loss from equity in affiliates decreased from RMB5.0 million in 2019 to RMB1.6 million (US$0.2 million) in 2020, which was mainly
due to a decrease of impairment of investment in affiliates from RMB2.7 million in 2019 to RMB1.3 million (US$0.2 million) in 2020.
Income Tax Expense. Our income tax expense decreased by 98.5% from RMB52.9 million in 2019 to RMB0.8 million (US$0.1 million) in 2020, mainly due to the
utilization of taxable losses.
Net Loss. As a result of the above, we recorded a net loss of RMB36.6 million (US$5.6 million) in 2020, as compared to a net loss of RMB172.5 million in 2019.
2019 Compared to 2018
Net Revenues. Our net revenues decreased by 40.5% from RMB1.3 billion in 2018 to RMB0.8 billion in 2019.
Our net revenues from one-time commissions decreased by 56.8% from RMB737.5 million in 2018 to RMB318.9 million in 2019, primarily attributable to a decrease in
the aggregate value of wealth management products distributed.
Our net revenues from recurring service fees increased by 78.0% from RMB64.3 million in 2018 to RMB114.5 million in 2019 because we provided ongoing services to
more products in 2019. As part of the recurring services fees, our recognized variable performance fees increased from RMB0.3 million in 2018 to RMB2.1 million in 2019.
Our net revenues from recurring management fees decreased by 22.2% from RMB435.5 million in 2018 to RMB338.6 million in 2019, which was primarily attributable to
the decrease in the value of AUM in 2019 as compared with 2018. RMB61.6 million and RMB156.9 million carried interest was recognized as part of our recurring management
fees in 2018 and 2019, respectively.
Starting from 2016, we began to earn other service fees from providing consulting services to peer firms in the asset management industry and other companies seeking for
equity investments. In 2018 and 2019, we generated other services fees of RMB84.4 million and RMB13.9 million, respectively.
Operating Costs and Expenses. Our total operating costs and expenses decreased by 37.7% from RMB1,481.7 million in 2018 to RMB922.6 million in 2019, primarily
due to the decreases in cost of revenues and selling expenses.
· Cost of Revenues. Cost of revenues decreased by 29.6% from RMB684.6 million in 2018 to RMB481.7 million in 2019, primarily due to a reduction in
performance-based compensation as a result of a decline in the aggregate value of wealth management products distributed and the cost control measures we
adopted in 2019.
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· Selling Expenses. Our selling expenses decreased by 31.8% from RMB303.2 million in 2018 to RMB206.8 million in 2019, primarily due to a decrease in
marketing and promotion expenses.
· General and Administrative Expenses. Our general and administrative expenses decreased by 3.4% from RMB274.8 million in 2018 to RMB265.5 million in
2019, due to the cost control measures we adopted in 2019.
· Government Subsidies. Government subsidies decreased by 35.5% from RMB48.7 million in 2018 to RMB31.4 million in 2019.
Other Income and Expenses. Our total other income increased from RMB8.5 million in 2018 to RMB22.2 million in 2019, primarily due to an increase of RMB12.9
million in investment income.
Loss from Equity in Affiliates. Our loss from equity in affiliates decreased from RMB113.5 million in 2018 to RMB5.0 million in 2019, which was mainly due to a
decrease of impairment of investment in affiliates from RMB104.1 million in 2018 to RMB2.7 million in 2019.
Income Tax Expense. Our income tax expense decreased by 59.2% from RMB129.9 million in 2018 to RMB52.9 million in 2019, mainly due to a decrease in taxable
income.
Net Loss. As a result of the above, we recorded a net loss of RMB172.5 million in 2019, as compared to a net loss of RMB394.8 million in 2018.
B. Liquidity and Capital Resources
Prior to the completion of our initial public offering, we financed our operations primarily through cash generated from our operating activities and the proceeds from the
private placement of our preferred shares. Our principal uses of cash for the years ended December 31, 2018, 2019 and 2020 were for operating, financing and investing activities.
As of December 31, 2020, we had RMB0.7 billion (US$0.1 billion) in cash, cash equivalents and restricted cash. Approximately 87.5% of our cash, cash equivalent and restricted
cash as of December 31, 2020 was held in China, more than 37.6% of which was held by our VIEs and their respective subsidiaries denominated in Renminbi. As of December 31,
2020, we did not have any outstanding bank loans. We believe that our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs,
including our cash needs for at least the next 12 months. We may, however, need additional capital in the future due to unanticipated business conditions or other future
developments, including any investments or acquisitions we may decide to pursue. If, in the future, our existing cash is insufficient to meet our requirements, we may sell
additional equity securities, debt securities or borrow from banks.
Although we consolidate the results of our consolidated entities, we only have access to the assets or earnings of our consolidated entities through our contractual
arrangements with our VIEs. See “Item 4. Information of the Company—A. History and Development of the Company.” For restrictions and limitations on liquidity and capital
resources as a result of our corporate structure, see “Holding Company Structure.” In addition, we would need to accrue and pay withholding taxes if we were to distribute funds
from our subsidiaries in China to our offshore subsidiaries. We do not intent to repatriate such funds in the foreseeable future, as we plan to use existing cash balance in China for
general corporate purposes.
Under PRC laws and regulations, we are permitted to provide funding to our PRC subsidiary only through loans or capital contributions and to our consolidated entities
only through loans, subject to applicable government registration and approval requirements. As a result, uncertainties exist as to our ability to provide prompt financial support to
our PRC subsidiaries or VIEs when needed. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to, and direct
investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public
offering to make loans to our PRC subsidiaries and consolidated entities or to make additional capital contributions to our PRC subsidiaries, which may materially and adversely
affect our liquidity and our ability to fund and expand our business.” Notwithstanding the foregoing, our PRC subsidiaries may use their own retained earnings (as opposed to
Renminbi converted from foreign currency denominated capital) to provide financial support to our VIEs either through entrustment loans or direct loans to its shareholders in
compliance with applicable laws and regulations, who then contribute the loans to the VIEs through contractual arrangements as capital injection similar to the shareholder loan
structure as under the VIE structure with respect to Shanghai E-Cheng. See “Item 4. Information on the Company—C. Organizational Structure.”
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The following table sets forth a summary of our cash flows for the periods indicated:
Summary of Statement of Cash Flow Data
Net cash (used in) provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes
Net decrease in cash, cash equivalent and restricted cash
Cash, cash equivalents and restricted cash — beginning of the year
Cash, cash equivalents and restricted cash — end of the year
Operating Activities
2018
RMB
(67,721,633)
(40,881,690)
(121,429,521)
4,820,616
(225,212,228)
1,527,777,270
1,302,565,042
For the Year Ended December 31,
2019
RMB
RMB
2020
US$
(213,255,822)
(365,663,454)
29,636
(11,369,704)
(590,259,344)
1,302,565,042
712,305,698
535,459
(32,428,482)
(7,085,100)
(16,091,630)
(55,069,753)
712,305,698
657,235,945
82,063
(4,969,882)
(1,085,839)
(2,466,151)
(8,439,809)
109,165,624
100,725,815
Net cash provided by operating activities in 2020 was RMB0.5 million (US$0.1 million), primarily attributable to a net loss of RMB36.6 million (US$5.6 million) and a
net decrease of RMB6.1 million (US$0.9 million) due to change in working capital, offset by non-cash items of RMB43.2 million (US$6.6 million). The change in working capital
was primarily attributable to a decline of RMB51.3 million (US$7.9 million) in deferred revenue and a decrease of RMB7.3 million (US$1.1 million) in other current liabilities in
aggregate, partially offset by an increase of RMB49.8 million (US$7.6 million) in amount due from related parties.
Net cash used in operating activities in 2019 was RMB213.3 million, primarily attributable to a net loss of RMB172.5 million and a net decrease of RMB134.9 million due
to change in working capital, partially offset by non-cash items of RMB94.1 million. The change in working capital was primarily attributable to a decrease in income tax payable
of RMB144.7 million and a decline of RMB71.6 million in deferred revenue in aggregate, partially offset by an increase of RMB96.2 million in deferred tax assets.
Net cash used in operating activities in 2018 was RMB67.7 million, primarily attributable to a net loss of RMB394.8 million and a net decrease of RMB168.4 million due
to change in working capital, partially offset by non-cash items of RMB495.5 million. The non-cash items increased significantly compared to prior years, which is mainly due to
goodwill impairment of RMB267.9 million and loss from equity in affiliates of RMB113.5 million in 2018. The change in working capital was primarily attributable to a decrease
in deferred revenue of RMB104.1 million, a decrease in payroll payable of RMB96.1 million and partially offset by an increase in income tax payable of RMB48.7 million. The
decrease in deferred revenue was primarily due to lower inflows of AUM in 2018. The decrease in payroll payable was mainly due to less bonus accrued in 2018.
Investing Activities
Net cash used in investing activities in 2020 was RMB32.4 million (US$5.0 million). Our investments consist primarily of purchases of property, plant, equipment and
loan origination, which, in the aggregate, accounted for cash out-flow of RMB62.1 million (US$9.5 million), partially offset by proceeds from investments and loan collection of
RMB29.7 million (US$4.5 million).
Net cash used in investing activities in 2019 was RMB365.7 million. Our investments consist primarily of purchases of property, plant, equipment, loan to related parties
and investments, which, in the aggregate, accounted for cash out-flow of RMB472.2 million, partially offset by proceeds from investments and loan collection of RMB106.5
million.
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Net cash used in investing activities in 2018 was RMB40.9 million. Our investments consist primarily of purchases of property, plant, equipment, loan to related parties
and investments in affiliates, which, in the aggregate, accounted for cash out-flow of RMB891.2 million, partially offset by proceeds from investments and loan collection of
RMB850.3 million.
Financing Activities
Net cash used in financing activities in 2020 was RMB7.1 million (US$1.1 million), primarily attributable to the shares repurchase.
Net cash provided by financing activities in 2019 was RMB29.6 thousand, primarily attributable to the option exercise.
Net cash used in financing activities in 2018 was RMB121.4 million, primarily attributable to the dividend paid by us.
Capital Expenditures
Our capital expenditures were RMB9.3 million, RMB13.2 million and RMB2.1 million (US$0.3 million) in 2018, 2019 and 2020, respectively. We currently do not have
any commitment for capital expenditures or other cash requirements other than those in our ordinary course of business.
Holding Company Structure
Jupai is a holding company with no material operations of its own. We conduct our operations primarily through our wholly owned subsidiaries and consolidated entities
in China. As a result, our ability to pay dividends depends upon dividends paid by our wholly owned subsidiaries. If our wholly owned subsidiaries or any newly formed
subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly owned
subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC
law, our wholly owned PRC subsidiaries and each of our consolidated entities is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve
until such reserve reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses
in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Remittance of dividends by a
wholly foreign-owned company out of China is subject to examination by the banks designated by the SAFE. We currently plan to reinvest all earnings from our PRC subsidiaries
to their business developments and do not plan to request dividend distributions from them.
C. Research and Development, Patents and Licenses, Etc.
See “Item 4. Information On the Company—B. Business Overview—Intellectual Property.”
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events since January 1, 2020 that are
reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be
not necessarily indicative of future operating results or financial conditions.
E. Off-balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into
any derivative contracts that are indexed to our own shares and classified as equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have
any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have
any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development
services with us.
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F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2020:
Operating leases
Other long term liabilities
Total
(1)
Total
37,337,403
38,546,000
75,883,403
Less than 1
year
24,717,992
38,546,000
63,263,992
Payment Due by Period
1-3 years
(RMB)
12,619,411
—
12,619,411
3-5 years
More than 5
years
—
—
—
—
—
—
(1) Represents our obligations to provide capital injections to certain equity method investees.
For additional information, please see the notes to our consolidated financial statements included elsewhere in this annual report.
G. Safe Harbor
See “Forward-Looking Statements” on page 2 of this annual report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding our executive officers and directors as of the date of this annual report.
Name
Jianda Ni
Xin Zhou
Guoping Yang
Bang Zhang
Hongchao Zhu
Min Liu
58
53
65
53
61
47
Age
Position/Title
Chairman of the Board of Directors and Chief Executive Officer
Director
Independent Director
Independent Director
Independent Director
Chief Financial Officer
Mr. Jianda Ni has served as our chairman of the board since April 2015, and as our chief executive officer since May 2017 and previously from April 2015 to
February 2017. Prior to joining our company, he served as the Chairman of Shanghai Industrial Holdings Limited, or SIHL, from July 2010, an executive director of SIHL from
February 2014 and an executive director of Shanghai Industrial Investment (Holdings) Co., Ltd. from November 2013. Prior to July 2010, he was a deputy chief executive officer
of SIHL. In the past, Mr. Ni also served as a director and president of Shanghai Urban Development and the general manager of Shanghai Xuhui Real Estate Management
Co., Ltd., the deputy general manager of Shanghai Urban Development and the general manager of the real estate department of China Huayuan Group Ltd. Mr. Ni received a
bachelor’s degree from Shanghai University and a master’s degree in business administration from La Trobe University of Australia.
Mr. Xin Zhou has served as our director since July 2015. Mr. Zhou previously served as our director from May 2014 to April 2015. Mr. Zhou has over 25 years of
experience in China’s real estate industry. Mr. Zhou served as E-House’s chief executive officer from 2003 to 2009, and has been serving as E-House’s chief executive officer again
since April 2012. Mr. Zhou has served as executive chairman of Leju Holdings Limited (NYSE: LEJU), a subsidiary of E-House and a NYSE-listed company, since its inception.
Mr. Zhou has been the executive director and chairman of E-House (China) Enterprise Holdings Limited (SEHK: 2048), an affiliate of E-House, since February 2010. Mr. Zhou
also served as co-chairman and chief executive officer of E-House’s subsidiary, China Real Estate Information Corporation, from 2009 to April 2012. Mr. Zhou currently serves as
vice chairman of China Real Estate Association, director of The Nature Conservancy China, vice chairman of China Real Estate Developers and Investors Association and
chairman of Real Estate Service Committee of China Real Estate Association. He is also a rotating chairman of Shanghai Entrepreneur Association. Mr. Zhou received his
bachelor’s degree from Shanghai Industrial University in China.
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Mr. Guoping Yang has served as our independent director since July 2015. Mr. Yang has served as the chairman of the board and the general manager of Dazhong
Transportation (Group) Co., Ltd. and the chairman of the board of Shanghai Dazhong Public Utilities (Group) Co., Ltd. From October 1988. Mr. Yang has also served as the vice
chairman of the board of Shanghai Jiao Da Onlly Co., Ltd. since April 2020 and Shenzhen Capital Group Co., Ltd. since May 2020. Prior to that, he served as the chairman of the
board of Shanghai Jiao Da Onlly Co., Ltd. and an independent director at Shenzhen Capital Group Co., Ltd. Mr. Yang also serves as a director at Shanghai Dazhong Gas Co., Ltd.,
Shanghai Jiao Yun Co., Ltd., Nanjing Public Utilities Development Co., Ltd. and Shanghai Songz Automobile Air Conditioning Co., Ltd. and an independent director at Bright
Real Estate Group Co., Ltd. Mr. Yang received his master’s degree in business administration from Shanghai Jiao Tong University in 1997.
Mr. Bang Zhang has served as our independent director since July 2015. Mr. Zhang has served as an independent director of E-House (China) Holdings Limited (HKG:
2048) since July 2018. He has served as the chief corporate officer at Octave Institute from 2018 and had served as the chief financial officer at DG Group from 2016 to 2017, the
chief financial officer at Golden Jaguar from 2013 to 2015 and an independent director of ChinaCache International Holdings Limited (Nasdaq: CCIH) from August 2017 to
November 2020. Prior to that, Mr. Zhang was the chief financial officer and a senior vice president at Mecox Lane Limited (NASDAQ: MCOX) from 2009 to 2013. He held
various management positions at McDonald’s China from 1994 to 2009. From 1983 to 1993, he worked at Jiangsu Suzhou Textile Ornament Corporation, Suzhou Capsugel Ltd.
and Heinz UFE Ltd. Mr. Zhang holds the Chartered Global Management Accountant qualification and is a fellow member of Chartered Institution of Management Accountants.
Mr. Zhang received his master’s degree in business administration from Jinan University in 2001.
Mr. Hongchao Zhu has served as our independent director since July 2015. Mr. Zhu has served as an independent director of E-House (China) Holdings Limited since
August 2007. Mr. Zhu is a partner of Shanghai United Law Firm and has been practicing with Shanghai United Law Firm since 1986. Mr. Zhu is now an arbitrator of China
International Economic and Trade Arbitration Commission, Shanghai International Arbitration Center and Shanghai Arbitration Commission; Mr. Zhu is one of the vice presidents
of Procedural Law Research Association of Shanghai Law Society; Mr. Zhu is also a mediator of Shanghai Commercial Mediation Center. Mr. Zhu received his master’s and
bachelor’s degrees in law from Fudan University in China.
Ms. Min Liu has served as our chief financial officer since September 2014. Ms. Liu served as our director from May 2014 to July 2015. Prior to joining our company,
Ms. Liu was a head of Shanghai region at the department of Consumer Bank China in DBS Bank from February 2010 to March 2014. From September 2008 to February 2010,
Ms. Liu served as a relationship manager at Credit Suisse, Singapore Branch. Ms. Liu received a bachelor’s degree in accounting from Shanghai LiXin Accounting College in 1997
and a master’s degree in business administration from Shanghai TongJi University and École Nationale des Ponts et Chaussées in France in 2005.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time
period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty
to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an
executive officer’s employment without cause upon 60-day advance written notice. In such case of termination by us, we will provide severance payments to the executive officer
as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a one-month advance written
notice.
Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except
as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any
confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have
confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to
practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and
other legal rights for these inventions, designs and trade secrets.
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In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for
one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or
entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business
relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or
otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after
the date of the executive officer’s termination, or in the year preceding such termination, without our express consent.
We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and
executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
B. Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2020, we paid an aggregate of approximately RMB8.5 million (US$1.3 million) in cash to our executive officers, and
approximately RMB1.0 million (US$0.2 million) to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar
benefits to our executive officers and directors. Our PRC subsidiaries and consolidated entities are required by law to make contributions equal to certain percentages of each
employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Share Incentive Plan
Our Share Incentive Plan permits the grant of three types of awards: options, restricted shares and restricted share units. The maximum number of our shares that may be
issued pursuant to all awards under the plan is 26,938,020 ordinary shares, subject to automatic increases of 5% of the then total outstanding shares on an as-converted fully diluted
basis on each of the third, sixth and ninth anniversaries of July 1, 2014.
As of March 31, 2021, options to acquire a total of 15,642,600 ordinary shares and 9,937,100 restricted shares have been granted and options to acquire 7,924,047
ordinary shares and 1,342,296 restricted shares are outstanding under our Share Incentive Plan, including the outstanding options grants made by Scepter Pacific that we assumed
upon our acquisition of Scepter Pacific. The following paragraphs summarize the terms of the Share Incentive Plan:
Plan Administration. Our board of directors, or a committee designated by our board or directors, will administer the plan. The committee or the full board of directors, as
appropriate, will determine the provisions and terms and conditions of each option grant.
Award Agreements. Options and other awards granted under the plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each
grant. In addition, the award agreement may also provide that securities granted are subject to a 180-day lock-up period following the effective date of a registration statement filed
by us under the Securities Act, if so requested by us or any representative of the underwriters in connection with any registration of the offering of any of our securities. The
exercise price of granted options may be amended or adjusted in the absolute discretion of our board of directors, or a committee designated by our board of directors, without the
approval of our shareholders or the recipients of the options.
Eligibility. We may grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in
which we hold a substantial ownership interest.
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Acceleration of Awards upon Corporate Transactions. The outstanding awards will terminate and accelerate upon occurrence of a change-of-control corporate transaction
where the successor entity does not assume our outstanding awards under the plan. In such event, each outstanding award will become fully vested and immediately exercisable,
and the transfer restrictions on the awards will be released and the repurchase or forfeiture rights will terminate immediately before the date of the change-of-control transaction
provided that the grantee’s continuous service with us shall not be terminated before that date.
Term of the Options. The term of each option grant shall be stated in the award agreement, provided that the term shall not exceed 10 years from the date of the grant.
Vesting Schedule. In general, our board of directors, or a committee designated by our board of directors, determines, or the award agreement specifies, the vesting
schedule.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of succession and incentive share options may be
exercised during the lifetime of the optionee only by the optionee.
Termination of the Plan. Unless terminated earlier, the plan will terminate automatically in 2024. Our board of directors has the authority to amend or terminate the plan
subject to shareholder approval to the extent necessary to comply with applicable law. However, no such action may impair the rights of any award recipient unless agreed by the
recipient.
The following table summarizes, as of March 31, 2021, the options and restricted shares granted under our Share Incentive Plan to several of our directors and executive
officers, excluding awards that were forfeited or cancelled after the relevant grant dates.
Name
Jianda Ni
Jianda Ni
Xin Zhou
Guoping Yang
Bang Zhang
Hongchao Zhu
Hongchao Zhu
Min Liu
Min Liu
Total
* Less than 1% of our total outstanding share capital.
Ordinary Shares
Underlying Options
/Restricted Shares
Awarded
Exercise Price
(US$/Share)
*
*
*
*
*
*
*
*
*
4,317,084
US$1.00
—
US$0.66
—
—
—
US$0.66
US$0.48
—
Date of
Grant
April 21, 2015
August 26, 2015
July 16, 2015
August 26, 2015
August 26, 2015
August 26, 2015
July 16, 2015
July 1, 2014
February 27, 2017
Date of
Expiration
April 1, 2025
August 25, 2025
August 7, 2024
August 25, 2025
August 25, 2025
August 25, 2025
August 7, 2024
June 30, 2024
February 26, 2027
As of March 31, 2021, other employees as a group held options/restricted shares to purchase 7,120,341 ordinary shares of our company, with the exercise prices ranging
from nil to US$1.1 per ordinary share.
C. Board Practices
Our board of directors consists of five directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director who is in any way,
whether directly or indirectly, interested in a contract or proposed contract with our company shall declare the nature of his interest at a meeting of the directors. A general notice
given to the directors by any director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract which may thereafter be
made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made. A director may vote in respect of any contract or proposed
contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the
directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration. The directors may exercise all the powers of our
company to borrow money, and to mortgage or charge our undertaking, property and uncalled capital or any part thereof, and to issue debentures, debenture stock or other securities
whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third party. None of our non-executive directors has a service contract
with us that provides for benefits upon termination of service.
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Committees of the Board of Directors
We have three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have
adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee currently consists of Bang Zhang, Hongchao Zhu and Guoping Yang. Bang Zhang is the chairperson of our audit committee. We
have determined that Bang Zhang, Hongchao Zhu and Guoping Yang satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE
and Rule 10A-3 under the Securities Exchange Act of 1934. The audit committee oversees our accounting and financial reporting processes and the audits of the financial
statements of our company. The audit committee is responsible for, among other things:
· appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;
· reviewing with the independent auditors any audit problems or difficulties and management’s response;
· discussing the annual audited financial statements with management and the independent auditors;
· reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major
financial risk exposures;
· reviewing and approving all proposed related party transactions;
· meeting separately and periodically with management and the independent auditors; and
· monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper
compliance.
Compensation Committee. Our compensation committee consists of Guoping Yang, Xin Zhou and Hongchao Zhu. Guoping Yang is the chairperson of our compensation
committee. We have determined that Guoping Yang and Hongchao Zhu satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE.
The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive
officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for,
among other things:
· reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;
· reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;
· reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
· selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from
management.
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Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Hongchao Zhu and Guoping Yang. Hongchao Zhu is
the chairperson of our nominating and corporate governance committee. Hongchao Zhu and Guoping Yang satisfy the “independence” requirements of Section 303A of the
Corporate Governance Rules of the NYSE. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our
directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
· selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
· reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and
diversity;
· making recommendations on the frequency and structure of board meetings and advising the board periodically with regards to significant developments in the
law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all
matters of corporate governance and on any remedial action to be taken.
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, a duty to act in what they consider in
good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and
care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his
knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities
are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as
amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. Our company has the right to seek damages if a duty owed by our
directors is breached. In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of
directors include, among others:
· convening shareholders’ annual and extraordinary general meetings;
· declaring dividends and distributions;
· appointing officers and determining the term of office of the officers;
· exercising the borrowing powers of our company and mortgaging the property of our company; and
· approving the transfer of shares in our company, including the registration of such shares in our share register.
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of our board of directors. Our directors are not subject to a term of office and hold office until such time as they
resign by notice in writing to our company, or are removed from office by ordinary resolution of our shareholders. A director will also be removed from office if, among other
things, the director (i) dies, becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is found to be or becomes of unsound mind; or (iii) is removed from
office pursuant to any other provision of our memorandum and articles of association.
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D. Employees
We had 1,926, 911 and 580 employees as of December 31, 2018, 2019 and 2020, respectively. The following table sets forth the number of our employees by function as
of December 31, 2020:
Functional Area
Wealth Management
Product Sourcing, Monitoring and Development
Marketing
Management and Administration
Total
Number of
Employees
(1)
%
of Total
346
126
14
94
580
60
22
2
16
100
(1) The sum of the following percentages does not necessarily equal 100% due to rounding.
As required by PRC regulations, we participate in various employee social security plans that are organized by municipal and provincial governments, including pension,
unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. We are required under PRC law to contribute to employee
benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by local governments from time to time.
We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes. We strive to promote our
service-oriented company culture and provide regular in-house education and training sessions regarding the products we distribute and our services to our employees, including
the management team and employees in our various service sectors, to help them better service our clients.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 31, 2021 by:
· each of our directors and executive officers; and
· each person known to us to own beneficially more than 5% of our total outstanding shares.
The calculations in the table below are based on 199,351,046 ordinary shares outstanding as of March 31, 2021, excluding 8,326,458 ordinary shares issued to our
depositary bank for bulk issuance of ADSs reserved under our Share Incentive Plan.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other
right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person. Ordinary shares held by a
shareholder are determined in accordance with our register of members.
(3)
(5)
(6)
(1)
(2)
Directors and Executive Officers:**
Jianda Ni
Xin Zhou
Guoping Yang
(4)
Bang Zhang
Hongchao Zhu
Min Liu
All Directors and Executive Officers as a Group
Principal Shareholders:
E-House (China) Holdings Limited
Tianxiang Hu
SINA Corporation
UBS
High-Gold Worldwide Limited
(1)(11)
(2)(7)
(10)
(9)
(8)
Ordinary Shares Beneficially Owned
Number
Percentage
26,596,794
43,884,591
*
*
*
9,123,516
80,235,105
43,809,591
32,773,912
21,798,340
19,846,476
19,853,538
13.3
22.0
*
*
*
4.6
39.8
22.0
16.1
10.9
10.0
10.0
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Notes:
† For each person and group included in this column, percentage ownership is calculated by dividing the number of ordinary shares beneficially owned by such person or group
by the sum of the total number of ordinary shares outstanding, which is 199,351,046 and the number of ordinary shares such person or group has the right to acquire upon
exercise of the share options or warrants within 60 days of March 31, 2021.
* Less than 1% of our total outstanding ordinary shares.
** Except where otherwise disclosed in the footnotes below, the business address of all the directors and officers is Global Creative Center, T2, 15/F, No 166 Min Hong Road,
Minhang District, Shanghai, People’s Republic of China.
(1) Represents (i) 19,853,538 ordinary shares held by High-Gold Worldwide Limited, a British Virgin Islands company wholly owned and controlled by Mr. Jianda Ni, as
reported in a Schedule 13D/A jointly filed by Mr. Jianda Ni, High-Gold Worldwide Limited, Fortune Altas Holdings Limited and Eaglepass Asia Limited on September 26,
2019, (ii) 4,232,856 ordinary shares held by Eaglepass Asia Limited, a British Virgin Islands company wholly owned and controlled by Mr. Jianda Ni, as reported in a
Schedule 13D/A jointly filed by Mr. Jianda Ni, High-Gold Worldwide Limited, Fortune Altas Holdings Limited, and Eaglepass Asia Limited on September 26, 2019,
(iii) 750,000 ordinary shares held by Eaglepass Asia Limited based on its additional purchase after the filing of aforementioned Schedule 13D/A on September 26, 2019,
(iv) 760,400 ordinary shares held by Mr. Ni, and (v) 1,000,000 ordinary shares that were issuable upon exercise of options exercisable within 60 days after March 31, 2021.
(2) Represents (i) 75,000 ordinary shares issuable to Mr. Xin Zhou upon exercise of options shares within 60 days after March 31, 2021, and (ii) 43,809,591 ordinary shares held
by E-House (China) Holdings Limited, which is a wholly owned subsidiary of E-House Holdings Ltd., with Mr. Xin Zhou being its sole shareholder and sole director, as
reported in a Schedule 13D/A filed by Mr. Xin Zhou and E-House Holdings Ltd. on March 26, 2018. Pursuant to Section 13(d) of the Act and the rules promulgated
thereunder, Mr. Zhou may be deemed to beneficially own all of the ordinary shares of the Issuer indirectly held by E-House Holdings Ltd. through its wholly-owned
subsidiaries. The business address of Mr. Zhou is 11/F, Yinli Building, No. 383 Guangyan Road, Shanghai, People’s Republic of China.
(3) The business address of Mr. Guoping Yang is 22/F, 1515 Zhongshan Road West, Shanghai, People’s Republic of China.
(4) The business address of Mr. Bang Zhang is 7/F, 3162 Yan’an Road West, Shanghai, People’s Republic of China.
(5) The business address of Mr. Hongchao Zhu is 17/F, Bund Center, 222 East Yan’an Road, Shanghai, 200002, China.
(6) Represents (i) 1,000,800 ordinary shares issuable to Ms. Min Liu upon exercise of options shares within 60 days after March 31, 2021, and (ii) 8,122,716 ordinary shares
(represented by 1,353,786 ADSs) held by Ms. Min Liu.
(7) Represents 43,809,591 ordinary shares held by E-House (China) Holdings Limited, which is a wholly owned subsidiary of E-House Holdings Ltd. as reported in a Schedule
13D/A filed by Mr. Xin Zhou and E-House Holdings Ltd. on March 26, 2018. The business address of E-House (China) Holdings Limited is 11/F, Yinli Building, No. 383
Guangyan Road, Shanghai, People’s Republic of China.
(8) Represents (i) 27,740,074 ordinary shares held by Mr. Tianxiang Hu, as reported in a Schedule 13G/A filed by Mr. Hu on February 14, 2017, (ii) 830,358 ordinary shares
(represented by 138,393 ADSs) held by Mr. Tianxiang Hu, and (iii) 4,203,480 ordinary shares that were issuable upon exercise of options exercisable within 60 days after
March 31, 2021.
(9) Represents 21,798,340 ordinary shares held by SINA Corporation as last reported in a Schedule 13G filed by SINA Corporation and SINA Hong Kong Limited on
February 5, 2016. The business address of SINA Corporation is 20F Ideal Plaza, No. 58 Bei Si Huan Xi Road, Beijing, 100080, China.
(10) Represents 19,846,476 ordinary shares held by UBS Asset Management Americas Inc as last reported in a Schedule 13F-HR filed by UBS on March 1, 2021. The business
address of UBS Asset Management Americas Inc is One North Wacker Drive, Chicago IL 60606, US.
(11) Represents 19,853,538 ordinary shares held by High-Gold Worldwide Limited, a British Virgin Islands company wholly owned and controlled by Mr. Jianda Ni, as reported in
a Schedule 13D/A jointly filed by Mr. Jianda Ni, High-Gold Worldwide Limited, Fortune Altas Holdings Limited, and Eaglepass Asia Limited on September 26, 2019. The
business address of High-Gold Worldwide Limited is Global Creative Center, T2, 15/F, No 166 Min Hong Road, Minhang District, Shanghai, People’s Republic of China.
None of our existing shareholders have different voting rights from other shareholders.
E-House (China) Holdings Limited mortgaged and charged 24,000,000 ordinary shares in favor of SINA Corporation pursuant to a share mortgage dated January 18,
2018. Pursuant to a deed of release dated October 27, 2020, SINA Corporation has irrevocably and unconditionally released and discharged all of the security interest under or
pursuant to such share mortgage dated January 18, 2018. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
As of March 31, 2021, we had 199,351,046 ordinary shares outstanding, excluding 8,326,458 ordinary shares issued to our depositary bank for bulk issuance of ADSs
reserved under our Share Incentive Plan. To our knowledge, we had only one record shareholder in the United States, JPMorgan Chase Bank, N.A., which is the depositary of our
ADS program and holds approximately 54% of our total outstanding ordinary shares. The number of beneficial owners of our ADSs in the United States is likely to be much larger
than the number of record holders of our ordinary shares in the United States.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Contractual Arrangements with Our Variable Interest Entity and Its Shareholders
For a description of our contractual arrangements with Shanghai Jupai, Shanghai E-Cheng and their respective shareholders, see “Item 4. Information on the Company—
C. Organizational Structure.”
Investors’ Rights Agreement
In connection with our series B financing, we entered into an investors’ rights agreement with our shareholders and relevant parties therein in May 2014. Pursuant to the
investors’ rights agreement, holders of our registrable shares are entitled to registration rights, including demand registration rights, Form F-3 registration rights and piggyback
registration rights.
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment Agreements and Indemnification Agreements.”
Share Incentive Plan
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share Incentive Plan.”
Revenues from Related Parties
We provided management services to 30 funds in 2020. In 2020, we generated revenues from one-time commission fee in a total amount of RMB58.4 million (US$8.9
million), recurring management fee in a total amount of RMB98.4 million (US$15.1 million) (including carried interest of RMB13.7 million (US$2.1 million)), and recurring
service fee in a total amount of RMB20.2 million (US$3.1 million) (including carried interest of RMB0.5 million (US$0.1 million)). As of December 31, 2020, we had RMB4.9
million (US$0.7 million) unpaid service fees due from these funds and had RMB21.8 million (US$3.3 million) prepaid services fees from these funds recorded as deferred
revenues.
We provided management services to 36 funds in 2019. In 2019, we generated revenues from one-time commission fee in a total amount of RMB60.7 million, and
recurring management fee in a total amount of RMB340.7 million (including carried interest of RMB156.9 million). As of December 31, 2019, we had RMB65.9 million unpaid
service fees due from these funds and had RMB47.0 million prepaid services fees from these funds recorded as deferred revenues.
We provided management services to 68 funds in 2018. In 2018, we generated revenues from one-time commission fee in a total amount of RMB524.3 million, and
recurring management fee in a total amount of RMB436.9 million (including carried interest of RMB61.6 million). In 2018, we generated revenues from other service fee in a total
amount of RMB28.3 million. As of December 31, 2018, we had RMB210.6 million unpaid service fees due from these funds and had RMB133.8 million prepaid services fees from
these funds recorded as deferred revenues.
Amount Due to Related Parties
As of December 31, 2020, we had RMB16.6 million (US$2.5 million) due to related parties, which mainly represented investment proceeds that we collected on behalf of
certain funds managed by us.
As of December 31, 2019, we had RMB19.4 million due to related parties, which mainly represented investment proceeds that we collected on behalf of certain funds
managed by us.
As of December 31, 2018, we had RMB31.1 million due to related parties, which mainly represented investment proceeds that we collected on behalf of certain funds
managed by us.
Amount Due from Related Parties
As of December 31, 2020, we had RMB249.3 million (US$38.2 million) due from related parties, which mainly consisted of funds managed by us, loans to related parties
and loans to a non-controlling interests shareholder of us.
As of December 31, 2019, we had RMB324.3 million due from related parties, which mainly consisted of funds managed by us, loans to related parties and loans to a non-
controlling interests shareholder of us.
As of December 31, 2018, we had loans to related parties with an aggregate outstanding principal amount of RMB71.3 million, which mainly consisted of loans to a non-
controlling interests shareholder of us and our investee funds.
Disposal of UP Capital Asset Management Limited
In December 2019, we transferred all of our equity interests in UP Capital to a subsidiary of E-House for a consideration of RMB34.0 million. See “Item 4. Information of
the Company—A. History and Development of the Company” for more information of UP Capital Asset Management Limited. As of December 31, 2019, the consideration of
RMB34.0 million had been fully paid to us.
C. Interests of Experts and Counsel
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal and Administrative Proceedings
We are subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are not currently a party to, nor are we aware
of, any legal proceeding, investigation or claim which, in the opinion of our management, is likely to have a material adverse effect on our business, financial condition, results of
operations, liquidity or cash flows.
Dividend Policy
On March 12, 2018, we declared cash dividends in an aggregate amount of approximately US$20.0 million (being US$0.1 per ordinary share) to our shareholders. Holders
of our ADSs were entitled to cash dividend of US$0.6 per ADS. The cash dividend was paid in May 2018.
Currently we have no definitive plan to declare and pay any dividends on our shares or ADSs in the foreseeable future. We currently intend to retain all of our available
funds and any future earnings to operate and expand our business. We are a holding company incorporated in the Cayman Islands. PRC regulations may restrict the abilities of our
PRC subsidiaries to pay dividend to us. We rely on dividends from our subsidiaries in China. Current PRC regulations permit our subsidiaries to pay dividends to us only out of
their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside a
certain amount of its accumulated after-tax profits each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if our
subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.
Our board of directors has discretion on whether to distribute dividends, subject to our memorandum and articles of association and certain restrictions under Cayman
Islands law, namely that our company may only pay dividends out of profits or share premium account, and provided always that in no circumstances may a dividend be paid if this
would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Our board of directors intends on paying dividends only to the extent
cash is available in the offshore entities. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our
directors. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
B. Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offering and Listing Details
Market Price Information for our American Depositary Shares
Our ADSs, each representing six of our ordinary shares, have been listed on the NYSE since July 16, 2015. Our ADSs trade under the symbol “JP.”
B. Plan of Distribution
Not applicable.
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C. Markets
Our ADSs, each representing six of our ordinary shares, have been listed on the NYSE since July 16, 2015 under the symbol “JP.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following are summaries of material provisions of our fourth amended and restated memorandum and articles of association, as well as the Companies Act (As
Revised) insofar as they relate to the material terms of our ordinary shares.
Registered Office and Objects
Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104,
Cayman Islands. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies
Act (As Revised) or as the same may be revised from time to time, or any other law of the Cayman Islands.
Board of Directors
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board of Directors.”
Ordinary Shares
Objects of Our Company. Under our currently effective memorandum and articles of association, the objects of our company are unrestricted and we have the full power
and authority to carry out any object not prohibited by the law of the Cayman Islands.
Ordinary Shares. Our ordinary shares are issued in registered form and are issued when registered in our register of members. Our shareholders who are non-residents of
the Cayman Islands may freely hold and vote their shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, our shareholders may by ordinary
resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, dividends may be declared and paid only out of
funds legally available therefor, namely out of either profit or our share premium account, and provided further that a dividend may not be paid if this would result in our company
being unable to pay its debts as they fall due in the ordinary course of business.
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Voting Rights. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or
more shareholders who together hold not less than 10% of the voting share capital of our company present in person or by proxy.
A quorum required for a meeting of shareholders consists of one or more shareholders present and holding not less than a majority of all voting share capital of our
company in issue. Shareholders may be present in person or by proxy or, if the shareholder is a legal entity, by its duly authorized representative. Shareholders’ meetings may be
convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding not less than ten percent of the issued share capital of our
company that carries the right to vote at general meetings. Advance notice of at least seven calendar days is required for the convening of our annual general shareholders’ meeting
and any other general shareholders’ meeting.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a
meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast at a meeting. Both ordinary resolutions
and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Act and our currently
effective memorandum and articles of association. A special resolution will be required for important matters such as a change of name or making changes to our memorandum and
articles of association. Holders of the ordinary shares may, among other things, divide or consolidate their shares by ordinary resolution.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of
transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our
board of directors may also decline to register any transfer of any ordinary share unless:
· the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of
directors may reasonably require to show the right of the transferor to make the transfer;
· the instrument of transfer is in respect of only one class of shares;
· the instrument of transfer is properly stamped, if required;
· in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and
· a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect
thereof.
If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and
the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice requirement of the NYSE, be suspended and the register closed at such times and for such periods as
our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in
any year.
Liquidation. On a winding up of our company, if the assets available for distribution among our shareholders shall be more than sufficient to repay the whole of the share
capital at the commencement of the winding up, the surplus will be distributed among our shareholders in proportion to the par value of the shares held by them at the
commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or
otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in
proportion to the par value of the shares held by them. We are a “limited liability” company registered under the Companies Act, and under the Companies Act, the liability of our
members is limited to the amount, if any, unpaid on the shares respectively held by them. Our memorandum of association contains a declaration that the liability of our members is
so limited.
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Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice
served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the
holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors. Our company may also repurchase any of our
shares provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized
by our memorandum and articles of association. Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits or out of the
proceeds of a fresh issue of or repurchase, or out of capital (including share premium account and capital redemption reserve) if the company can, immediately following such
payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully
paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, our company may
accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares. The rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series) may
be varied or abrogated with the consent in writing of the holders of not less than two-thirds of the issued shares of that class or series or with the sanction of a special resolution
passed at a general meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise
expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking in priority thereto or pari passu with
such existing class of shares.
Issuance of Additional Shares. Our currently effective memorandum and articles of association authorizes our board of directors to issue additional ordinary shares from
time to time as our board of directors shall determine, to the extent of available authorized but unissued shares, without the need for any further approval or authorization from our
shareholders.
Our currently effective memorandum and articles of association also authorizes our board of directors, without the need for any further approval or authorization from our
shareholders, to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series,
including:
· the designation of the series;
· the number of shares of the series;
· the dividend rights, dividend rates, conversion rights, voting rights; and
· the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preferred shares without the need for any further approval or authorization from, or other action by, our shareholders to the extent of
available authorized but unissued shares. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders
or our corporate records (other than our memorandum and articles of association and special resolutions, and our register of mortgages and charges). However, we will provide our
shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”
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Anti-Takeover Provisions. Some provisions of our currently effective memorandum and articles of association may discourage, delay or prevent a change of control of our
company or management that shareholders may consider favorable, including provisions that:
· authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such
preferred shares without any further vote or action by our shareholders; and
· limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of association for a
proper purpose and for what they believe in good faith to be in the best interests of our company.
General Meetings of Shareholders and Shareholder Proposals. Our shareholders’ general meetings may be held in such place within or outside the Cayman Islands as our
board of directors considers appropriate.
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our currently effective memorandum
and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting.
Shareholders’ annual general meetings and any other general meetings of our shareholders may be convened by a majority of our board of directors. Our board of directors
shall give not less than seven calendar days’ written notice of a shareholders’ meeting to those persons whose names appear as members in our register of members on the date the
notice is given (or on any other date determined by our directors to be the record date for such meeting) and who are entitled to vote at the meeting.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal
before a general meeting. However, these rights may be provided in a company’s articles of association. Our currently effective memorandum and articles of association allow our
shareholders holding not less than ten percent of the issued share capital of our company that carries the right to vote at general meetings, to requisition an extraordinary general
meeting of our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our
currently effective memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary
general meetings not called by such shareholders.
Exempted Company. We are an exempted company incorporated with limited liability under the Companies Act. The Companies Act distinguishes between ordinary
resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be
registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
· does not have to file an annual return of its shareholders with the Registrar of Companies;
· is not required to open its register of members for inspection;
· does not have to hold an annual general meeting;
· may issue negotiable or bearer shares or shares with no par value;
· may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
· may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
· may register as a limited duration company; and
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· may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional
circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to
pierce or lift the corporate veil).
Register of Members. Under Cayman Islands law, we must keep a register of members and there should be entered therein:
· the names and addresses of the members, together with a statement of the shares held by each member, which statement shall confirm (i) the amount paid or
agreed to be considered as paid, on the shares of each member, (ii) the number and category of shares held by each member and (iii) whether each relevant
category of shares held bv a member carries voting rights under the articles of association, and if so, whether such voting rights are conditional;
· the date on which the name of any person was entered on the register as a member; and
· the date on which any person ceased to be a member.
Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of members will raise a
presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter of Cayman Islands law to have legal
title to the shares as set against its name in the register of members.
If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register the
fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company or our company itself) may apply to the
Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an
order for the rectification of the register.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or
elsewhere in this annual report on Form 20-F.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Foreign Currency Exchange.”
E. Taxation
The following summary of the material Cayman Islands, People’s Republic of China and United States federal income tax consequences of an investment in our ADSs or
ordinary shares is based upon laws and relevant interpretations thereof in effect as of March 31, 2021, all of which are subject to change. This summary does not deal with all
possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of
inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable
on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties that are applicable
to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
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People’s Republic of China Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of China with a “de facto management body” within China is
considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto
management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an
enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto
management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC
enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s
general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an
offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management
body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in China; (ii) decisions relating to the
enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books
and records, company seals, and board and shareholder resolutions, are located or maintained in China; and (iv) at least 50% of voting board members or senior executives
habitually reside in China.
We believe that Jupai Holdings Limited is not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination
by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body”.
However, if the PRC tax authorities determine that Jupai Holdings Limited is a PRC resident enterprise for enterprise income tax purposes, we may be required to
withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise
shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated
as sourced from within China. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains
obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it
would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of Jupai Holdings
Limited would be able to claim the benefits of any tax treaties between their country of tax residence and China in the event that Jupai Holdings Limited is treated as a PRC
resident enterprise.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiary is subject to the 8.25% profits tax rate for assessable profits not exceeding $2 million
and 16.5% profits tax rate for assessable profits exceeding $2 million from April 1, 2018, on their taxable income generated from operations in Hong Kong. Under the Hong Kong
tax laws, we are exempt from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject
to any Hong Kong withholding tax.
United States Federal Income Taxation
The following discussion is a summary of United States federal income tax considerations relating to the ownership and disposition of our ADSs or ordinary shares by a
U.S. Holder (as defined below) that holds our ADSs as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as
amended, or the Code. This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive
effect. There can be no assurance that the Internal Revenue Service (the “IRS”), or a court will not take a contrary position. This discussion does not discuss all aspects of United
States federal income taxation that may be important to particular investors in light of their individual investment circumstances, including investors subject to special tax
rules (including for example, banks and other financial institutions, insurance companies, pension plans, cooperatives, regulated investment companies, real estate investment
trusts, broker-dealers, traders in securities that elect mark-to-market treatment, certain former U.S. citizens or long-term residents, tax-exempt organizations (including private
foundations), persons liable for alternative minimum tax, partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding their ADSs
or ordinary shares through such entities, holders who are not U.S. Holders, holders who own (directly, indirectly or constructively) 10% or more of our stock (by vote or value),
holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation, investors that will hold their ADSs or ordinary shares as
part of a straddle, hedge, conversion, constructive sale or other integrated transaction for United States federal income tax purposes, or investors that have a functional currency
other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those discussed below). This discussion, moreover, does not address the
U.S. federal estate and gift tax or alternative minimum tax consequences of the acquisition or ownership of our ADSs or ordinary shares or the Medicare tax on net investment
income. Each U.S. Holder is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations applicable to
the ownership and disposition of our ADSs or ordinary shares.
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General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income tax purposes, (i) an
individual who is a citizen or resident of the United States,(ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or
organized under the law of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States
federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one
or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a United States person
under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax
treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ADSs or ordinary shares
and their partners are urged to consult their tax advisors regarding an investment in our ADSs or ordinary shares.
For United States federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of the underlying shares
represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner. Accordingly, deposits or withdrawals of ordinary
shares for ADSs will generally not be subject to United States federal income tax.
Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be classified as a PFIC, for United States federal income tax purposes for any taxable year, if either (i) 75% or
more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the fair market value of its assets (generally determined on the basis of a
quarterly average) during such year produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as a
passive asset and the company’s goodwill and other unbooked intangibles associated with active business activities may generally be classified as active assets. Passive income
generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of
the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
Based on the market price of our ADSs and the composition of assets (in particular, the retention of a large amount of cash), we believe that we were a PFIC for United
States federal income tax purposes for the taxable year ended December 31, 2020, and we will likely be classified as a PFIC for our current taxable year unless the market price of
our ADSs increases and /or we invest a substantial amount of the cash and other passive assets we hold in assets that produce or are held for the production of non-passive income.
If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding
years during which such U.S. Holder holds our ADSs or ordinary shares.
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If we are a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years
during which such U.S. Holder holds our ADSs or ordinary shares even if we cease to meet the threshold requirements for PFIC status, unless a U.S. Holder makes a taxable
“deemed sale” election that may allow the U.S. Holder to eliminate the continuing PFIC status under certain circumstances.
The United States federal income tax rules that apply if we are treated as a PFIC are generally discussed below under “Passive Foreign Investment Company Rules.”
Dividends
Subject to the discussion below under “Passive Foreign Investment Company Rules,” any cash distributions (including the amount of any PRC tax withheld) paid on our
ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the
gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case
of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution we pay will generally be
treated as a “dividend” for United States federal income tax purposes. A non-corporate U.S. Holder will be subject to tax on dividend income from a “qualified foreign corporation”
at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period requirements are met. A non-
United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be
considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United
States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respect to any dividend it pays on stock (or
ADSs in respect of such stock) which is readily tradable on an established securities market in the United States. Our ADSs are listed on the NYSE, which is an established
securities market in the United States and our ADSs are readily tradable. Thus, we believe that dividends we pay on our ADSs meet the conditions required for the reduced tax
rates. Since we do not expect that our ordinary shares will be listed on an established securities market, it is unclear whether dividends that we pay on our ordinary shares that are
not represented by ADSs will meet the conditions required for the reduced tax rate. There can be no assurance that our ADSs will continue to be considered readily tradable on an
established securities market in later years. Furthermore, as mentioned above, we believe that we were a PFIC for the taxable year ended December 31, 2020, and we will very
likely be classified as a PFIC for our current taxable year. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends with
respect to our ADSs or ordinary shares in their particular circumstances. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received
deduction allowed to corporations.
In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on
dividends paid on our ADSs or ordinary shares. We may, however, be eligible for the benefits of the United States-PRC income tax treaty. If we are eligible for such benefits,
dividends we pay on our ordinary shares, regardless of whether such shares are represented by the ADSs, would be eligible for the reduced rates of taxation described in the
preceding paragraph.
Dividends will generally be treated as income from foreign sources for United States foreign tax credit purposes and will generally constitute passive category income.
Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit not in
excess of any applicable treaty rate in respect of any foreign withholding taxes imposed on dividends received on our ADSs or ordinary shares. A U.S. Holder who does not elect to
claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholding, but only for a year
in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends in large part on the
U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their
particular circumstances.
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Sale or Other Disposition of ADSs or Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize capital gain or loss upon the sale or other
disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or
ordinary shares. Any capital gain or loss will be long-term if the ADSs or ordinary shares have been held for more than one year and will generally be United States source gain or
loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are currently eligible for reduced rates taxation. In the event that gain from
the disposition of the ADSs or ordinary shares is subject to tax in China, such gain may be treated as PRC source gain under the United States-PRC income tax treaty. The
deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a
disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company Rules
As mentioned above, we believe that we were a PFIC for the taxable year ended December 31, 2020, and we will likely be classified as a PFIC for our current taxable
year. If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S. Holder makes a mark-to-market election
(as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess
distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average
annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale
or other disposition, including a pledge, of ADSs or ordinary shares. Under the PFIC rules:
· the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;
· the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified
as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;
· the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as
appropriate, for that year; and
· the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our subsidiaries is also a PFIC, such U.S. Holder would be
treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax
advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock, provided that such
stock is “regularly traded” within the meaning of applicable United States Treasury regulations on a national securities exchange that is registered with the SEC. For those
purposes, our ADSs, but not our ordinary shares, are listed on the NYSE, which is an established securities exchange in the United States. We anticipate that our ADSs should
qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income for
each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct
as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only
be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be
adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC
and such corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation
is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when
we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount
previously included in income as a result of the mark-to-market election. Because a mark-to-market election technically cannot be made for any lower-tier PFICs that we may own,
a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in
a PFIC for United States federal income tax purposes.
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We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different
from (and generally less adverse than) the general tax treatment for PFICs described above.
If a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621 or such other form
as is required by the United States Treasury Department. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of
purchasing, holding and disposing ADSs or ordinary shares if we are or become treated as a PFIC, including the possibility of making a mark-to-market election, the “deemed sale”
and “deemed dividend” elections and the unavailability of the election to treat us as a qualified electing fund.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required to file reports and
other information with the SEC. Specifically, we are required to file an annual report on Form 20-F within four months after the end of each fiscal year, which is December 31. All
information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov or inspected and copied at the public reference facilities maintained by the
SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of documents, upon payment of a duplicating fee, by writing to the SEC. As a foreign private issuer, we
are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish JPMorgan Chase Bank, N.A., the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally
available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record
holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. We generated
interest income of approximately RMB4.0 million, RMB6.1 million and RMB5.2 million (US$0.8 million) in 2018, 2019 and 2020, respectively. Interest-earning instruments carry
a degree of interest rate risk. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future
interest income may fall short of expectations due to changes in market interest rates.
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We had cash, cash equivalents and restricted cash of RMB657.2 million (US$100.7 million) as of December 31, 2020, and interest income of RMB5.2 million (US$0.8
million) for the year ended December 31, 2020 primarily derived from our cash, cash equivalents and restricted cash.
Foreign Exchange Risk
Substantially all of our revenues and expenses are denominated in RMB. We do not believe that we currently have any significant direct foreign exchange risk and have
not used any derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the value of your
investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our
ADSs will be traded in U.S. dollars.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the
U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi
and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on
the RMB amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our
ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to
us.
Inflation
To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent
changes in the consumer price index for December 2018, 2019 and 2020 were increases of 1.9%, 4.5% and 0.2%, respectively. Although we have not been materially affected by
inflation in the past, we can provide no assurance that we will not be affected by higher rates of inflation in China in the future.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Fees and Charges Our ADS Holders May Have to Pay
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share
distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any
other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or
reduced for any other reason, US$5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell
(by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
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The following additional charges shall also be incurred by the ADR holders, the beneficial owners, by any party depositing or withdrawing shares or by any party
surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock
regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
· a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;
· a fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be
charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary
during each calendar year and shall be payable in the manner described in the next succeeding provision);
· a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the
custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to
foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited
securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or
regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be
payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions);
· a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the US$0.05 per ADS
issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if
they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto;
· stock transfer or other taxes and other governmental charges;
· cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares;
· transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of
deposited securities;
· in connection with the conversion of foreign currency into U.S. dollars, JPMorgan Chase Bank, N.A. shall deduct out of such foreign currency the fees, expenses
and other charges charged by it and/or its agent (which may be a division, branch or affiliate) so appointed in connection with such conversion; and
· fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/or private sale of securities
under the deposit agreement.
JPMorgan Chase Bank, N.A. and/or its agent may act as principal for such conversion of foreign currency.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us
and the depositary. The charges described above may be amended from time to time by agreement between us and the depositary.
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Fees and Other Payments Made by the Depositary to Us
The depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program upon such terms and
conditions as we and the depositary may agree from time to time. The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the
ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time.
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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the rights of securities holders, which remain
unchanged.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of
the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31, 2020. Based upon that evaluation, our
management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of the end of the period covered by this annual report, our
disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our company are being made only in
accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition,
use or disposition of our company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our management including
our chief executive officer and chief financial officer assessed the effectiveness of internal control over financial reporting as of December 31, 2020 using the criteria set forth in the
report “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Changes in Internal Control
Other than described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Bang Zhang, who is a member of our audit committee and independent directors (under the standards set forth in Section 303A
of the Corporate Governance Rules of the NYSE and Rule 10A-3 under the Securities Exchange Act of 1934), is audit committee financial expert.
ITEM 16B. CODE OF ETHICS
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in July 2015. We have posted a copy of our code
of business conduct and ethics on our website at http://ir.jpinvestment.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu
Certified Public Accountants LLP and B F Borgers CPA PC. Audit fees for B F Borgers CPA PC is RMB5.0 million in 2020. We did not pay any other fees to our auditors during
the periods indicated below.
(1)
Audit fees
Other service fee
For the Years Ended December 31,
2020
2019
(in thousands of RMB)
6,036
—
5,560
—
(1) “Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial statements and the review of our
comparative interim financial statements.
The policy of our audit committee is to pre-approve all audit and other service provided by Deloitte Touche Tohmatsu Certified Public Accountants LLP and B F Borgers
CPA PC as described above, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On February 26, 2020, our board of directors authorized a share repurchase program whereby our company was authorized to repurchase its own ordinary shares in the
form of ADSs with an aggregate value of up to US$10 million during the next 24-month period (the “Share Repurchase Program”). The share repurchases may be effected on the
open market at prevailing market prices, depending on a number of factors, including, but not limited to, share price, trading volume and general market conditions, along with our
company’s working capital requirements, general business conditions, as well as other factors. The share repurchases will be carried out in a manner in compliance with Rule 10b-
18 and/or Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, as amended, so as to qualify for the safe harbor provided therein.
The following table summarizes the details of the repurchases made in accordance with the Share Repurchase Program as of April 9, 2021.
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Period
March 2020
April 2020
May 2020
June 2020
July 2020
August 2020
September 2020
October 2020
November 2020
December 2020
January 2021
February 2021
March 2021
April 2021
Total
Total number of ADSs
purchased
Average price paid per
ADS
Total number of ADSs
purchased as part of
the publicly announced
plan
Approximate dollar value
of ADSs that may yet be
purchased under the plan
$
$
$
$
$
$
$
85,993
167,219
56,239
10,900
—
150,934
40,987
26,870
—
—
—
—
—
—
539,142
1.0589
1.0873
1.1247
1.1288
—
1.8264
1.7585
1.6894
—
—
—
—
—
—
—
85,993
253,212
309,451
320,351
320,351
471,285
512,272
539,142
539,142
539,142
539,142
539,142
539,142
539,142
539,142
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9,908,940.94
9,727,131.90
9,663,880.84
9,651,577.46
9,651,577.46
9,375,916.05
9,303,839.38
9,258,446.18
9,258,446.18
9,258,446.18
9,258,446.18
9,258,446.18
9,258,446.18
9,258,446.18
—
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
We engaged Deloitte Touche Tohmatsu Certified Public Accountants LLP, or Deloitte, in the audit of our consolidated financial statements for the fiscal years ended
December 31 between 2012 and 2018.
Deloitte’s reports on the financial statements for the years ended December 31 between 2012 and 2018 have contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting principles. During Deloitte’s engagement and up to the interim period before auditor change, there had
been no disagreements between Deloitte and us on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, and there had
been no “reportable events” as defined under Item 16F(a)(1)(v) of Form 20-F that would require disclosure.
We provided a copy of this disclosure to Deloitte and requested that Deloitte furnish us with a letter addressed to the SEC stating whether it agrees with the statements
made above, and if not, stating the respects in which it does not agree. A copy of Deloitte’s letter dated April 24, 2020 is attached as Exhibit 16.1 to the annual report on Form 20-F
filed with the SEC on April 24, 2020.
On February 14, 2020, we decided to engage B F Borgers CPA PC, or Borgers, as our independent registered public accounting firm. The change of independent auditor
was approved by our board of directors and our audit committee.
During our two most recent fiscal years, and any subsequent interim period prior to the engagement of Borgers on February 14, 2020, neither we nor any person on our
behalf consulted with Borgers regarding either (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that
might be rendered on our financial statements and no written or oral advice was provided by Borgers was an important factor considered by us in reaching a decision as to any
accounting, auditing or financial reporting issue, or (ii) any matter that was the subject of a disagreement or reportable event as defined in the Form 20-F.
ITEM 16G. CORPORATE GOVERNANCE
Section 303A.08 of the NYSE Listing Company Manual requires a NYSE-listed company to obtain its shareholders’ approval when an equity compensation arrangement
is established or materially amended. Section 303A.00 of the NYSE Listing Company Manual permits a foreign private issuer like our company to follow home country practice in
certain corporate governance matters. Pursuant to board approval obtained on December 21, 2015, we approved an amendment to our 2014 Plan. Our Cayman Islands counsel has
provided a letter to NYSE dated December 28, 2015 certifying that under Cayman Islands law, we are not required to obtain shareholders’ approval for the adoption of or revision
to an equity incentive plan. NYSE has acknowledged the receipt of such letter and our home country practice with respect to approval for the amendment of our 2014 Plan. In
February 2016, we adopted the Share Incentive Plan without seeking shareholders’ approval. We have also elected to follow home country practice in lieu of the requirements of
the NYSE Listing Company Manual that each of our compensation committee and nominating and corporate governance committee of the board be composed of independent
directors.
115
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Other than the home country practices described above, we are not aware of any significant ways in which our corporate governance practices differ from those followed
by U.S. domestic companies under the NYSE Rules.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
116
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PART III.
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of Jupai Holdings Limited are included at the end of this annual report.
ITEM 19. EXHIBITS
Exhibit
Number
1.1
2.1*
2.2
2.3*
2.4
2.5*
4.1
4.2
4.3
4.4
The Fourth Amended and Restated Memorandum and Articles of Association of the Registrant, effective July 21, 2015 (incorporated herein by reference to
Exhibit 3.2 to the Form F-1/A filed on July 7, 2015 (File No.333-204950))
Description of Document
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3)
Registrant’s Specimen Certificate for Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the Form F-1/A filed on July 7, 2015 (File No.333-
204950))
Amended and Restated Deposit Agreement, among the Registrant, the depositary and holder of the American Depositary Receipts dated May 27, 2020
Investor’s Rights Agreement by and among the Registrant and its subsidiaries, Shanghai Jupai, the ordinary shareholders and the preferred shareholders of the
Registrant and other parties therein, dated as of May 22, 2014 (incorporated herein by reference to Exhibit 4.4 to the Form F-1 filed on June 15, 2015 (File
No.333-204950))
Description of Securities
Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Form S-8 filed on March 4, 2016 (File No.333-209924))
Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference to Exhibit 10.2 to the
Form F-1 filed on June 15, 2015 (File No.333-204950))
Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.3 to the Form F-1 filed on
June 15, 2015 (File No.333-204950))
Amended and Restated Operating Agreement by and among Shanghai Juxiang, Shanghai Jupai and its shareholders, dated January 8, 2014 (incorporated
herein by reference to Exhibit 10.4 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
117
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4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
Amended and Restated Consulting Services Agreement by and between Shanghai Juxiang and Shanghai Jupai, dated January 8, 2014 (incorporated herein by
reference to Exhibit 10.5 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
Amended and Restated Call Option Agreement by and among Shanghai Juxiang, Shanghai Jupai and each of its shareholders, dated January 8, 2014
(incorporated herein by reference to Exhibit 10.6 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
Amended and Restated Voting Rights Proxy agreement by and among Shanghai Juxiang and each shareholder of Shanghai Jupai, dated January 8, 2014
(incorporated herein by reference to Exhibit 10.7 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
Amended and Restated Equity Pledge Agreement by and among Shanghai Juxiang, Shanghai Jupai and each of its shareholders, dated October 9, 2014
(incorporated herein by reference to Exhibit 10.8 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
Amendment to Agreements by and among Shanghai Juxiang, Shanghai Jupai and each of its shareholders, dated October 9, 2014 (incorporated herein by
reference to Exhibit 10.9 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
English translation of Exclusive Support Agreement by and between Shanghai Baoyi and Shanghai E-Cheng, dated May 14, 2014 (incorporated herein by
reference to Exhibit 10.10 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
English translation of Loan Agreement by and among Shanghai Baoyi, Shanghai E-Cheng, Zuyu Ding and Weijie Ma, dated April 28, 2014 (incorporated
herein by reference to Exhibit 10.11 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
English translation of Exclusive Call Option Agreement by and among Shanghai Baoyi, Shanghai E-Cheng, Zuyu Ding and Weijie Ma, dated May 4, 2014
(incorporated herein by reference to Exhibit 10.12 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
English translation of Shareholder Voting Rights Proxy Agreement by and among Shanghai Baoyi, Zuyu Ding and Weijie Ma, dated May 4, 2014
(incorporated herein by reference to Exhibit 10.13 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
English translation of Equity Pledge Agreement by and among Shanghai Baoyi, Shanghai E-Cheng, Zuyu Ding and Weijie Ma, dated May 4, 2014
(incorporated herein by reference to Exhibit 10.14 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
Share Purchase Agreement, by and among the Registrant, Scepter Pacific Limited, E-House (China) Capital Investment Management Ltd. and Reckon Capital
Limited, dated April 3, 2015 (incorporated herein by reference to Exhibit 10.15 to the Form F-1 filed on June 15, 2015 (File No.333-204950))
Share Subscription Agreement, between Julius Baer Investment Ltd. and the Registrant, dated as of December 28, 2015 (incorporated herein by reference to
Exhibit 4.16 to the Form 20-F filed on April 22, 2016 (File No.001-37485))
Subscription Agreement, by and between the Registrant and SINA Hong Kong Limited, dated as of December 30, 2015 (incorporated herein by reference to
Exhibit 4.17 to the Form 20-F filed on April 22, 2016 (File No.001-37485))
English translation of Termination Agreement by and among Shanghai Baoyi, Shanghai E-Cheng, Zuyu Ding and Weijie Ma, dated March 13, 2017
(incorporated herein by reference to Exhibit 4.18 to the Form 20-F filed on April 12, 2018 (File No.001-37485))
118
Table of Contents
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
8.1*
11.1
12.1*
12.2*
13.1**
13.2**
15.1*
15.2*
15.3*
English translation of Loan Agreement by and among Shanghai Baoyi, Qimin Wu and Tianxiang Hu, dated March 13, 2017 (incorporated herein by reference
to Exhibit 4.19 to the Form 20-F filed on April 12, 2018 (File No.001-37485))
English translation of Exclusive Call Option Agreement by and among Shanghai Baoyi, Shanghai E-Cheng, Qimin Wu and Tianxiang Hu, dated March 13,
2017 (incorporated herein by reference to Exhibit 4.20 to the Form 20-F filed on April 12, 2018 (File No.001-37485))
English translation of Shareholder Voting Rights Proxy Agreement by and among Shanghai Baoyi, Qimin Wu and Tianxiang Hu, dated March 13, 2017
(incorporated herein by reference to Exhibit 4.21 to the Form 20-F filed on April 12, 2018 (File No.001-37485))
English translation of Equity Pledge Agreement by and among Shanghai Baoyi, Shanghai E-Cheng, Qimin Wu and Tianxiang Hu, dated March 13, 2017
(incorporated herein by reference to Exhibit 4.22 to the Form 20-F filed on April 12, 2018 (File No.001-37485))
Equity Transfer Agreement between Hu Tian Xiang and Ni Jian Da dated July 15, 2018 (incorporated herein by reference to Exhibit 4.23 to the Form 20-F
filed on April 26, 2019 (File No.001-37485))
Joinder Agreement in relation to Operating Agreement entered into by Shanghai Juxiang, Shanghai Jupai and Ni Jian Da dated July 15, 2018 (incorporated
herein by reference to Exhibit 4.24 to the Form 20-F filed on April 26, 2019 (File No.001-37485))
Joinder Agreement in relation to Call Option Agreement entered into by Shanghai Juxiang, Shanghai Jupai and Ni Jian Da dated July 15, 2018 (incorporated
herein by reference to Exhibit 4.25 to the Form 20-F filed on April 26, 2019 (File No.001-37485))
Joinder Agreement in relation to Equity Pledge Agreement entered into by Shanghai Juxiang, Shanghai Jupai and Ni Jian Da dated July 15, 2018
(incorporated herein by reference to Exhibit 4.26 to the Form 20-F filed on April 26, 2019 (File No.001-37485))
Joinder Agreement in relation to Voting Rights Proxy Agreement entered into by Shanghai Juxiang, Shanghai Jupai and Ni Jian Da dated July 15, 2018
(incorporated herein by reference to Exhibit 4.27 to the Form 20-F filed on April 26, 2019 (File No.001-37485))
List of significant subsidiaries and consolidated entities
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the Form F-1 filed on June 15, 2015 (File No.333-
204950))
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of Yuan Tai Law Offices
Consent of B F Borgers CPA PC
Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP
119
Table of Contents
16.1
Letter from Deloitte Touche Tohmatsu Certified Public Accountants LLP to the Securities and Exchange Commission, dated April 24, 2020 (incorporated
herein by reference to Exhibit 16.1 to the Form 20-F filed on April 24, 2020 (File No.001-37485))
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Scheme Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed with this Annual Report on Form 20-F.
** Furnished with this Annual Report on Form 20-F.
120
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
Date: April 16, 2021
JUPAI HOLDINGS LIMITED
By:
/s/ Jianda Ni
Name:
Title:
Jianda Ni
Chairman of the Board of Directors
and Chief Executive Officer
Table of Contents
Jupai Holdings Limited
Index to Consolidated Financial Statements
For the Years Ended December 31, 2018, 2019 and 2020
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2019 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018, 2019 and 2020
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2018, 2019 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2019 and 2020
Notes to Consolidated Financial Statements
Additional Information — Financial Statement Schedule I
F-1
F-2 — 4
F-5
F-6
F-7
F-8
F-9 — 10
F-11 — 40
F-41 — 44
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Jupai Holdings Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of comprehensive loss, changes in shareholders’ deficit, and cash flows for the year ended December 31, 2018 of Jupai
Holdings Limited, its subsidiaries and consolidated variable interest entities (collectively the “Company”), and the related notes and financial statement schedule in Schedule I
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the results of its operations and its cash flows
for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Shanghai, China
April 26, 2019
We began serving as the Company’s auditor in 2014. In 2019 we became the predecessor auditor.
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of Jupai Holdings Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Jupai Holdings Limited (the “Company”) as of December 31, 2019 and 2020, the related consolidated statements
of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2020, and the related
notes and the financial statement schedule I (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Loan Receivables to Related Parties
As described in Note 2 to the financial statements, the Company assessed the impairment loss of loan receivables based on the Company’s best estimate of the amount of probable
credit losses in the existing receivable balance from related parties. As disclosed in Note 17 to the financial statements, the Company had approximately RMB 223.19 million loan
receivable balance from related parties outstanding as of December 31, 2020.
The principal considerations for our determination that auditing management’s assessment of impairment of loan receivable is a critical audit matter are there was significant
judgment made by management when considering factors in management’s assessment on collectability of the loan receivables as described above, as well as the likelihood of the
occurrence of these factors impacting the collectability. In turn, such management’s assessment led to challenging and subjective auditor judgment in performing our audit
procedures.
Our audit procedures related to management’s valuation of loan receivables includes, but not limits to, the following procedures:
· understanding of controls relating to management assessment of accounts receivable allowance;
· reviewing management’s impairment assessment, including its supporting evidence;
· examining original transaction related documents;
· confirming balance with the borrower;
· searching public information for the operating and financial conditions of the borrower;
· evaluating the sufficiency of the Company’s disclosures to loan receivable.
F-3
Table of Contents
Valuation of Long-Term Investments in Equity Securities
As described in the Note 2 to the financial statements, the Company’s investment in equity securities is comprised of investments in private-held companies and limited
partnerships in private equity funds. The Company makes qualitative assessment at each reporting period and if the assessments indicates that the fair value of the investment is less
than the carrying value, the investment in equity securities will be written down to its fair value. As of December 31, 2020, the account balance of long-term investment in equity
securities was RMB 218.95 million, and the Company recorded an impairment loss of RMB 10.00 million for the year ended December 31, 2020.
We have identified the evaluation of the equity security investment for other-than-temporary impairment as a critical audit matter because of the judgments, significant estimates,
and assumptions that management makes in analyzing the impairment indicators, and in estimating the fair value of its investment for determination of other-than-temporary
impairment. This required a high degree of auditor judgment and increased extent of effort, when performing audit procedures to evaluate the reasonableness of management’s
estimates and assumptions.
Our audit procedures related to management’s judgments, estimates and assumptions, used in the evaluation of other-than-temporary impairment assessment of the equity security
investments included the following, among others:
· obtaining the understanding of the internal controls over management’s evaluation of the equity security investments for other-than-temporary impairment, including
management’s evaluation the impairment indicators;
· evaluating the consistency of the information and facts relating to the basis of analyses;
· reviewing external information including certain investment holdings of the private-equity fund to search for contradictory information;
· testing the fair value estimate for impairment loss made during the period;
· evaluating the sufficiency of the Company’s disclosures to valuation of long-term investments.
/s/ B F Borgers CPA PC
We have served as the Company’s auditor since 2020.
Lakewood, Colorado
April 16, 2021
F-4
Table of Contents
Jupai Holdings Limited
Consolidated Balance Sheets
(In RMB except for share data)
2019
RMB
As of December 31,
2020
RMB
2020
USD
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable (net of allowance for doubtful accounts of RMB26,102,138 and RMB26,102,138 as of
December 31, 2019 and 2020, respectively)
Other receivables (net of allowance for doubtful accounts of RMB2,080,597 and RMB2,080,597 as of December 31,
2019 and 2020, respectively)
Amounts due from related parties (net of allowance for doubtful accounts of RMB96,307,907 and RMB107,453,024 as of
December 31, 2019 and 2020, respectively)
Other current assets
Total current assets
Long-term investments
Intangible assets, net
Amounts due from related parties — non-current
Investment in affiliates
Property and equipment, net
Other non-current assets
Right-of-use assets
Deferred tax assets
Total Assets
Liabilities and Equity
Current liabilities:
Accrued payroll and welfare expenses (including accrued payroll and welfare expense of the consolidated VIEs and
VIEs’ subsidiaries without recourse to Jupai Holdings Limited of RMB28,055,363 and RMB30,708,606 as of
December 31, 2019 and 2020, respectively)
Income tax payable (including income tax payable of the consolidated VIEs and VIEs’ subsidiaries without recourse to
Jupai Holdings Limited of RMB19,815,543 and RMB52,409,793 as of December 31, 2019 and 2020, respectively)
Other tax payable (including other tax payable of the consolidated VIEs and VIEs’ subsidiaries without recourse to Jupai
Holdings Limited of nil and nil as of December 31, 2019 and 2020, respectively)
Amounts due to related parties — current (including amounts due to related parties-current of the consolidated VIEs and
VIEs’ subsidiaries without recourse to Jupai Holdings Limited of RMB10,963,967 and RMB11,011,967 as of
December 31,2019 and 2020, respectively)
Deferred revenue from related parties (including deferred revenue from related parties of the consolidated VIEs and
VIEs’ subsidiaries without recourse to Jupai Holdings Limited of RMB28,056,641 and RMB10,267,812 as of
December 31,2019 and 2020, respectively)
Deferred revenue (including deferred revenue of the consolidated VIEs and VIEs’ subsidiaries without recourse to Jupai
Holdings Limited of RMB17,211,666 and RMB7,594,166 as of December 31, 2019 and 2020, respectively)
Other current liabilities (including other current liabilities of the consolidated VIEs and VIEs’ subsidiaries without
recourse to Jupai Holdings Limited of RMB13,940,969 and RMB7,700,862 as of December 31, 2019 and
2020, respectively)
Total current liabilities
Deferred revenue — non-current from related parties (including deferred revenue from related parties of the consolidated
VIEs and VIEs’ subsidiaries without recourse to Jupai Holdings Limited of RMB4,774,671 and RMB1,362,240 as of
December 31, 2019 and 2020, respectively)
Deferred revenue — non-current (including deferred revenue of the consolidated VIEs and VIEs’ subsidiaries without
recourse to Jupai Holdings Limited of RMB311,651 and RMB104,835 as of December 31, 2019 and 2020, respectively)
Operating Lease Liabilities — non-current (including operating lease liabilities of the consolidated VIEs and VIEs’
subsidiaries without recourse to Jupai Holdings Limited of RMB642,309 and RMB138,156 as of December 31, 2019 and
2020, respectively)
Total Liabilities
Commitments and Contingencies (Note 18)
Shareholders’ Equity:
Ordinary Shares (USD0.0005 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 201,737,272 and
199,051,046 shares issued and outstanding, as of December 31, 2019 and 2020, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total Jupai shareholders’ equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
F-5
711,205,698
1,100,000
—
14,125,535
95,193,003
4,984,541
826,608,777
228,950,000
38,250,479
229,117,743
107,541,000
27,834,760
17,886,020
68,950,101
4,608,063
1,549,746,943
58,318,063
82,800,208
695,081
630,416,786
26,819,159
6,539
61,254,793
20,182,412
16,034,692
754,714,381
218,950,000
34,177,021
229,154,928
100,341,909
17,093,837
13,538,437
39,119,312
4,312,491
1,411,402,316
57,926,124
85,592,667
2,643,970
19,439,664
16,625,680
42,053,959
35,674,503
78,201,072
317,182,550
4,917,845
311,651
28,518,789
350,930,835
632,601
1,150,352,309
(17,567,529)
54,141,670
1,187,559,051
11,257,057
1,198,816,108
1,549,746,943
10,364,519
8,598,708
59,759,820
241,511,488
11,425,388
1,284,080
12,619,411
266,840,367
623,201
1,148,823,625
(48,935,177)
37,929,187
1,138,440,836
6,121,113
1,144,561,949
1,411,402,316
96,615,599
4,110,216
1,002
9,387,708
3,093,090
2,457,424
115,665,039
33,555,556
5,237,858
35,119,529
15,378,070
2,619,745
2,074,856
5,995,297
660,918
216,306,868
8,877,567
13,117,650
405,206
2,547,997
1,588,432
1,317,810
9,158,593
37,013,255
1,751,017
196,794
1,934,009
40,895,075
95,510
176,064,923
(7,499,644)
5,812,902
174,473,691
938,102
175,411,793
216,306,868
Table of Contents
Revenues
Third party revenues
Related party revenues
Total revenues
Business taxes and related surcharges
Net revenues
Operating cost and expenses:
Cost of revenues
Selling expenses
General and administrative expenses
Impairment loss of goodwill
Government subsidies
Total operating cost and expenses
Loss from operations
Interest income
Investment (loss) income
Gain from deconsolidation of a subsidiary
Exchange gain
Loss before taxes and gain from equity in affiliates
Income tax expense
Loss from equity in affiliates
Net loss
Net loss attributable to noncontrolling interests
Net loss attributable to ordinary shareholders
Net loss per share:
Basic and diluted
Weighted average number of shares used in computation:
Basic and diluted
Jupai Holdings Limited
Consolidated Statements of Operations
(In RMB except for share data)
Years Ended December 31,
2018
RMB
335,246,612
990,820,793
1,326,067,405
(4,323,742)
1,321,743,663
(684,558,659)
(303,170,575)
(274,782,664)
(267,917,575)
48,742,897
(1,481,686,576)
(159,942,913)
3,990,096
(292,384)
561,528
4,227,896
(151,455,777)
(129,855,367)
(113,486,155)
(394,797,299)
7,053,281
(387,744,018)
2019
RMB
387,870,253
402,889,899
790,760,152
(4,812,940)
785,947,212
(481,746,067)
(206,777,405)
(265,527,496)
—
31,429,802
(922,621,166)
(136,673,954)
6,136,600
12,627,142
—
3,409,000
(114,501,212)
(52,944,639)
(5,015,063)
(172,460,914)
7,774,839
(164,686,075)
2020
RMB
212,783,752
177,025,427
389,809,179
(1,637,436)
388,171,743
(205,634,704)
(84,903,304)
(153,650,898)
—
21,590,703
(422,598,203)
(34,426,460)
5,162,441
(7,333,446)
—
2,382,302
(34,215,163)
(796,524)
(1,612,759)
(36,624,446)
5,256,798
(31,367,648)
2020
USD
32,610,537
27,130,334
59,740,871
(250,948)
59,489,923
(31,514,897)
(13,012,001)
(23,548,030)
—
3,308,920
(64,766,008)
(5,276,085)
791,179
(1,123,900)
—
365,104
(5,243,702)
(122,073)
(247,166)
(5,612,941)
805,640
(4,807,301)
(1.93)
(0.82)
(0.16)
(0.02)
200,480,910
201,695,899
200,431,277
200,431,277
F-6
Table of Contents
Jupai Holdings Limited
Consolidated Statements of Comprehensive Income (Loss)
Net loss
Other comprehensive income (loss), net of tax of nil:
Change in cumulative foreign currency translation adjustment
Other comprehensive income (loss)
Comprehensive loss
Less: comprehensive loss attributable to noncontrolling interest
Comprehensive loss attributable to ordinary shareholders
(In RMB)
2018
RMB
(394,797,299)
12,501,586
12,501,586
(382,295,713)
(6,934,658)
(375,361,055)
F-7
Years Ended December 31,
2019
RMB
(172,460,914)
(3,245,903)
(3,245,903)
(175,706,817)
(7,748,689)
(167,958,128)
2020
RMB
(36,624,446)
(16,091,629)
(16,091,629)
(52,716,075)
(5,135,944)
(47,580,131)
2020
USD
(5,612,941)
(2,466,150)
(2,466,150)
(8,079,091)
(787,118)
(7,291,973)
Table of Contents
Jupai Holdings Limited
Consolidated Statements of Changes in Shareholders’ Equity
(In RMB except for share data)
Balance at January 1, 2018
Net loss
Share-based compensation
Option exercised
Restricted shares vested
Dividend distribution
Capital contribution by noncontrolling
interest shareholder
Deconsolidation of a subsidiary
Foreign currency translation adjustment
Balance at December 31, 2018
Net loss
Share-based compensation
Option exercised
Restricted shares vested
Deconsolidation of a subsidiary
Foreign currency translation adjustment
Balance at December 31, 2019
Net loss
Share-based compensation
Restricted shares vested
Repurchase of shares
Foreign currency translation adjustment
Balance at December 31, 2020
Ordinary shares
Number of Shares
RMB
198,143,739
—
—
886,362
2,449,345
—
—
—
—
201,479,446
—
—
9,200
248,626
—
—
201,737,272
—
—
548,626
(3,234,852)
—
199,051,046
620,953
—
—
2,816
7,946
—
—
—
—
631,715
—
—
32
854
—
—
632,601
—
—
1,852
(11,252)
—
623,201
Additional
paid-in capital
RMB
1,116,742,286
—
18,108,942
3,264,394
(7,946)
—
—
—
—
1,138,107,676
—
9,583,596
29,604
(854)
2,632,287
—
1,150,352,309
—
3,593,400
(1,852)
(5,120,232)
—
1,148,823,625
Retained earnings
RMB
Accumulated other
comprehensive
income
RMB
Total Jupai
shareholders’ equity
RMB
Noncontrolling
interests
RMB
Total
shareholders’equity
RMB
661,218,074
(387,744,018)
—
—
—
(126,355,510)
—
—
—
147,118,546
(164,686,075)
—
—
—
—
—
(17,567,529)
(31,367,648)
—
—
—
—
(48,935,177)
F-8
40,770,443
—
—
—
—
—
—
—
12,382,963
53,153,406
—
—
—
—
4,260,317
(3,272,053)
54,141,670
—
—
—
—
(16,212,483)
37,929,187
1,819,351,756
(387,744,018)
18,108,942
3,267,210
—
(126,355,510)
—
—
12,382,963
1,339,011,343
(164,686,075)
9,583,596
29,636
—
6,892,604
(3,272,053)
1,187,559,051
(31,367,648)
3,593,400
—
(5,131,484)
(16,212,483)
1,138,440,836
34,516,245
(7,053,281)
—
—
—
—
1,858,779
(1,302,874)
118,623
28,137,492
(7,774,839)
—
—
—
(9,131,746)
26,150
11,257,057
(5,256,798)
—
—
—
120,854
6,121,113
1,853,868,001
(394,797,299)
18,108,942
3,267,210
—
(126,355,510)
1,858,779
(1,302,874)
12,501,586
1,367,148,835
(172,460,914)
9,583,596
29,636
—
(2,239,142)
(3,245,903)
1,198,816,108
(36,624,446)
3,593,400
—
(5,131,484)
(16,091,629)
1,144,561,949
Table of Contents
Jupai Holdings Limited
Consolidated Statements of Cash Flows
(In RMB)
2018
RMB
Years Ended December 31,
2019
RMB
2020
RMB
2020
USD
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Loss from disposal of property and equipment
Allowance for doubtful accounts
Impairment loss of goodwill
Loss from equity in affiliates
Gain from disposal of subsidiaries and investment in affiliates
Loss on investment in equity securities
Share-based compensation
Changes in operating assets and liabilities:
Accounts receivable
Other receivables
Other assets
Amounts due from related parties
Accrued payroll and welfare expenses
Income tax payable
Other tax payable
Deferred revenue
Other current liabilities
Deferred revenue from related parties
Deferred taxes
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchase of property and equipment and intangible assets
Collection of held-to-maturity investments
Purchase of long-term investments
Proceeds of long-term investments
Payment for investment in affiliates
Proceeds from disposal of investment in affiliates
Origination of short-term loan
Collection of short-term loan
Acquisition of subsidiaries, net of cash payment
Proceeds from disposal of subsidiary, net of cash disposed
(Payment) collection of advanced payment for acquisition
Loan to related parties
Collection of loan to related parties
Loan to noncontrolling interest shareholder
Net cash used in investing activities
Cash flows from financing activities:
Capital contribution from noncontrolling interest shareholder
Dividend paid to Jupai shareholders
Prepayment of purchase of noncontrolling interests
Repurchase of shares
Proceeds from option exercise
Net cash (used in) provided by financing activities
Effect of exchange rate changes
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash—beginning of the year
Cash, cash equivalents and restricted cash—end of the year
Supplemental disclosure of cash flow information:
Cash paid (refund) for income taxes
Non-cash investing and financing activities:
Disposal of a subsidiary included in other receivables
Disposal of an investment included in other receivables
(394,797,299)
(172,460,914)
(36,624,446)
(5,612,941)
36,289,554
—
59,214,311
267,917,575
113,486,155
(1,051,867)
1,500,000
18,108,942
(6,713,876)
9,749,600
(10,359,399)
26,800,336
(96,064,627)
48,663,004
(15,124,159)
(3,439,970)
12,567,773
(100,647,014)
(33,820,672)
(67,721,633)
(9,308,534)
3,680,000
—
4,800,000
(215,900,000)
218,678,718
(3,000,000)
—
—
218,171
125,000
(661,167,166)
622,850,900
(1,858,779)
(40,881,690)
1,858,779
(126,355,510)
(200,000)
—
3,267,210
(121,429,521)
4,820,616
(225,212,228)
1,527,777,270
1,302,565,042
26,101,844
—
61,278,914
—
5,015,063
(12,559,048)
4,723,612
9,583,596
32,449,697
(2,975,011)
16,497,858
51,449,973
(58,269,184)
(144,737,787)
(42,314,442)
14,892,464
(11,592,885)
(86,520,421)
96,180,849
(213,255,822)
(13,203,815)
—
(200,000,000)
34,200,000
(58,759,800)
13,172,739
—
4,000,000
(200,000)
33,999,151
—
(200,000,000)
21,128,271
—
(365,663,454)
—
—
—
—
29,636
29,636
(11,369,704)
(590,259,344)
1,302,565,042
712,305,698
16,339,376
667,217
11,145,117
—
1,612,759
(128,240)
10,000,000
3,593,400
(6,539)
4,824,357
(6,751,725)
49,828,289
(391,939)
2,792,459
1,948,889
(26,103,365)
(7,323,826)
(25,181,897)
295,573
535,459
(2,143,055)
—
—
—
—
5,714,573
(50,000,000)
—
—
—
—
(10,000,000)
24,000,000
—
(32,428,482)
—
—
—
(7,085,100)
—
(7,085,100)
(16,091,630)
(55,069,753)
712,305,698
657,235,945
2,504,119
102,255
1,708,064
—
247,166
(19,654)
1,532,567
550,713
(1,002)
739,365
(1,034,747)
7,636,519
(60,067)
427,963
298,680
(4,000,516)
(1,122,425)
(3,859,295)
45,299
82,063
(328,438)
—
—
—
—
875,797
(7,662,835)
—
—
—
—
(1,532,567)
3,678,161
—
(4,969,882)
—
—
—
(1,085,839)
—
(1,085,839)
(2,466,151)
(8,439,809)
109,165,624
100,725,815
115,362,823
101,501,575
(2,291,508)
(351,189)
3,000,000
2,000,000
F-9
—
—
—
—
—
—
Table of Contents
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets:
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash
2018
RMB
1,298,565,042
4,000,000
1,302,565,042
F-10
Years Ended December 31,
2019
RMB
711,205,698
1,100,000
712,305,698
2020
RMB
630,416,786
26,819,159
657,235,945
2020
USD
96,615,599
4,110,216
100,725,815
Table of Contents
Jupai Holdings Limited
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2018, 2019 and 2020
(In RMB, except for share and per share data, unless otherwise stated)
1. Organization and Principal Activities
Jupai Holdings Limited (the ‘‘Company’’ or the “Group”), formerly Jupai Investment Group, was incorporated on August 13, 2012 in the Cayman Islands. The Company, through
its subsidiaries and consolidated variable interest entity, Shanghai Jupai Investment Group Co., Ltd. (‘‘Shanghai Jupai’’ or ‘‘the VIE’’) and the VIE’s subsidiaries provides wealth
management and asset management services to the high net worth individuals in the People’s Republic of China (‘‘PRC’’). The VIE’s subsidiaries began offering services in 2010
through Shanghai Jupai, which was founded in the PRC on July 28, 2010.
The Company’s significant subsidiaries as of December 31, 2020 include the following:
Shanghai Juxiang Investment Management Consulting Co., Ltd. (“Shanghai
Juxiang”)
Baoyi Investment Consulting (Shanghai) Co., Ltd. (“Shanghai Baoyi”)
Jupai HongKong Investment Limited (“Jupai Hong Kong”)
Shanghai Baoyixuan Investment Management Center (Limited Partnership)
(“Baoyixuan”)
Shanghai Jupai’s significant subsidiaries as of December 31, 2020 include the following:
Date of
Incorporation/Acquisition
July 16, 2013
July 16, 2015
August 21, 2012
Place of
Incorporation
PRC
PRC
Hong Kong
December 24, 2015
PRC
Percentage of
Ownership
Juzhou Asset Management (Shanghai) Co., Ltd. (“Juzhou”)
Shanghai Jupai Yumao Fund Sales Co., Ltd. (“Yumao”)
Date of Incorporation/acquisition
Place of
Incorporation
Percentage of
Ownership
May 17, 2013
February 26, 2014
PRC
PRC
Shanghai E-Cheng’s significant subsidiaries as of December 31, 2020 include the following:
100%
100%
100%
100%
85%
100%
Shanghai Yidezhen Investment Management Center (Limited Partnership) (“Yidezhen”)
Date of Acquisition
July 16, 2015
Place of
Incorporation
Percentage of
Ownership
PRC
100%
F-11
Table of Contents
2. Summary of Principal Accounting Policies
(a) Basis of Presentation
The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries for which the Company is the ultimate
primary beneficiary. All transactions and balances among the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries have been eliminated upon consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power or has the power to: govern the financial and operating
policies; appoint or remove the majority of the members of the board of directors; cast a majority of votes at the meeting of the board of directors.
U.S. GAAP provides guidance on the identification of VIE and financial reporting for entities over which control is achieved through means other than voting interests. The
Company evaluates each of its investments to determine whether or not the investee is a VIE and, if so, whether the Group is the primary beneficiary of such VIE. In determining
whether the Group is the primary beneficiary, the Group considers if the Group (1) has power to direct the activities that most significantly affects the economic performance of the
VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Group consolidates the VIE.
Although PRC laws and regulations do not prohibit foreign-invested enterprises from obtaining such license, in practice, the supervisory authority, at its discretion, generally does
not issue such license to a foreign-invested third-party mutual fund sales company. Therefore, the Company decided to conduct such business in China through Shanghai Jupai and
its subsidiaries which are PRC domestic companies. Since the Company does not have any equity interests in Shanghai Jupai, in order to exercise effective control over its
operations, the Company, through its wholly owned subsidiary Shanghai Juxiang, entered into a series of contractual arrangements, or Control Documents with Shanghai Jupai and
its shareholders (“Jupai VIE”), pursuant to which the Company is entitled to receive effectively all economic benefits generated from Shanghai Jupai shareholders’ equity interests
in it.
Since the Company acquired Scepter in July 2015, Scepter, its subsidiaries, Shanghai E-Cheng and Shanghai E-Cheng’s subsidiaries were included in the consolidated financial
statements. Scepter is engaged in asset management service business. Foreign-invested enterprises incorporated in the PRC are not expressively prohibited from providing asset
management services in PRC. However, according to local business practice, as a general partner of a fund, Scepter must invest as a limited partner before the fund is established.
Some investments of the fund managed by the Scepter are in the foreign-invested enterprise prohibited, or not encouraged industries, which requires all investors not to be foreign-
invested enterprises. Therefore Scepter provides asset management services through its VIE entities. To provide Scepter effective control over and the ability to receive
substantially all of the economic benefits of its VIE and its subsidiaries, Scepter’s wholly owned subsidiary Shanghai Baoyi, entered into a series of contractual arrangements with
Shanghai E-Cheng, the “VIE” and its respective shareholders, respectively. (Hereafter, the VIE structure under Scepter is called “Scepter VIE”.).
F-12
Table of Contents
The agreements of Jupai VIE and Scepter VIE that provide the Company effective control over the VIE include:
(i) Voting Rights Proxy Agreement
(1) Jupai VIE: Each shareholder of Shanghai Jupai has executed a power of attorney to grant Shanghai Juxiang the power of attorney to act on his or her behalf on all
matters pertaining to Shanghai Jupai and to exercise all of his or her rights as a shareholder of the Shanghai Jupai, including but not limited to convene, attend and
vote at shareholders’ meetings, designate and appoint directors and senior management members. The proxy agreement will remain in effect unless Shanghai
Juxiang terminates the agreement by giving a 30-day prior written notice or gives its consent to the termination by Shanghai Jupai.
(2) Scepter VIE: Each of the shareholders of Shanghai E-Cheng irrevocably granted any person designated by Shanghai Baoyi the power to exercise all voting rights
to which he will be entitled to as shareholder of Shanghai E-Cheng at that time, including the right to declare dividends, appoint and elect board members and
senior management members and other voting rights.
Each shareholder voting right proxy agreement has a term of twenty years, unless it is early terminated by all parties in writing or pursuant to provision of this
agreement. The term of the agreement will be automatically extended for one year upon the expiration, if Shanghai Baoyi gives the other Parties written notice
requiring the extension thereof and the same mechanism will apply subsequently upon the expiration of each extended term.
(ii) Call Option Agreement
(1) Jupai VIE: The shareholders of Shanghai Jupai granted Shanghai Juxiang or its designated representative(s) an irrevocable and exclusive option to purchase their
equity interests or assets in Shanghai Jupai when and to the extent permitted by PRC law. Shanghai Juxiang or its designated representative(s) has sole discretion
as to when to exercise such options, either in part or in full. Without Shanghai Juxiang’s written consent, the shareholders of Shanghai Jupai shall not transfer,
donate, pledge, or otherwise dispose any equity interests of Shanghai Jupai in any way. The acquisition price for the shares or assets will be the minimum amount
of consideration permitted under the PRC law at the time when the option is exercised. The agreement can be early terminated by Shanghai Juxiang, but not by
Shanghai Jupai or its shareholders.
(2) Scepter VIE: Each of shareholders of Shanghai E-Cheng has entered into an Exclusive Call Option Agreement with Baoyi. Pursuant to these agreements, each of
the shareholders of Shanghai E-Cheng has granted an irrevocable and unconditional option to Shanghai Baoyi or its designees to acquire all or part of such
shareholder’s equity interests in Shanghai E-Cheng at its sole discretion, to the extent as permitted by PRC laws and regulations then in effect. The consideration
for such acquisition of all equity interests in Shanghai E-Cheng will be equal to the registered capital of Shanghai E-Cheng, and if PRC law requires the
consideration to be greater than the registered capital, the consideration will be the minimum amount as permitted by PRC law. In addition, Shanghai E-Cheng
irrevocably and unconditionally granted Baoyi an exclusive option to purchase, to the extent permitted under the PRC law, all or part of the assets of Shanghai E-
Cheng. The exercise price for purchasing the assets of Shanghai E-Cheng will be equal to its respective book values, and if PRC law requires the price to be
greater than the book value, the price will be the minimum amount as permitted by PRC law. The call option may be exercised by Shanghai Baoyi or its
designees.
F-13
Table of Contents
The agreements that transfer economic benefits to the Company include:
(i) Consulting Services Agreement, Operating Agreement and Exclusive Support Agreement
(1) Jupai VIE: Shanghai Jupai engages Shanghai Juxiang as its exclusive technical and operational consultant and under which Shanghai Juxiang agrees to assist in
arranging the financial support necessary to conduct Shanghai Jupai’s operational activities. Shanghai Jupai shall not seek or accept similar services from other
providers without the prior written approval of Shanghai Juxiang. The agreements will be effective as long as Shanghai Jupai exists. Shanghai Juxiang may
terminate this agreement at any time by giving a prior written notice to Shanghai Jupai.
(2) Scepter VIE: Pursuant to an Exclusive Support Agreement between Shanghai Baoyi and Shanghai E-Cheng, Shanghai Baoyi provides Shanghai E-Cheng with a
series of consultancy services on an exclusive basis and is entitled to receive related fees. The term of this Exclusive Support Agreement will expire upon
dissolution of Shanghai E-Cheng. Unless expressly provided by this agreement, without prior written consent of Shanghai Baoyi, Shanghai E-Cheng may not
engage any third party to provide the services offered by Shanghai Baoyi under this agreement.
(ii) Equity Interest Pledge Agreement
(1) Jupai VIE: The shareholders of Shanghai Jupai pledged all of their equity interests in Shanghai Jupai to Shanghai Juxiang as collateral to secure their obligations
under the above agreement. If the shareholders of Shanghai Jupai or Shanghai Jupai breach their respective contractual obligations, Shanghai Juxiang, as pledgee,
will be entitled to certain rights, including the right to dispose the pledged equity interests. Pursuant to the agreement, the shareholders of Shanghai Jupai shall not
transfer, assign or otherwise create any new encumbrance on their respective equity interest in Shanghai Jupai without prior written consent of Shanghai Juxiang.
This pledge will remain effective until all the guaranteed obligations are performed. Mr. Ni’s equity interest in Shanghai Jupai in favor of Shanghai Juxiang is still
under the process of registration with the local branch of regulatory authorities in Shanghai and has not been completed yet.
(2) Scepter VIE: Each of the shareholders of Shanghai E-Cheng has also entered into an equity pledge agreement with Shanghai Baoyi. Pursuant to which these
shareholders pledged their respective equity interest in Shanghai E-Cheng to guarantee the performance of the obligations of Shanghai E-Cheng. If Shanghai E-
Cheng or its shareholders breach any of their respective obligations under any of these agreements, Shanghai Baoyi, as pledgee, will be entitled to certain rights,
including the right to sell the pledged equity interests. Pursuant to the equity pledge agreement, each shareholder of Shanghai E-Cheng cannot transfer, sell,
pledge, dispose of or otherwise create any new encumbrance on their respective equity interest in Shanghai E-Cheng without prior written consent of Shanghai
Baoyi. The equity pledge right enjoyed by Shanghai Baoyi will expire when shareholders of Shanghai E-Cheng have fully performed their respective obligations
under the above agreements. The shareholders of Shanghai E-Cheng are in the process of applying with the local branch of SAIC in Shanghai for registration of
their equity interest pledge.
(iii) Loan Agreement for Scepter VIE. Under the Loan Agreement among the shareholders of Shanghai E-Cheng and Shanghai Baoyi, Shanghai Baoyi granted an interest-
free loan to the shareholders of Shanghai E-Cheng, solely for their purchase of the equity interests of Shanghai E-Cheng. The loan is interest free and the term of the
loan is (i) the expiration of 20 years from the date of the loan agreement, (ii) the expiration of Shanghai Baoyi’s operation term or (iii) the expiration of Shanghai E-
Cheng’s operation term whichever is the earliest.
F-14
Table of Contents
Under the above agreements, the shareholders of Shanghai Jupai/Shanghai E-Cheng irrevocably granted Shanghai Juxiang/Shanghai Baoyi the power to exercise all voting rights to
which they were entitled. In addition, Shanghai Juxiang/Shanghai Baoyi have the option to acquire all of the equity interests in Shanghai Jupai/Shanghai E-Cheng, to the extent
permitted by the then-effective PRC laws and regulations, for nominal consideration. Finally, Shanghai Juxiang/Shanghai Baoyi is entitled to receive service fees for certain
services to be provided to Shanghai Jupai/Shanghai E-Cheng.
The Call Option Agreement and Voting Rights Proxy Agreement provide the Company effective control over the VIEs and their subsidiaries, while the Equity Interest Pledge
Agreements secure the obligations of the shareholders of Shanghai Jupai and Shanghai E-Cheng under the relevant agreements. Because the Company, through Shanghai Juxiang
and Shanghai Baoyi, has (i) the power to direct the activities of Shanghai Jupai and Shanghai E-Cheng that most significantly affect the entities’ economic performance and (ii) the
right to receive substantially all of the benefits from Shanghai Jupai and Shanghai E-Cheng, the Company is deemed the primary beneficiary of Shanghai Jupai and Shanghai E-
Cheng. Accordingly, the Company has consolidated the Shanghai Jupai and Shanghai E-Cheng’s financial results of operations, assets and liabilities, and cash flows in the
Company’s consolidated financial statements.
The Company believes that the contractual arrangements with the VIEs are in compliance with PRC law and are legally enforceable. However, the contractual arrangements are
subject to risks and uncertainties, including:
Shanghai Jupai and Shanghai E-Cheng and their shareholders may have or develop interests that conflict with the Group’s interests, which may lead them to pursue
opportunities in violation of the aforementioned contractual arrangements.
Shanghai Jupai and Shanghai E-Cheng and their shareholders could fail to obtain the proper operating licenses or fail to comply with other regulatory requirements. As a
result, the PRC government could impose fines, new requirements or other penalties on the VIEs or the Group, mandate a change in ownership structure or operations for
the VIEs or the Group, restrict the VIEs or the Group’s use of financing sources or otherwise restrict the VIEs or the Group’s ability to conduct business.
The aforementioned contractual agreements may be unenforceable or difficult to enforce. The equity interests under the Equity Interest Pledge Agreements have been
registered by the shareholders of Shanghai Jupai and Shanghai E-Cheng with the relevant office of the administration of industry and commerce, however, the VIEs or the
Group may fail to meet other requirements. Even if the contractual agreements are enforceable, they may be difficult to enforce given the uncertainties in the PRC legal
system.
The PRC government may declare the aforementioned contractual arrangements invalid. They may modify the relevant regulations, have a different interpretation of such
regulations, or otherwise determine that the Group or the VIEs have failed to comply with the legal obligations required to effectuate such contractual arrangements.
As of December 31, 2020, the Group had variable interests in various investment funds and contractual funds that are VIEs but determined that it was not the primary beneficiary
and, therefore, was not consolidating the VIEs. The maximum potential financial statement loss the Group could incur if the investment funds and contractual funds were to default
on all of their obligations is the loss of value of the interests in such investments that the Group holds, including equity investments recorded in investment in affiliates and long-
term investment in the consolidated balance sheet. The Company’s maximum exposure to loss associated with identified nonconsolidated VIEs in which it holds variable interests
was RMB83,514,067 and RMB82,279,188 as of December 31, 2019 and 2020, respectively.
F-15
Table of Contents
The following amounts and balances of Shanghai Jupai and Shanghai E-Cheng and their subsidiaries were included in the Company’s consolidated financial statements after the
elimination of intercompany balances and transactions:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Other receivables, net
Amounts due from related parties, net of allowance for doubtful accounts of RMB60,490,862 and
RMB60,790,862 as of December 31, 2019 and 2020, respectively
Other current assets
Long-term investments
Investment in affiliates
Property and equipment, net
Intangible assets, net
Other non-current assets
Right-of-use assets
Deferred tax assets
Total assets
Accrued payroll and welfare expenses
Income tax payable
Amounts due to related parties-current
Deferred revenue — current from related parties
Deferred revenue — current
Other current liabilities
Deferred revenue — non-current from related parties
Deferred revenue — non-current
Operating Lease Liabilities — non-current
Total liabilities
F-16
2019
RMB
356,891,990
1,100,000
—
5,803,135
22,231,830
22,828,583
18,950,000
86,468,304
971,091
22,623,254
5,755,331
1,393,451
4,608,063
549,625,032
28,055,363
19,815,543
10,963,967
28,056,641
17,211,666
13,940,969
4,774,671
311,651
642,309
123,772,780
As of December 31,
2020
RMB
189,666,212
26,819,159
6,539
50,689,035
8,511,264
19,692,172
8,950,000
85,597,248
519,018
20,911,091
2,987,240
912,471
4,608,063
419,869,512
30,708,606
52,409,793
11,011,967
10,267,812
7,594,166
7,700,862
1,362,240
104,835
138,156
121,298,437
2020
USD
29,067,619
4,110,216
1,002
7,768,434
1,304,408
3,017,957
1,371,648
13,118,352
79,543
3,204,765
457,815
139,842
706,217
64,347,818
4,706,300
8,032,152
1,687,658
1,573,611
1,163,857
1,180,209
208,772
16,067
21,173
18,589,799
Table of Contents
Net revenues
Third party
Related party
Operating cost and expenses
Net (loss) income attributable to ordinary shareholders
Cash flows used in operating activities:
Cash flows (used in) generated from investing activities:
Cash flows used in financing activities:
2018
RMB
415,535,786
57,530,741
358,005,045
641,467,372
(406,544,377)
(144,046,084)
(17,511,862)
(200,000)
Years ended December 31,
2019
RMB
489,006,257
134,686,065
354,320,192
457,450,538
(13,401,093)
(173,478,148)
2,481,771
—
2020
RMB
237,380,958
189,452,640
47,928,318
200,598,616
3,598,575
(141,962,448)
455,829
—
2020
USD
36,380,223
29,034,887
7,345,336
30,743,083
551,506
(21,756,697)
69,859
—
The VIEs contributed an aggregate of 31%, 62% and 61% of the consolidated net revenues for the years ended December 31, 2018, 2019 and 2020, respectively and an aggregate
of 105%, 8% and (11)% of the consolidated net income (loss) attributable to ordinary shareholders for the years ended December 31, 2018, 2019 and 2020, respectively. As of
December 31, 2019 and 2020, the VIEs accounted for an aggregate of 34% and 29%, respectively, of the consolidated total assets.
There are no consolidated assets of the VIEs and their subsidiaries that are collateral for the obligations of the VIEs and their subsidiaries and can only be used to settle the
obligations of the VIEs and their subsidiaries. There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the
Company or its subsidiaries to provide financial support to the VIEs. However, if the VIEs ever need financial support, the Company or its subsidiaries may, at its option and
subject to statutory limits and restrictions, provide financial support to its VIEs through loans to the shareholder of the VIEs or entrustment loans to the VIEs.
Relevant PRC laws and regulations restrict the VIEs from transferring a portion of their net assets, equivalent to the balance of their statutory reserve and their share capital, to the
Company in the form of loans and advances or cash dividends. Please refer to Note 15 for disclosure of restricted net assets.
(c) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period.
Actual results could differ materially from such estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include assumptions used
to determine the allowance for doubtful accounts, valuation allowance for deferred tax assets, fair value measurement of underlying investment portfolios of the funds that the
Group invests, assumptions related to the consolidation of entities in which the Group holds variable interests, estimates involved in revenue recognition, assumption used to
measure impairment of goodwill and impairment of equity investments and assumption used to determine the useful life of intangible assets acquired.
(d) Concentration of Credit Risk
The Company is subject to potential significant concentrations of credit risk consisting principally of cash and cash equivalents, restricted cash, accounts receivable, other
receivables, amounts due from related party and investments. All of the Group’s cash and cash equivalents, restricted cash and a majority of investments are held with financial
institutions that Group management believes to be of high credit quality.
Substantively all revenues were generated within China.
There were no product providers or underlying corporate borrowers which accounted for 10% or more of total revenues for the years ended December 31, 2018, 2019, and 2020.
(e) Investments in Affiliates
Affiliated companies are entities over which the Group does not control. The Group accounts for common-stock-equivalent equity investments in entities over which it has
significant influence but does not own a majority voting interest or otherwise control using the equity method. The Group generally considers an ownership interest of 20% or
higher to represent significant influence. Under the equity method, the Group’s share of the post-acquisition profits or losses of affiliated companies is recognized in the statements
of operations and its shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive income. When the Group’s share of losses in an
affiliated company equals or exceeds its carrying amount of the investment in the affiliated company, the Group does not recognize further losses, unless the Group has guaranteed
the obligations of the affiliated company or is otherwise committed to provide further financial support for the affiliated company. An impairment loss is recorded when there has
been a loss in value of the investment that is other than temporary, which is recorded in loss from equity in affiliates. The Group recorded impairment loss of RMB104.1 million,
RMB2.7 million, and RMB1.3 million for the years ended December 31, 2018, 2019, and 2020.
F-17
Table of Contents
The Group also considers it has significant influence over the funds that it serves as general partner or fund manager, and the Group’s ownership interest in these funds as limited
partner is generally much lower than 5%. These funds are not consolidated by the Group based on the facts that the Group does not have control over the funds given substantive
kick-out rights held by unrelated limited partners that allow them to remove the general partner without cause, and/or substantive participating rights that allow them to participate
in certain financial and operating decisions of the limited partnership in the ordinary course of business. The equity method of accounting is accordingly used for investments by
the Group in these funds. If an investee fund meets the definition of an Investment Company, it’s required to be reported at fair value. The Group records its equity pick-up based
on its percentage ownership of the investee funds’ net income. For real estate projects, the group recorded its pick-up one quarter in arrears to enable it to have more time to collect
and analyze the investments’ operating results. For other investee funds, the group recorded its pick-up based on current period net income.
(f) Fair Value of Financial Instruments
The Group records its certain financial assets at fair value on a recurring basis. Fair value reflects the price that would be received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be
recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use
when pricing the asset or liability.
The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A
financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is as
follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, such as quoted prices
for similar assets or liabilities in active markets; quoted prices for identical asset or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or
model- derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to asset or liabilities for which there are inputs generally unobservable and typically reflect management’s estimates of assumptions that market participants would
use in pricing the asset or liability. The fair value are therefore determined using model based techniques that include option pricing models, discounted cash flow models, and
similar techniques. Certain assets of the Group were measured at fair value on a non-recurring basis subsequent to initial recognition. These assets include goodwill, investment in
equity securities without readily determinable fair value and investment in affiliates in 2020. See Note 9, Note 5 and Note 6, respectively.
(g) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits, which are unrestricted as to withdrawal and use, and which have original maturities of three months or less
when purchased.
(h) Restricted Cash
The Group’s restricted cash represents cash restricted by court related to a lawsuit in which the group is a defendant. The restriction will be subsequently removed when the case is
closed.
(i) Accounts receivable, net
Accounts receivable mainly represent amounts due from product providers or underlying corporate borrowers and are recorded net of allowance for doubtful accounts. The Group
considers many factors in assessing the collectability of its accounts receivable, such as the age of the amounts due, the product providers or underlying corporate borrowers’
payment history, creditworthiness, financial conditions of the product providers or underlying corporate borrowers and industry trend. An allowance for doubtful accounts is
recorded in the period in which a loss is determined to be probable. The Group also makes specific allowance if there is strong evidence indicating that the accounts receivable is
likely to be unrecoverable. Accounts receivable balances are written off after all collection efforts have been exhausted. The Group recorded allowance for doubtful accounts of
RMB19.7 million, RMB6.4 million, and nil for the years ended December 31, 2018, 2019, and 2020.
F-18
Table of Contents
(j) Other receivables, net
Other receivables mainly represent loan receivables and deposits for lessor and other suppliers. The Company records other receivables at net realizable value consisting of the
carrying amount less an allowance for uncollectable accounts as needed. The allowance for uncollectable accounts is the Company’s best estimate of the amount of probable credit
losses in the Company’s existing other receivables. The Company determines the allowance based on age of the amounts due, the financial condition of the borrowers, and
economic conditions. The Company recorded allowance for doubtful accounts of nil, RMB2.0 million and nil for the years ended December 31, 2018, 2019, and 2020. The
Company has not accrued any interest income on loan receivable as the amount is indeterminable, it will be recognized when cash received.
(k) Investments
Debt Securities
The Group invests in debt securities and accounts for the investments based on the nature of the products invested, and the Group’s intent and ability to hold the investments to
maturity.
The Group’s investments in debt securities include trust products, asset management plans and real estate funds that have a stated maturity and normally pay a prospective fixed
rate of return. The Group classifies the investments in debt securities as held-to-maturity when it has both the positive intent and ability to hold them until maturity. Held-to-
maturity investments are recorded at amortized cost and are classified as long-term or short-term according to their contractual maturity. Long-term investments are reclassified as
short-term when their remaining contractual maturity date is less than one year.
The Group reviews, at individual security level, its held-to-maturity investments for other-than-temporary impairment based on the specific identification method and considers
available quantitative and qualitative evidence in evaluating potential impairment. If the amortized cost basis of an investment exceeds the investment’s fair value, the Group
considers, among other factors, general market conditions, government economic plans, the duration and the extent to which the fair value of the investment is less than cost and
the Group’s intent and ability to hold the investment to determine whether an other-than-temporary impairment has occurred.
The Group recognizes other-than-temporary impairment in earnings if it has the intent to sell the debt security or if it is more-likely-than-not that it will be required to sell the debt
security before recovery of its amortized cost basis. Additionally, the Group evaluates expected cash flows to be received and determines if credit-related losses on debt securities
exist, which are considered to be other-than-temporary, should be recognized in earnings.
Equity Securities
The Group’s investment in equity securities comprise of investment in privately-held companies and limited partnership in private equity fund.
Prior to fiscal 2018, these investments in equity securities without readily determinable fair values were accounted for using the cost method of accounting, measured at cost less
other-than-temporary impairment.
Effective January 1, 2018, upon adoption of ASU 2016-01, the Group has elected to measure these investments at cost minus impairment, if any, adjusted up or down for
observable price changes (i.e., prices in orderly transactions for the identical or similar investment of the same issuer). Any adjustment to the carrying amount is recorded in net
income.
The Group also makes qualitative assessment at each reporting period and if the assessment indicates that the fair value of the investment is less than the carrying value, the
investment in equity securities will be written down to its fair value, with the difference between the fair value of the investment and its carrying amount as an impairment loss
recorded in investment loss.
(l) Noncontrolling interests
A noncontrolling interest in a subsidiary of the Group represents the portion of the equity (net assets) in the subsidiary not directly or indirectly attributable to the Group.
Noncontrolling interests are presented as a separate component of equity in the consolidated balance sheet and earnings and other comprehensive income are attributed to
controlling and noncontrolling interests.
F-19
Table of Contents
(m) Property and Equipment, net
Property and equipment is stated at cost less accumulated depreciation, and is depreciated using the straight-line method over the following estimated useful lives:
Leasehold improvements
Furniture, fixtures, and equipment
Motor vehicles
Estimated Useful Lives in Years
Shorter of the lease term or expected useful life
3-5 years
5 years
Gains and losses from the disposal of property and equipment are included in income from operations.
(n) Leases
The Group determines if an arrangement is a lease at inception of the arrangement. The Group primarily enters into operating leases, as the lessee, for office space. Operating leases
are included in Right-of-use (“ROU”) Assets, Other current liabilities (current portion of liabilities) and Operating lease liabilities (non-current liabilities) on the Consolidated
balance sheet. ROU Assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The
Group determines the present value of the lease payments using an incremental borrowing rate based on information available at the inception date. Leases may include options to
extend or terminate the lease which are included in the ROU Assets and liabilities when they are reasonably certain of exercise.
Certain leases include lease and nonlease components, which are accounted for as one single lease component. Occupancy lease agreements, in addition to contractual rent
payments, generally include additional payments for certain costs incurred by the landlord, such as building expenses and utilities. To the extent these are fixed or determinable,
they are included as part of the minimum lease payments used to measure the lease liabilities.
Operating lease expense associated with minimum lease payments is recognized on a straight-line basis over the lease term. When additional payments are based on usage or vary
based on other factors, they are expensed when incurred as variable lease expense. Minimum lease payments for leases with an initial term of twelve months or less are not
recorded on the Consolidated balance sheet. The Group recognizes lease expense for these leases on a straight-line basis over the lease term.
The Group recorded ROU assets of RMB152.3 million and lease liabilities RMB144.3 million, with no cumulative effect adjustment to retained earnings of January 1, 2019. There
was no material impact on the Consolidated Statements of Operations on the Consolidated Statements of Cash Flows. Additional disclosures relating to leases are discussed in Note
10. “Leases”.
(o) Treasury stocks
The Company repurchased its own stocks directly from the open market at prevailing market prices, therefore an access of stated value over the cost of treasury stocks is credited to
additional paid-in capital. The Company has no plan to resell the repurchased shares.
(p) Revenue Recognition
The Group derives revenue primarily from one-time commissions and recurring service fees paid by product providers for whom the Group distributes wealth management
products, and recurring management fee and carried interest paid by funds the Group manages. Starting from the second half of 2016, the Group also began to earn other service
fees for consulting services provided to other companies. There is no material impact of the adoption of ASC 606 on January 1, 2018 using the modified retrospective method to its
consolidated financial statements.
Under the guidance of ASC 606, the Group is required to: (i) identify the contracts with a customer, (ii) identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligations in the contracts and (v) recognize revenue when the entity satisfies a performance obligation.
Revenues are recorded, net of sales related taxes and surcharges.
The Group sometimes engages third party agents in promoting financial products and pays a channel fee accordingly, in which the group recognizes revenue on a net basis by
deducting the channel fee it pays to the third party agents.
Disaggregation of revenue
The Group uses the management approach to determine operating segments. The management approach considers the internal organization and reporting used by the Group’s chief
operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Group’s CODM has been identified as the CEO and Chairman of
the Board, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group.
F-20
Table of Contents
The Group believes it operates in a sole segment, which is value-added wealth management and asset management services.
Substantively all of the Group’s revenues are derived from China. The Group’s long-lived assets are located substantially in the PRC.
The following table shows revenue from contracts with customers disaggregated by service lines for the years ended December 31, 2018, 2019 and 2020:
One-time commissions
Related party
Third party
Recurring management fee
Related party
Recurring service fees
Related party
Third party
Other service fees
Related party
Third party
Total revenues
2018
RMB
739,894,527
524,315,293
215,579,234
436,947,202
436,947,202
64,555,866
1,256,411
63,299,455
84,669,810
28,301,887
56,367,923
1,326,067,405
F-21
Years Ended December 31,
2019
RMB
320,817,881
60,723,911
260,093,970
340,732,359
340,732,359
115,247,648
1,433,629
113,814,019
13,962,264
—
13,962,264
790,760,152
2020
RMB
162,835,813
58,396,476
104,439,337
98,405,095
98,405,095
128,568,271
20,223,856
108,344,415
—
—
—
389,809,179
2020
USD
24,955,680
8,949,651
16,006,029
15,081,241
15,081,241
19,703,950
3,099,442
16,604,508
—
—
—
59,740,871
Table of Contents
One-time Commissions
The Group enters into one-time commission agreements with product providers or underlying corporate borrowers, which specifies the key terms and conditions of the
arrangement. Such agreements do not include rights of return, credits or discounts, rebates, price protection or other similar privileges. Upon establishment of a wealth management
product, the Group earns a one-time commission from product providers or underlying corporate borrowers, calculated as a percentage of the wealth management products
purchased by its clients. The Group defines the “establishment of a wealth management product” for its revenue recognition purpose as the time when both of the following two
criteria are met: (1) the Group’s client has entered into a purchase or subscription contract with the relevant product provider and, if required, the client has transferred a deposit to
an escrow account designated by the product provider and (2) the product provider has issued a formal notice to confirm the establishment of a wealth management product. After
the contract is established, there are no significant judgments made when determining the one-time commission price.
Recurring Service Fees
Recurring service fee arises from on-going services provided to product providers after the distribution of wealth management product including investment relationship
maintenance and coordination and product reports distribution. It is calculated as a percentage of the total value of investments in the wealth management products purchased by
the Group’s clients, calculated at the establishment date of the wealth management product. As the Group provides these services throughout the contract term, revenue is
recognized over the contract term, assuming all other revenue recognition criteria have been met. For certain products, recurring service fees may also include a performance-based
fee based on the extent by which the fund’s investment performance exceeds a certain threshold. Such performance-based fees earned based on the performance of the Group are a
form of variable consideration in its contracts with customers to provide investment management services. Revenue is recognized when performance-based measures are met.
Recurring service agreements do not include rights of return, credits or discounts, rebates, price protection or other similar privileges.
Recurring Management Fees
Recurring management fee arises from the fund management services provided to funds the Group manages, including management fee and carried interest. Management fees are
computed as a percentage of the capital contribution in a fund and are recognized as earned over the specified contract period. Carried interest represents preferential allocations of
profits that are a component of the Group’s general partnership interests and fund managing interests in the limited partnership and contractual funds and is a form of variable
consideration and recognized as revenue typically at the end of fund’s contract term when the uncertainty associated with the variability is resolved. Management fee received in
advance of the specified contract period and in the limited circumstances carried interest received before the end of the fund’s contract term are recorded as deferred revenue.
Other service fees
Other service fee refers to revenue generated from consulting services provided to peers in asset management industry and other companies seeking for equity investment. Service
fees are negotiated case by case, and are specified in agreements before services are provided. Revenue is recognized upon completion of the services and when it becomes
probable that a significant reversal in the amount of revenue will not occur.
Contract modifications
Contract modifications occur when the Group and its customers agree to modify existing customer contracts to change the scope or price (or both) of the contract or when a
customer terminates some, or all, of the existing services provided by the Group. When a contract modification occurs, it requires the Group to exercise judgment to determine if
the modification should be accounted for as: (i) a separate contract, (ii) the termination of the original contract and creation of a new contract, or (iii) a cumulative catch up
adjustment to the original contract. Further, contract modifications require the identification and evaluation of the performance obligations of the modified contract, including the
allocation of revenue to the remaining performance obligations and the period of recognition for each identified performance obligation. In 2018, the Group modified certain
contracts for changes in transaction price for the services that are not distinct from the existing contract. As such, these modifications are accounted for as if they were part of the
existing contract, and therefore, the effect of the modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized
as an adjustment to revenue on a cumulative catch-up basis in the period of modification. The amount of cumulative adjustment to revenue recorded in 2018, 2019 and 2020 as a
result of contract modification was RMB122.7 million, nil and nil, respectively.
F-22
Table of Contents
Transaction Price Allocation among Performance Obligations
The Group enters into contracts with product providers or underlying corporate borrowers to provide both wealth management marketing and recurring services or other services.
The Group also provides wealth management marketing, recurring services and other services to funds that it serves as general partner/co-general partner or fund manager.
Each of the wealth management marketing service, recurring service, and other service represent a separate performance obligation. The Group allocate the total consideration
among various performance obligations at inception of contracts based on their relative stand-alone selling price (“SSP”). The Group has observable SSP for its wealth
management marketing services and other services for certain products as it provides such services separately to other similar customers. The Group has not sold its recurring
services separately. The Group adopts either the adjusted market assessment approach or the residual approach when the SSP is not directly observable and is either highly variable
or uncertain. Revenue for the respective performance obligation is recognized in the same manner as described above.
Contract Balances
The Group enters into contracts with customers, of which obligations are performed over a period. The Group records contract liabilities in deferred revenue when payments are
received in advance of the performance obligations being satisfied. Certain contracts require that a portion of the payment be deferred until the end of the wealth management
product’s life or other specified contingencies.
As of December 31, 2019 and 2020, total amount of deferred revenue are RMB82,957,958 and RMB31,672,695 respectively, of which RMB77,728,462 and RMB18,963,227
estimated to be recognized within one year, RMB5,229,496 and RMB12,709,468 over one year to two years.
Practical Expedience
The Group has used the following practical expedients as allowed under ASC 606:
The Group expenses sales commissions as incurred when the amortization period is one year or less. Sales commission expenses are recorded within “Cost of Revenues” in the
consolidated statements of operations.
The Group has also applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected
term of one year or less or (ii) contracts for which the Group recognizes revenue in proportion to the amount the Group has the right to invoice for services performed.
(q) Sales Related Tax and Related Surcharges
The Group is subject to value-added tax (“VAT”), education surtax, and urban maintenance and construction tax, on the services provided in the PRC. The applicable VAT rate for
the Group is 1% to 6%.
(r) Cost of Revenues
Cost of revenue includes salaries and performance-based commissions of relationship managers and business development team, and expenses incurred in connection with product-
specific client meetings and other events.
F-23
Table of Contents
(s) Selling Expenses
Selling expenses primarily consist of payroll, bonus and benefits of sales and marketing staff, brand promotion costs, and agency fees. Brand promotion costs are expensed as
incurred.
Brand promotion costs in connection with the provision of marketing and promotion services consisted of fees the Group paid to third party venders for brand promotion on various
online and offline channels. Such costs were included as selling expenses in the consolidated statements of operations and totaled RMB16,831,978, RMB9,019,349 and
RMB3,047,380 for the years ended December 31, 2018, 2019 and 2020, respectively.
(t) Intangible assets, net
Acquired intangible assets mainly consist of customer contracts, internal-used software and licenses from business combinations and are recorded at fair value on the acquisition
date. Customer contracts, internal-used software and certain licenses are amortized using a straight-line method. Most of the licenses are determined to be indefinitely-lived, and
not subject to amortization.
Customer contracts
Internal-used software
Licenses amortized
(u) Impairment of long-lived assets
Estimated Useful Lives in Years
3.5 years
10 years
Shorter of the legal rights or expected useful life
The Group evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When
these events occur, the Group measures impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the
assets and their eventual disposition.
The Group evaluates intangible assets that are not subject to amortization for impairment annually and more frequently if events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Group conducts quantitative impairment tests for indefinite-lived intangible assets and compares the fair value of the asset
with its carrying amount. The Group recognizes impairment loss on the amount by which the carrying value exceeds the fair value of the asset. After an impairment loss is
recognized, the Group uses adjusted carrying amount of the intangible asset as its new accounting basis.
(v) Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed.
Goodwill is not depreciated or amortized but is tested for impairment on an annual basis as of December 31, and in between annual tests when an event occurs or circumstances
change that could indicate that the asset might be impaired.
Starting from January 1, 2018, the Group early adopted ASU 2017-04. A reporting unit is identified as a component for which discrete financial information is available and is
regularly reviewed by management. As the Group operates in a sole segment, which is value-added wealth management and asset management services, management concluded
that it had only one reporting unit, and therefore the goodwill impairment testing is performed at a consolidation level. The impairment test is performed as of year-end or if an
event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount by comparing the fair value of a reporting
unit with its carrying value. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not impaired and no further testing is required. If the fair value of the
reporting unit is less than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the
loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Based on the Group’s impairment assessment review, the Group recorded goodwill impairment of RMB267.9 million, nil and nil for the years ended December 31, 2018, 2019 and
2020 for the goodwill from acquisition of Scepter as the volatile market environment continued to negatively impact the Group’s operations and business outlook.
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(w) Income Taxes
Current income taxes are provided for in accordance with the relevant statutory tax laws and regulations.
The Group accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences
between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Group recognizes net deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, it considers all
available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results
of recent operations. If the Group determines that its deferred tax assets are realizable in the future in excess of their net recorded amount, the Group would make an adjustment to
the deferred tax asset valuation allowance, which would reduce the provision for income taxes. According to ASU 2015-17, the Group recognized deferred tax assets and liabilities
as non-current assets and liabilities.
(x) Share-Based Compensation
The Group recognizes share-based compensation based on the grant date fair value of equity awards, with compensation expense recognized over the vesting period. Share-based
compensation expense is classified in the consolidated statements of operations based upon the job function of the grantee. The Group accounts for a cancellation or settlement of
an equity settled share-based payment award as an acceleration of vesting, and recognize immediately the amount that otherwise would have been recognized for services received
over the remainder of the vesting period. The Group also estimates expected forfeitures and recognizes compensation cost only for those share-based awards expected to vest.
Actual forfeitures may differ from those estimated by the Group which would affect the amount of share-based compensation to be recognized.
(y) Government Grants
Government subsidies include cash subsidies received by the Group’s entities in the PRC from local governments as incentives for registering and operating business in certain
local districts and are typically granted based on the amount of value-added tax, and income tax payment generated by the Group in certain local districts. Such subsidies allow the
Group full discretion in utilizing the funds and are used by the Group for general corporate purpose. The local governments have final discretion as to the amount of cash subsidies.
Cash subsidies are included in government subsidies and recognized when received and when all the conditions for their receipt have been satisfied.
(z) Net Income (Loss) per Share
Basic net income or loss per share is computed by dividing net income or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding
during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised into ordinary
shares. Common share equivalents are excluded from the computation of the diluted net income per share in years when their effect would be anti-dilutive.
Diluted net income or loss per share is computed by giving effect to all potential dilutive shares, including stock options and unvested restricted shares. To calculate the number of
shares for diluted income per share, the effect of the stock options and restricted share units is computed using the treasury stock method.
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(aa) Foreign Currency Translation
The functional currency of the Company, Jupai Investment International Limited, Scepter Holdings Limited, and Scepter Pacific Limited is the United States dollar (“U.S. dollar”).
The functional currency of Jupai Hong Kong and Non-Linear Investment Management Ltd., is the Hong Kong Dollar (“HKD”). The subsidiaries in the PRC and the VIEs
determined their functional currency to be the Chinese Renminbi (“RMB”). The determination of the respective functional currency is based on the criteria of ASC 830, Foreign
Currency Matters.
Assets and liabilities of the Group’s overseas entities denominated in currencies other than RMB are translated into RMB at the rates of exchange ruling at the balance sheet date.
Equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are
reported as foreign currency translation adjustment and are shown as a separate component of other comprehensive income in the consolidated statements of comprehensive
income.
Amounts in USD are solely for the convenience of the readers and were calculated at the rate of USD1.00 for RMB6.5250 on December 31, 2020, representing the certificated
exchange rate published by the Federal Reserve Board. This presentation is not intended to be an indication of the actual USD amount for the underlying transactions, assets or
liabilities.
(ab) Comprehensive Income
Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners. For the years presented, total comprehensive
income included net income, foreign currency translation adjustments, net of tax effect.
(ac) Recently issued accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is
intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other
organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and
judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Group’s portfolio. These disclosures include qualitative and quantitative
requirements that provide additional information about the amounts recorded in the financial statements. For public business entities, the guidance is effective for fiscal years
beginning after December 15, 2022, including interim periods within those fiscal years. Early application of the pending content that links to this paragraph is permitted for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. The Group is in the process of evaluating the impact of adoption of this guidance on
its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12 (“ASU 2019-12”) “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.” ASU 2019-12 will simplify
the accounting for income taxes by removing certain exceptions currently provided for in ASC 740, “Income Taxes” (“ASC 740”), and by amending certain other requirements of
ASC 740. The changes resulting from ASU 2019-12 will be made on a retrospective or modified retrospective basis, depending on the specific exception or amendment. For public
business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company
will adopt ASU 2019-12 effective January 1, 2021. Management is currently evaluating the effect of the adoption of ASU 2019-12 on the consolidated financial statements.
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3. Net Income (loss) per Share
Diluted earnings per share do not include the following instruments as their inclusion would have been anti-dilutive:
Share options
Restricted shares
Total
4. Allowance for doubtful accounts
2018
9,424,471
1,241,352
10,665,823
As of December 31,
2019
9,145,983
1,182,370
10,328,353
2020
7,936,403
633,744
8,570,147
The movement of the allowance for accounts receivable, other receivables and amounts due from related parties was as following:
Balance as of January 1
Provisions for doubtful accounts
Write-off
Balance as of December 31
2018
RMB
3,997,417
59,214,311
—
63,211,728
Years Ended December 31,
2019
RMB
63,211,728
61,278,914
—
124,490,642
2020
RMB
124,490,642
11,145,117
—
135,635,759
As of December 31, 2020, the Group recorded allowance for accounts receivable, other receivables and amounts due from related parties was RMB26,102,138, RMB2,080,597 and
RMB107,453,024, respectively. The provision for doubtful accounts in 2020 was all for amounts due from related parties.
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5. Investments
The following table summarizes the Group’s investment balances:
Long-term investments
- Equity securities without readily determinable fair values
Total investments
2019
RMB
As of December 31,
2020
RMB
2020
USD
228,950,000
228,950,000
218,950,000
218,950,000
33,555,556
33,555,556
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Debt securities consist of investments in trust products that have stated maturity and normally pay a prospective fixed rate of return, and are carried at amortized cost. The Group
recorded investment income on these investments of RMB717,616, nil and nil for the years ended December 31, 2018, 2019 and 2020, respectively.
As of December 31, 2020, the Group’s investment consist of investment in privately-held companies of RMB8,950,000 and limited partnership in private equity funds of
RMB210,000,000. There have been no adjustments for price changes to the equity investments without readily determinable fair values for the year ended December 31, 2020. The
Group recorded impairment loss of nil, RMB4.7 million and RMB10.0 million for the years ended December 31, 2018, 2019 and 2020, respectively.
6. Investment in affiliates
The following table summarizes the Group’s investment in affiliates by RMB and ownership percentage:
Private equity funds that the Company serves as
general partner or fund manager (1)
Changjiang Jupai (Shanghai) Finance Consulting
Co., Ltd. (“Changjiang Jupai”)
Shanghai Wuling Investment Center (“Wuling
Center”)
Shanghai Guochen Equity Management Co., Ltd.
(“Guochen”)
Shanghai Juzhi Investment Management Co., Ltd.
(“Juzhi”)
Shanghai Jucheng Zhidi Co., Ltd (“Jucheng Zhidi”)
(2)
Others (3)
Total investments
2019
As of December 31
2020
2020
RMB
%
RMB
%
USD
%
75,750,152
—
75,128,668
—
11,513,972
11,449,125
25.0%
11,625,259
25.0%
1,781,649
7,763,915
3,398,720
1.2%
8.3%
7,150,520
3,228,549
2,680,206
50.0%
1,630,592
4,910,260
1,588,622
107,541,000
2.0%
—
—
1,578,321
100,341,909
1.2%
8.3%
50.0%
—
—
1,095,865
494,797
249,899
—
241,888
15,378,070
—
25.0%
1.2%
8.3%
50.0%
—
—
The investments above are accounted for using equity method of accounting.
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Table of Contents
(1) Shanghai Juxiang and Scepter invested in private equity funds of funds that the Group serves as general partner or fund manager. Shanghai Juxiang and Scepter held no more
than 4% equity interest in these private equity funds of funds as a general partner. The Group accounts for these investments using the equity method of accounting due to the fact
that the Company can exercise significant influence on these investees in the capacity of general partner or fund manager.
(2) The Group invested RMB5,000,000 for 2% equity interest in Shanghai Jucheng Zhidi Co., Ltd in 2019 and accounted for the investment with equity method accounting. The
main operating business is real estate development and management. The Group disposed of the entire investment in July 2020 for RMB5.0 million (USD0.77 million).
(3) In addition to the above, the Group also held investments in several fund management companies, none of which is individually material.
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7. Property and Equipment, Net
Property and equipment, net consists of the following:
Leasehold improvements
Furniture, fixtures and equipment
Motor vehicles
Total
Accumulated depreciation
Property and equipment, net
2019
RMB
58,136,435
29,744,931
3,701,461
91,582,827
(63,748,067)
27,834,760
As of December 31,
2020
RMB
58,932,840
29,236,780
3,701,461
91,871,081
(74,777,244)
17,093,837
2020
USD
9,031,853
4,480,733
567,274
14,079,860
(11,460,115)
2,619,745
Depreciation expense was RMB13,416,578, RMB20,659,686 and RMB12,172,802 for the years ended December 31, 2018, 2019 and 2020, respectively.
8. Intangible Assets, Net
Intangible assets are comprised of the following:
Customer contracts
Software
License
Less: accumulated amortization
Intangible assets subject to amortization
License with indefinite life
Foreign currency translation adjustment
Intangible assets, net
2019
RMB
67,687,278
37,670,816
942,481
76,752,418
29,548,157
11,733,541
(3,031,219)
38,250,479
As of December 31,
2020
RMB
63,308,495
37,763,932
942,481
80,918,992
21,095,916
11,733,541
1,347,564
34,177,021
2020
USD
9,702,451
5,787,576
144,442
12,401,378
3,233,091
1,798,244
206,523
5,237,858
Insurance Brokerage Licenses included in the intangible assets are assessed as indefinite life and are not subject to amortization. Amortization expense related to other intangible
asset was RMB22,872,976, RMB5,442,158 and RMB4,166,574 for the years ended December 31, 2018, 2019 and 2020, respectively.
The Group expects to record amortization expense of RMB3,711,963, RMB3,711,963, RMB3,711,963, RMB3,711,963, RMB3, 711,963 for the years ending December 31, 2021,
2022, 2023, 2024 and 2025, respectively.
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9. Goodwill
The movement in carrying amount of goodwill is as follows:
Balance as of January 1, 2019
Deconsolidation
Balance as of December 31, 2019 and 2020
Years Ended December 31,
RMB
297,031
(297,031)
—
Goodwill is primarily generated from the acquisition for 100% equity interests of Scepter in 2015 amounting to USD40 million, approximately RMB260 million, and the
management performs goodwill impairment test annually.
The Group has one reporting unit. In 2018, the management has conducted assessment and determined it is more likely than not that the fair value of the reporting unit is less than
its carrying amount. By comparing the fair value of the reporting unit with its carrying amount, an impairment charge is recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value to the extent of the goodwill carrying value. Impairment loss of RMB267.9 million was recorded as impairment loss of goodwill.
In 2019, we disposed UP Capital Asset Management Limited (BVI) (“UP”) for RMB34.0 million to a subsidiary of E-house, with a result of deconsolidation of UP and elimination
of the goodwill.
10. Leases
The Group’s noncancelable operating leases consist of leases for office space. The Group is the lessee under the terms of the operating leases. For the year ended December 31,
2020, the operating lease cost was RMB37.8 million.
The Group’s operating leases have remaining lease terms that range from approximately one year to four years. As of December 31, 2020, the weighted average remaining lease
term and weighted average discount rate were 1.08 years and 5.7%, respectively.
11. Dividends
On March 12, 2018, Jupai Holdings declared a cash dividend on the accumulated undistributed earnings of USD19,950,975, approximately RMB126 million, to all the shareholders
of Jupai Holdings, and the dividend was paid in May 2018.
12. Share-Based Compensation
In July 2014, the Group adopted the 2014 Share Incentive Plan (“the 2014 Plan”), which allows the Group to offer a variety of share-based incentive awards to employees, officers,
and directors. The maximum number of shares that may be issued pursuant to all awards under the 2014 Plan shall initially be 17,570,281 ordinary shares, and will be increased
automatically by 5% of the then total outstanding shares on an as-converted fully diluted basis on each of the third, sixth and ninth anniversaries of the effective date of the 2014
Plan. In December 2015, the Group amended the 2014 Plan to increase the number of shares reserved for future awards under the 2014 Plan by 9,367,739 ordinary shares to
26,938,020 ordinary shares.
Share Options:
On July 1, 2014 and April 2, 2015, the Group granted 12,056,000 and 1,061,600 options to purchase ordinary shares to certain employees at an exercise price of USD0.48 and
USD1.00 per share, respectively. The options expire ten years from the date of grant and vest ratably at each grant date anniversary over a period of three years.
Replacement of the Company’s option for Scepter’s option (“Options Replacement Program”).
Effective upon the Company’s IPO and in connection with its acquisition of Scepter (“Replacement Date”), the Company exchanged 2,525,000 of its options (“Replacement
Options”) under the 2014 Plan for the 505,000 of the options (“Replaced Options”) that had been previously granted to certain employees of Scepter and E-House under Scepter’s
2014 Share Incentive Plan (“Scepter Plan”), with other terms unchanged. The Company capitalized RMB13,702,194 as part of the cost of acquiring Scepter in regard to the Options
Replacement Program, which the Company computed as the sum of (1) the Replacement Date fair value of the Replaced Options granted to the employees of E-House, and (2) the
fair value of the Replaced Options granted to the employees of Scepter on the Replacement Date multiplied by the ratio of pre-acquisition services to the requisite service period of
such Replaced Options, which is the same as the requisite service period of the Replacement Options.
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The Group uses the current share price as the fair value of underlying ordinary shares.
The Company recorded compensation expense related to previously issued stock options of RMB1,165,543, nil and nil for the years ended December 31, 2018, 2019 and 2020.
A summary of option activity under the 2014 Plan during the year ended December 31, 2020.
Outstanding, as of January 1, 2020
Forfeited
Outstanding, as of December 31, 2020
Exercisable as of December 31, 2020
Number of
Options
9,145,983
(1,209,580)
7,936,403
7,936,403
Weighted
Average
Exercise
Price
RMB
3.97
3.13
3.81
3.81
Remaining
Contractual
Term
4.61
3.62
3.62
Aggregate
Intrinsic
Value of
Options
RMB
—
—
No options were granted for years ended December 31, 2018, 2019 and 2020.
The total intrinsic value of options exercised were RMB19,964,965, RMB42,592 and nil for the years ended December 31, 2018, 2019 and 2020.
As of December 31, 2020, there was nil unrecognized compensation expense related to unvested share options granted under the 2014 Plan.
Non-vested restricted shares:
On January 4, 2019, the Company granted 900,000 restricted shares to certain senior management. The fair value of the restricted shares on grant date is USD0.73. The restricted
shares vest ratably at each grant date anniversary over a period of three years.
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A summary of restricted share activity under the 2014 Plan during the year ended December 31, 2020.
Unvested, as of January 1, 2020
Vested
Unvested, as of December 31, 2020
Number of
Shares
1,182,370
(548,626)
633,744
Weighted
Average
Grant-date
Fair Value
RMB
6.49
7.30
5.03
The total fair value of non-vested restricted shares as of December 31, 2020 was RMB3,187,732. The fair value of non-vested restricted shares was computed based on the fair
value of the Group’s ordinary shares on the grant date. The total fair value of shares vested during the years ended December 31, 2018, 2019 and 2020, was RMB38,211,775,
RMB2,742,345 and RMB4,004,970, respectively.
The Company recorded compensation expense of RMB16,943,399, RMB9,583,596 and RMB3,593,400 for the years ended December 31, 2018, 2019 and 2020. As of
December 31, 2020, there was RMB1,432,238 of total unrecognized compensation expense related to unvested restricted shares granted under the 2014 Plan. That cost is expected
to be recognized over a weighted-average period of 1.00 years.
13. Income Taxes
Cayman Islands and British Virgin Islands (“BVI”)
Under the current laws of the Cayman Islands and BVI, the Company is not subject to tax on its income or capital gains. In addition, the Cayman Islands and BVI do not impose
withholding tax on dividend payments.
PRC and Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, our subsidiaries established in Hong Kong are subject up to 16.5% progressive income tax on their taxable income
generated from operations in Hong Kong. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax.
Under the Law of the People’s Republic of China on Enterprise Income Tax (“EIT Law”), domestically-owned enterprises and foreign-invested enterprises are subject to a uniform
tax rate of 25% on taxable income.
The tax expense comprises:
Current Tax
Deferred Tax
Total
2018
RMB
163,676,039
(33,820,672)
129,855,367
Years Ended December 31,
2019
RMB
2020
RMB
15,018,507
37,926,132
52,944,639
500,952
295,572
796,524
2020
USD
76,775
45,298
122,073
Reconciliation between the statutory tax rate to income before income taxes and the actual provision for income taxes is as follows:
PRC income tax rate
Expenses not deductible for income tax purposes
Goodwill impairment
Losses not deductible for income tax purposes
Tax-free income
Valuation allowance of deferred tax assets
Uncertain tax position impact
Different tax rate of subsidiary operation in other jurisdiction
Effective income tax rate
2018
Years Ended December 31,
2019
2020
25.00%
-9.47%
-44.22%
-5.40%
1.10%
-55.56%
—
2.81%
-85.74%
25.00%
-25.47%
—
-12.81%
—
-33.12%
—
0.16%
-46.24%
25.00%
-23.75%
—
-8.14%
—
8.29%
—
-3.73%
-2.33%
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The principal components of the deferred income tax asset and liabilities are as follows:
Deferred tax assets:
Accrued expenses
Tax loss carry forward
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Movement of the valuation allowance is as follows:
Balance as of January 1
Additions (utilization)
Write-offs
Balance as of December 31
2019
RMB
4,608,063
67,843,392
72,451,455
(67,843,392)
4,608,063
As of December 31,
2020
RMB
4,312,491
63,563,642
67,876,133
(63,563,642)
4,312,491
2018
RMB
—
84,146,463
—
84,146,463
As of December 31,
2019
RMB
84,146,463
37,227,678
(53,530,749)
67,843,392
2020
RMB
67,843,392
(2,837,821)
(1,441,929)
63,563,642
2020
USD
660,918
9,741,554
10,402,472
(9,741,554)
660,918
2020
USD
10,397,455
(434,915)
(220,986)
9,741,554
The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will be more likely than not realized. This assessment
considers, among other matters, the nature, frequency and severity of recent losses and forecasts of future profitability. These assumptions require significant judgment and the
forecasts of future taxable income are consistent with the plans and estimates the Group is using to manage the underlying businesses. Valuation allowances are established for
deferred tax assets based on a more likely than not threshold. The Group’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the
future periods provided for in the tax law. As of December 31, 2020, operating loss carried forward amounted to RMB255.7 million for the PRC and HK income tax purposes. The
loss carrying forward began to expire this year. Valuation allowance of RMB67,843,392 and RMB63,563,642 was recorded as of December 31, 2019 and 2020 for the entities that
are not more likely than not to realize the net operating loss carry forward.
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Undistributed earnings of the Company’s PRC subsidiaries of approximately RMB833.1 million at December 31, 2020 are considered to be indefinitely reinvested and,
accordingly, no provision for PRC dividend withholding tax has been provided thereon. Upon distribution of those earnings, in the form of dividends or otherwise, the Group would
be subject to the then applicable PRC tax laws and regulations. The amounts of unrecognized deferred tax liabilities for these earnings are in the range of RMB41.7 million to
RMB83.3 million, as the withholding tax rate of the profit distribution will be 5% or 10% depending upon whether the immediate offshore companies can enjoy the preferential
withholding tax rate of 5%.
Aggregate undistributed earnings of the Company’s VIEs and its VIEs’ subsidiaries located in the PRC that are available for distribution to the Company were approximately
RMB191.6 million as of December 31, 2020. A deferred tax liability should be recorded for taxable temporary differences attributable to the excess of financial reporting amounts
over tax basis amount in domestic subsidiaries. However, recognition is not required in situations where the tax law provides a means by which the reported amount of that
investment can be recovered tax-free and the enterprise expects that it will ultimately use that means. The Company has not recorded any such deferred tax liability attributable to
the undistributed earnings of its financial interest in VIEs because it believes such excess earnings can be distributed in a manner that would not be subject to income tax.
The Group has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits, and
has measured the unrecognized tax benefits associated with the tax positions.
The Group does not anticipate any significant increases or decreases to its liability for unrecognized tax benefits within the next 12 months. According to PRC Tax Administration
and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of
limitations will be extended to five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million is specifically
listed as a special circumstance). In the case of a related party transaction, the statute of limitations is 10 years. There is no statute of limitations in the case of tax evasion.
14. Employee Benefit Plans
The Group’s PRC subsidiaries, VIEs and the VIEs’ subsidiaries are required by law to contribute a certain percentages of applicable salaries for retirement benefits, medical
insurance benefits, housing funds, unemployment and other statutory benefits. The PRC government is directly responsible for the payments of such benefits. The total contribution
for such employee benefits were RMB131.8 million, RMB89.0 million and RMB26.9 million for the years ended December 31, 2018, 2019 and 2020 which is recorded in
operating costs and expenses in the consolidated statements of operations in the period those contributions are due. The Group has no ongoing obligation to its employees
subsequent to its contributions to such employee benefit plans.
15. Restricted Net Assets
Pursuant to the relevant laws and regulations in the PRC applicable to foreign-investment corporations and the Articles of Association of the Group’s PRC subsidiaries, VIEs and
VIEs’ subsidiaries, the Group is required to maintain a statutory reserve (“PRC statutory reserve”): a general reserve fund, which is not available for dividend distribution. The
Group’s PRC subsidiaries, VIEs and VIEs’ subsidiaries are required to allocate 10% of their profit after taxation, as reported in their PRC statutory financial statements, to the
general reserve fund until the balance reaches 50% of their registered capital. At their discretion, the PRC subsidiaries, VIEs and VIEs’ subsidiaries may allocate a portion of its
after-tax profits based on PRC accounting standards to staff welfare and bonus funds. The general reserve fund may be used to make up prior year losses incurred and, with
approval from the relevant government authority, to increase capital. PRC regulations currently permit payment of dividends only out of the Group’s PRC subsidiaries, VIEs and
VIEs’ subsidiaries’ accumulated profits as determined in accordance with PRC accounting standards and regulations. The general reserve fund amounted to RMB79,750,650 and
RMB83,040,502 as of December 31, 2019 and 2020, respectively. The Group has not allocated any of its after-tax profits to the staff welfare and bonus funds for any period
presented.
In addition, the share capital of the Company’s PRC subsidiaries, VIEs and VIEs’ subsidiaries of RMB407,718,537 and RMB402,718,537 as of December 31, 2019 and 2020,
respectively, was considered restricted due to restrictions on the distribution of share capital.
As a result of these PRC laws and regulations, the Company’s PRC subsidiaries, VIEs and VIEs’ subsidiaries are restricted in their ability to transfer a portion of their net assets,
including general reserve and registered capital, either in the form of dividends, loans or advances. Such restricted portion amounted to RMB487,469,187 and RMB485,759,039 as
of December 31, 2019 and 2020, respectively.
F-36
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16. Repurchase of shares
The Company announced up to USD10 million share repurchase program in February 2020. As of December 31, 2020, the Company had repurchased 539,142 ADSs as part of the
program, at a total cost of USD741,554, approximately RMB5.1 million, inclusive of transaction charges.
The share repurchases may be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other
legally permissible means. The timing and extent of any purchases will depend on market conditions, the trading price of the Company’s ADSs and other factors, subject to all
applicable rules and regulations. The Company’s board of directors will review the share repurchase program periodically, and may authorize adjustments of its terms and size
accordingly. The Company plans to use its available cash balance to fund repurchases made under this program.
17. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making
financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be
individuals or corporate entities.
During the years ended December 31, 2018, 2019 and 2020, significant related party transactions and balances were as follows:
F-37
Table of Contents
a. Revenue from Related Parties
One-time commissions
Funds managed by Jupai Group
Investees of shareholder of the Company
Total one-time commissions
Recurring management fee
Funds managed by Jupai Group
Total recurring management fee
Recurring service fee
Funds managed by Jupai Group
Total recurring service fee
Other service fee
Funds managed by Jupai Group
Total other service fee
Total revenue from related parties
Years Ended December 31
2019
RMB
2020
RMB
58,676,277
2,047,634
60,723,911
340,732,359
340,732,359
1,433,629
1,433,629
—
—
402,889,899
58,159,887
236,589
58,396,476
98,405,095
98,405,095
20,223,856
20,223,856
—
—
177,025,427
2020
USD
8,913,392
36,259
8,949,651
15,081,241
15,081,241
3,099,442
3,099,442
—
—
27,130,334
2018
RMB
521,493,884
2,821,409
524,315,293
436,947,202
436,947,202
1,256,411
1,256,411
28,301,887
28,301,887
990,820,793
F-38
Table of Contents
b. Transaction to Related Parties
In 2019, UP Capital Asset Management Limited (BVI) (“UP”) was disposed for RMB34.0 million to a subsidiary of E-house.
c. Amounts due from Related Parties
As of December 31, 2019 and 2020, amounts due from related parties were comprised of the following:
Service fee receivable
Loan to related parties
Loan to noncontrolling interest shareholder
Total amounts due from related parties
2019
RMB
101,122,751
200,000,000
23,187,995
324,310,746
As of December 31,
2020
RMB
26,149,345
200,000,000
23,187,995
249,337,340
2020
USD
4,007,562
30,651,341
3,553,716
38,212,619
The amounts represent net of allowance for doubtful accounts of RMB96,307,907 and RMB107,453,024 as of December 31, 2019 and 2020, respectively. The loan of RMB200
million to related parties occurred in October 2019 and will expire in December 2022. The borrower is a limited partnership with a 100% controlled subsidiary of the company
served as its general partner. After overall considering historical cooperation history, its financial status and economic condition, no account allowance was accrued as of December
31, 2019 and 2020.
d. Deferred Revenue from Related Parties
As of December 31, 2019 and 2020, deferred revenue from related parties was comprised of the following:
Funds managed by Jupai Group
Total deferred revenue
2019
RMB
46,971,804
46,971,804
As of December 31,
2020
RMB
21,789,907
21,789,907
2020
USD
3,339,449
3,339,449
The amounts represent recurring management fees and recurring service fees received from the investment funds managed or served by the Group in advance.
e. Amounts due to Related Parties
As of December 31, 2019 and 2020, amounts due to related parties were as following:
Funds managed by Jupai Group
Investees of shareholder of the Company
Total amounts due to related parties
2019
RMB
17,439,664
2,000,000
19,439,664
As of December 31,
2020
RMB
14,625,680
2,000,000
16,625,680
2020
USD
2,241,484
306,513
2,547,997
The amounts as of December 31, 2019 and 2020 mainly represent capital investments collected on behalf of investees.
F-39
Table of Contents
18. Commitments and Contingencies
Operating Leases
The Group leases its facilities under non-cancelable operating leases expiring at various dates.
Future minimum lease payments under non-cancelable operating lease agreements as of December 31, 2020 were as follows:
Years Ended December 31,
2021
2022
2023
Total
RMB
24,717,992
10,659,374
1,960,037
37,337,403
Rental expenses were RMB94,635,510, RMB82,161,925 and RMB37,786,840 during the years ended December 31, 2018, 2019 and 2020, respectively.
Contingencies
As of December 31, 2019 and 2020, there were no material contingencies, significant provisions of long-term obligations of the Company. The Company does not believe that any
of these matters will have a material effect on its business, assets or operations.
Investment commitments
The Company was obligated to provide capital injection of RMB38,546,000 as of December 31, 2020.
F-40
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Additional Financial Information of Parent Company — Financial Statements Schedule I
Jupai Holdings Limited
Financial Information of Parent Company
Condensed Balance Sheets
(In RMB except for share data)
ASSETS
Cash and cash equivalents
Other current assets
Total current assets
Investment in subsidiaries and VIE
Loan to subsidiaries
Total Assets
LIABILITIES
Other current liabilities
Amounts due to related parties — non-current
Total Liabilities
Ordinary Shares (USD0.0005 par value; 1,000,000,000 and 1,000,000,000 shares authorized,
201,737,272 and 199,051,046 shares issued and outstanding, as of December 31, 2019 and 2020,
respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
2019
RMB
40,043,612
535,595
40,579,207
963,676,905
200,610,890
1,204,867,002
4,250,542
13,057,409
17,307,951
632,601
1,150,352,309
(17,567,529)
54,141,670
1,187,559,051
As of December 31,
2020
RMB
19,582,251
2,667,707
22,249,958
942,821,008
187,633,095
1,152,704,061
2,050,517
12,212,708
14,263,225
623,201
1,148,823,625
(48,935,177)
37,929,187
1,138,440,836
2020
USD
3,001,111
408,844
3,409,955
144,493,640
28,756,030
176,659,625
314,255
1,871,679
2,185,934
95,510
176,064,923
(7,499,644)
5,812,902
174,473,691
TOTAL LIABILITIES AND SHAREHOLERS’ EQUITY
1,204,867,002
1,152,704,061
176,659,625
F-41
Table of Contents
Additional Information —Financial Statement Schedule I
Jupai Holdings Limited
Financial Information of Parent Company
Condensed Statements of Operations and Comprehensive Income
Revenues
Cost of revenues
Selling expenses
General and administrative expenses
Other income (loss)
Interest income
Loss before taxes and loss from equity in subsidiaries and VIEs
Loss from equity in subsidiaries and VIEs
Net loss
Other comprehensive income (loss)
Comprehensive loss attributable to ordinary shareholders
(In RMB)
2018
RMB
—
(187,196)
(3,418,127)
(24,195,705)
2,345,741
1,502
(25,453,785)
(362,290,233)
(387,744,018)
12,382,963
(375,361,055)
F-42
Years Ended December 31,
2019
RMB
2,051,459
—
(7,225,289)
(14,615,621)
(2,938,226)
—
(22,727,677)
(141,958,398)
(164,686,075)
(3,272,053)
(167,958,128)
2020
RMB
2,058,504
—
(243,758)
(15,979,061)
1,321,148
—
(12,843,167)
(18,524,481)
(31,367,648)
(16,212,483)
(47,580,131)
2020
USD
315,480
—
(37,358)
(2,448,898)
202,475
—
(1,968,301)
(2,839,000)
(4,807,301)
(2,484,672)
(7,291,973)
Table of Contents
Additional Information —Financial Statement Schedule I
Jupai Holdings Limited
Financial Information of Parent Company
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net loss
Adjustment to reconcile net income to net cash provided by operating
activities:
Share-based compensation
Depreciation
Income from equity in subsidiaries and VIEs
Changes in operating assets and liabilities:
Other current assets
Other non-current assets
Other current liabilities
Net cash used in operating activities
Cash flows from investing activities:
Collection of loan to subsidiaries
Proceeds from disposal of Up Capital
Net cash provided by investing activities
Cash flows from financing activities:
Exercise of options
Repurchase of shares
Dividend paid by Jupai Holdings
Net cash (used in) provided by financing activities
Effect of exchange rate changes
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents — beginning of year
Cash and cash equivalents — end of year
(In RMB)
2018
RMB
Years ended December 31,
2019
RMB
2020
RMB
2020
USD
(387,744,018)
(164,686,075)
(31,367,648)
(4,807,301)
18,108,942
20,227
362,290,233
222,416
(84,950)
431,312
(6,755,838)
5,572,843
—
5,572,843
3,267,210
—
(126,355,510)
(123,088,300)
(12,762,126)
(137,033,421)
147,457,957
10,424,536
F-43
9,583,596
32,409
141,958,398
(88,859)
418,307
1,826,388
(10,955,836)
647,137
33,999,151
34,646,288
29,636
—
—
29,636
5,898,988
29,619,076
10,424,536
40,043,612
3,593,400
—
18,524,481
(178,496)
—
(2,200,024)
(11,628,287)
—
—
—
—
(7,085,100)
—
(7,085,100)
(1,747,974)
(20,461,361)
40,043,612
19,582,251
550,713
—
2,839,000
(27,356)
—
(337,168)
(1,782,112)
—
—
—
—
(1,085,839)
—
(1,085,839)
(267,890)
(3,135,841)
6,136,952
3,001,111
Table of Contents
Additional Information —Financial Statement Schedule I
Jupai Holdings Limited
Notes to Schedule I
1. Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04(c) of Regulation S-X, which require condensed financial information as to the
financial position, cash flows and results of operations of a parent company as of the same dates and for the same periods for which audited consolidated financial
statements have been presented when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently
completed fiscal year. The condensed financial information has been prepared using the same accounting policies as set out in the consolidated financial statements except
that the equity method has been used to account for investments in its subsidiaries, VIEs and VIEs’ subsidiaries. For the parent company, the Company records its
investments in subsidiaries, VIEs and VIEs’ subsidiaries under the equity method of accounting as prescribed in ASC 323, Investments-Equity Method and Joint Ventures.
Such investments are presented on the Condensed Balance Sheets as “Investment in subsidiaries and VIEs” and the subsidiaries and VIEs’ profit as “Income from equity in
subsidiaries and VIEs” on the Condensed Statements of Operations and Comprehensive Income.
2. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted. The footnote disclosure certain supplemental information relating to the operations of the Company and, as such, these
statements should be read in conjunction with the notes to the accompanying Consolidated Financial Statements.
3. As of December 31, 2020, there were no material contingencies, significant provisions of long-term obligations, mandatory dividend or redemption requirements of
redeemable stocks or guarantees of the Company.
4. Translations of amounts from RMB into USD are solely for the convenience of the readers and were calculated at the rate of USD1.00 for RMB6.5250 on December 31,
2020, representing the certificated exchange rate published by the Federal Reserve Board.
F-44
Exhibit 2.3
AMENDED AND RESTATED DEPOSIT AGREEMENT dated as of May 27, 2020 (the “Deposit Agreement”) among JUPAI HOLDINGS LIMITED and its successors
(the “Company”), JPMORGAN CHASE BANK, N.A., as depositary hereunder (the “Depositary”), and all Holders (defined below) and Beneficial Owners (defined below) from
time to time of American Depositary Receipts issued hereunder (“ADRs”) evidencing American Depositary Shares (“ADSs”) representing deposited Shares (defined below). The
Company hereby appoints the Depositary as depositary for the Deposited Securities (defined below) and hereby authorizes and directs the Depositary to act in accordance with the
terms set forth in this Deposit Agreement. All capitalized terms used herein have the meanings ascribed to them in Section 1 or elsewhere in this Deposit Agreement.
W I T N E S S E T H
WHEREAS, the Company and the Depositary entered into a Deposit Agreement dated as of July 15, 2015 (the “Prior Deposit Agreement”) for the purposes set forth
therein, for the creation of American depositary shares representing the Shares so deposited and for the execution and delivery of American depositary receipts (“Prior Receipts”)
evidencing the American depositary shares;
WHEREAS, pursuant to the terms of the Prior Deposit Agreement, the Company and the Depositary wish to amend and restate the Prior Deposit Agreement and the Prior
Receipts;
NOW THEREFORE, in consideration of the premises, subject to Section 24 hereof, the parties hereto hereby amend and restate the Prior Deposit Agreement and the Prior
Receipts in their entirety as follows:
1. Certain Definitions.
(a) “ADR Register” is defined in paragraph (3) of the form of ADR (Transfers, Split-Ups and Combinations of ADRs).
(b) “ADRs” mean the American Depositary Receipts executed and delivered hereunder. ADRs may be either in physical certificated form or Direct Registration
ADRs (as hereinafter defined). ADRs in physical certificated form, and the terms and conditions governing the Direct Registration ADRs, shall be substantially in the form of
Exhibit A annexed hereto (the “form of ADR”). The term “Direct Registration ADR” means an ADR, the ownership of which is recorded on the Direct Registration System.
References to “ADRs” shall include certificated ADRs and Direct Registration ADRs, unless the context otherwise requires. The form of ADR is hereby incorporated herein and
made a part hereof; the provisions of the form of ADR shall be binding upon the parties hereto.
1
(c) Subject to paragraph (13) of the form of ADR, (Changes Affecting Deposited Securities) each “ADS” evidenced by an ADR represents the right to receive, and
to exercise the beneficial ownership interests in, the number or percentage of Shares specified in the form of ADR attached hereto as Exhibit A (as amended from time to time) that
are on deposit with the Depositary and/or the Custodian and a pro rata share in any other Deposited Securities, subject, in each case, to the terms of this Deposit Agreement and the
ADSs. The ADS(s)-to-Share(s) ratio is subject to amendment as provided in the form of ADR (which may give rise to fees contemplated in paragraph (7) thereof (Charges of
Depositary)).
(d) “Beneficial Owner” means as to any ADS, any person or entity having a beneficial ownership interest in such ADS. A Beneficial Owner need not be the Holder
of the ADR evidencing such ADS. If a Beneficial Owner of ADSs is not a Holder, it must rely on the Holder of the ADR(s) evidencing such ADSs in order to assert any rights or
receive any benefits under this Deposit Agreement. The arrangements between a Beneficial Owner of ADSs and the Holder of the corresponding ADRs may affect the Beneficial
Owner’s ability to exercise any rights it may have.
(e) “Custodian” means the agent or agents of the Depositary (singly or collectively, as the context requires) and any additional or substitute Custodian appointed
pursuant to Section 9.
(f) The terms “deliver”, “execute”, “issue”, “register”, “surrender”, “transfer” or “cancel”, when used with respect to Direct Registration ADRs, shall refer to an
entry or entries or an electronic transfer or transfers in the Direct Registration System, and, when used with respect to ADRs in physical certificated form, shall
refer to the physical delivery, execution, issuance, registration, surrender, transfer or cancellation of certificates representing the ADRs.
(g) “Delivery Order” is defined in Section 3.
(h) “Deposited Securities” as of any time means all Shares at such time deposited under this Deposit Agreement and any and all other Shares, securities, property
and cash at such time held by the Depositary or the Custodian in respect or in lieu of such deposited Shares and other Shares, securities, property and cash. Deposited Securities are
not intended to, and shall not, constitute proprietary assets of the Depositary, the Custodian or their nominees. Beneficial ownership in Deposited Securities is intended to be, and
shall at all times during the term of the Deposit Agreement continue to be, vested in the Beneficial Owners of the ADSs representing such Deposited Securities.
(i) “Direct Registration System” means the system for the uncertificated registration of ownership of securities established by The Depository Trust Company
(“DTC”) and utilized by the Depositary pursuant to which the Depositary may record the ownership of ADRs without the issuance of a certificate, which ownership shall be
evidenced by periodic statements issued by the Depositary to the Holders entitled thereto. For purposes hereof, the Direct Registration System shall include access to the Profile
Modification System maintained by DTC which provides for automated transfer of ownership between DTC and the Depositary.
2
(j) “Holder” means the person or persons in whose name an ADR is registered on the ADR Register. For all purposes under the Deposit Agreement and the ADRs,
a Holder shall be deemed to have all requisite authority to act on behalf of any and all Beneficial Owners of the ADSs evidenced by the ADR(s) registered in such Holder’s name.
(k) “Securities Act of 1933” means the United States Securities Act of 1933, as from time to time amended.
(l) “Securities Exchange Act of 1934” means the United States Securities Exchange Act of 1934, as from time to time amended.
(m) “Shares” mean the ordinary shares of the Company, and shall include the rights to receive Shares specified in paragraph (1) of the form of ADR (Issuance of
ADSs).
(n) “Transfer Office” is defined in paragraph (3) of the form of ADR (Transfers, Split-Ups and Combinations of ADRs).
(o) “Withdrawal Order” is defined in Section 6.
2. Form of ADRs.
(a) Direct Registration ADRs. Notwithstanding anything in this Deposit Agreement or in the form of ADR to the contrary, ADSs shall be evidenced by Direct
Registration ADRs, unless certificated ADRs are specifically requested by the Holder.
(b) Certificated ADRs. ADRs in certificated form shall be printed or otherwise reproduced at the discretion of the Depositary in accordance with its customary
practices in its American depositary receipt business, or at the request of the Company typewritten and photocopied on plain or safety paper, and shall be substantially in the form
set forth in the form of ADR, with such changes as may be required by the Depositary or the Company to comply with their obligations hereunder, any applicable law, regulation or
usage or to indicate any special limitations or restrictions to which any particular ADRs are subject. ADRs may be issued in denominations of any number of ADSs. ADRs in
certificated form shall be executed by the Depositary by the manual or facsimile signature of a duly authorized officer of the Depositary. ADRs in certificated form bearing the
facsimile signature of anyone who was at the time of execution a duly authorized officer of the Depositary shall bind the Depositary, notwithstanding that such officer has ceased to
hold such office prior to the delivery of such ADRs.
3
(c) Binding Effect. Holders of ADRs, and the Beneficial Owners of the ADSs evidenced by such ADRs, shall each be bound by the terms and conditions of this
Deposit Agreement and of the form of ADR, regardless of whether such ADRs are Direct Registration ADRs or certificated ADRs.
3. Deposit of Shares.
(a) Requirements. In connection with the deposit of Shares hereunder, the Depositary or the Custodian may require the following in a form satisfactory to it:
(i) a written order directing the Depositary to issue to, or upon the written order of, the person or persons designated in such order a Direct Registration
ADR or ADRs evidencing the number of ADSs representing such deposited Shares (a “Delivery Order”);
(ii) Share certificates, and a certified share extract, reflecting the registration of the Shares in the name of JPMorgan Chase Bank, N.A., as depositary for
the benefit of holders of ADRs or in such other name as the Depositary shall direct; and
(iii) instruments assigning to the Depositary, the Custodian or a nominee of either any distribution on or in respect of such deposited Shares or indemnity
therefor; and
(b) Holding of Deposited Securities. Deposited Securities shall be held by the Custodian for the account and to the order of the Depositary for the benefit of Holders
of ADRs (to the extent not prohibited by law) at such place or places and in such manner as the Depositary shall determine. Notwithstanding anything else contained herein, in the
form of ADR and/or any outstanding ADSs, the Depositary, the Custodian and their respective nominees are intended to be, and shall at all times during the term of the Deposit
Agreement be, the record holder(s) only of the Deposited Securities represented by the ADSs for the benefit of the Holders. The Depositary, on its own behalf and on behalf of the
Custodian and their respective nominees, disclaims any beneficial ownership interest in the Deposited Securities held on behalf of the Holders.
(c) Delivery of Deposited Securities. Deposited Securities may be delivered by the Custodian to any person only under the circumstances expressly contemplated in
this Deposit Agreement. To the extent that the provisions of or governing the Shares make delivery of certificates therefor impracticable, Shares may be deposited hereunder by
such delivery thereof as the Depositary or the Custodian may reasonably accept, including, without limitation, by causing them to be credited to an account maintained by the
Custodian for such purpose with the Company or an accredited intermediary, such as a bank, acting as a registrar for the Shares, together with delivery of the documents, payments
and Delivery Order referred to herein to the Custodian or the Depositary.
4
4. Issue of ADRs. After any such deposit of Shares, the Custodian shall notify the Depositary of such deposit and of the information contained in any related Delivery
Order by letter, first class airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by SWIFT, cable, telex or facsimile transmission. After
receiving such notice from the Custodian, the Depositary, subject to this Deposit Agreement, shall properly issue at the Transfer Office, to or upon the order of any person named in
such notice, an ADR or ADRs registered as requested and evidencing the aggregate ADSs to which such person is entitled.
5. Distributions on Deposited Securities. To the extent that the Depositary determines in its discretion that any distribution pursuant to paragraph (10) of the form of
ADR (Distributions on Deposited Securities) is not practicable with respect to any Holder, the Depositary may make such distribution as it so deems practicable, including the
distribution of foreign currency, securities or property (or appropriate documents evidencing the right to receive foreign currency, securities or property) or the retention thereof as
Deposited Securities with respect to such Holder’s ADRs (without liability for interest thereon or the investment thereof).
6. Withdrawal of Deposited Securities. In connection with any surrender of an ADR for withdrawal of the Deposited Securities represented by the ADSs evidenced
thereby, the Depositary may require proper endorsement in blank of such ADR (or duly executed instruments of transfer thereof in blank) and the Holder’s written order directing
the Depositary to cause the Deposited Securities represented by the ADSs evidenced by such ADR to be withdrawn and delivered to, or upon the written order of, any person
designated in such order (a “Withdrawal Order”). Directions from the Depositary to the Custodian to deliver Deposited Securities shall be given by letter, first class airmail
postage prepaid, or, at the request, risk and expense of the Holder, by SWIFT, cable, telex or facsimile transmission. Delivery of Deposited Securities may be made by the delivery
of certificates (which, if required by law shall be properly endorsed or accompanied by properly executed instruments of transfer or, if such certificates may be registered,
registered in the name of such Holder or as ordered by such Holder in any Withdrawal Order) or by such other means as the Depositary may deem practicable, including, without
limitation, by transfer of record ownership thereof to an account designated in the Withdrawal Order maintained either by the Company or an accredited intermediary, such as a
bank, acting as a registrar for the Deposited Securities. At all times during the term of this Deposit Agreement and thereafter (for as long as any ADSs remain outstanding), the
Company agrees to ensure that each of its share registrar and transfer agent processes Share delivery instructions without any prior input, consent or notice being required from the
Company or any of the Company’s other agents. To the extent any such share registrar and/or transfer agent refuses to process a Share transfer and/or delivery instruction, the
Depositary may immediately terminate this Deposit Agreement in accordance with the provisions of paragraph (16) hereof. The obligations of the Company set forth in this
Section 6 shall survive the termination of this Deposit Agreement.
5
7. Substitution of ADRs. The Depositary shall execute and deliver a new Direct Registration ADR in exchange and substitution for any mutilated certificated ADR upon
cancellation thereof or in lieu of and in substitution for such destroyed, lost or stolen certificated ADR, unless the Depositary has notice that such ADR has been acquired by a bona
fide purchaser, upon the Holder thereof filing with the Depositary a request for such execution and delivery and a sufficient indemnity bond and satisfying any other reasonable
requirements imposed by the Depositary.
8. Cancellation and Destruction of ADRs; Maintenance of Records. All ADRs surrendered to the Depositary shall be cancelled by the Depositary. The Depositary is
authorized to destroy ADRs in certificated form so cancelled in accordance with its customary practices. The Depositary, however, shall maintain or cause its agents to maintain
records of all ADRs surrendered and Deposited Securities withdrawn under Section 6 hereof and paragraph (2) of the form of ADR, substitute ADRs delivered under Section 7
hereof, and canceled or destroyed ADRs under this Section 8, in keeping with the procedures ordinarily followed by stock transfer agents located in the United States or as required
by the laws or regulations governing the Depositary.
9. The Custodian.
(a) Rights of the Depositary. Any Custodian in acting hereunder shall be subject to the directions of the Depositary and shall be responsible solely to it. The
Depositary reserves the right to add, replace or remove a Custodian. The Depositary will give prompt notice of any such action, which will be advance notice if practicable. The
Depositary may discharge any Custodian at any time upon notice to the Custodian being discharged.
(b) Rights of the Custodian. Any Custodian may resign from its duties hereunder by providing at least 30 days’ prior written notice to the Depositary. Any
Custodian ceasing to act hereunder as Custodian shall deliver, upon the instruction of the Depositary, all Deposited Securities held by it to a Custodian continuing to act.
Notwithstanding anything to the contrary contained in this Deposit Agreement (including the ADRs) and, subject to the further limitations set forth in subparagraph (o) of
paragraph (14) of the form of ADR (Exoneration), the Depositary shall not be responsible for, and shall incur no liability in connection with or arising from, any act or omission to
act on the part of the Custodian except to the extent that any Holder has incurred liability directly as a result of the Custodian having (i) committed fraud or willful misconduct in
the provision of custodial services to the Depositary or (ii) failed to use reasonable care in the provision of custodial services to the Depositary as determined in accordance with the
standards prevailing in the jurisdiction in which the Custodian is located.
6
10. Lists of Holders. The Company shall have the right to inspect transfer records of the Depositary and its agents and the ADR Register, take copies thereof and require
the Depositary and its agents to supply copies of such portions of such records as the Company may request. The Depositary or its agent shall furnish to the Company promptly
upon the written request of the Company, a list of the names, addresses and holdings of ADSs by all Holders as of a date within seven days of the Depositary’s receipt of such
request.
11. Depositary’s Agents. The Depositary may perform its obligations under this Deposit Agreement through any agent appointed by it, provided that the Depositary
shall notify the Company of such appointment and shall remain responsible for the performance of such obligations as if no agent were appointed, subject to paragraph (14) of the
form of ADR (Exoneration).
12. Resignation and Removal of the Depositary; Appointment of Successor Depositary.
(a) Resignation of the Depositary. The Depositary may at any time resign as Depositary hereunder by written notice of its election to do so delivered to the
Company, such resignation to take effect upon the appointment of a successor depositary and its acceptance of such appointment as hereinafter provided.
(b) Removal of the Depositary. The Depositary may at any time be removed by the Company by providing no less than 60 days’ prior written notice of such removal
to the Depositary, such removal to take effect the later of (i) the 60 day after such notice of removal is first provided and (ii) the appointment of a successor depositary and its
acceptance of such appointment as hereinafter provided. Notwithstanding the foregoing, if upon the resignation or removal of the Depositary a successor depositary is not
appointed within the applicable 60-day period as specified in paragraph (17) of the form of ADR (Termination), then the Depositary may elect to terminate this Deposit Agreement
and the ADR and the provisions of said paragraph (17) shall thereafter govern the Depositary’s obligations hereunder.
th
(c) Appointment of Successor Depositary. In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to
appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, The City of New York. Every successor depositary shall
execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any
further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor. The predecessor depositary, only upon payment of all sums due
to it and on the written request of the Company, shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other
than its rights to indemnification and fees owing, each of which shall survive any such removal and/or resignation), (ii) duly assign, transfer and deliver all right, title and interest to
the Deposited Securities to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding ADRs. Any such successor depositary shall promptly mail
notice of its appointment to such Holders. Any bank or trust company into or with which the Depositary may be merged or consolidated, or to which the Depositary shall transfer
substantially all its American depositary receipt business, shall be the successor of the Depositary without the execution or filing of any document or any further act.
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13. Reports. On or before the first date on which the Company makes any communication available to holders of Deposited Securities or any securities regulatory
authority or stock exchange, by publication or otherwise, the Company shall transmit to the Depositary a copy thereof in English or with an English translation or summary. The
Company has delivered to the Depositary, the Custodian and any Transfer Office, a copy of all provisions of or governing the Shares and any other Deposited Securities issued by
the Company or any affiliate of the Company and, promptly upon any change thereto, the Company shall deliver to the Depositary, the Custodian and any Transfer Office, a copy
(in English or with an English translation) of such provisions as so changed. The Depositary and its agents may rely upon the Company’s delivery of all such communications,
information and provisions for all purposes of this Deposit Agreement and the Depositary shall have no liability for the accuracy or completeness of any thereof.
14. Additional Shares. The Company agrees with the Depositary that neither the Company nor any company controlling, controlled by or under common control with
the Company shall (a) issue (i) additional Shares, (ii) rights to subscribe for Shares, (iii) securities convertible into or exchangeable for Shares or (iv) rights to subscribe for any
such securities or (b) deposit any Shares under this Deposit Agreement, except, in each case, under circumstances complying in all respects with the Securities Act of 1933. At the
reasonable request of the Depositary where it deems necessary in the case of any such issuance, subscription, conversion, exchange or deposit, the Company will furnish the
Depositary with legal opinions, in forms and from counsels reasonably acceptable to the Depositary, dealing with such issues requested by the Depositary. The Depositary will not
knowingly accept for deposit hereunder any Shares required to be registered under the Securities Act of 1933 unless a registration statement is in effect and will use reasonable
efforts to comply with written instructions of the Company not to accept for deposit hereunder any Shares identified in such instructions at such times and under such circumstances
as may reasonably be specified in such instructions in order to facilitate the Company’s compliance with the requirements of the laws, rules and regulations of the United States,
including, but not limited to, the Securities Act of 1933 and the rules and regulations promulgated thereunder.
15. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify, defend and save harmless each of the Depositary, the Custodian and their respective directors,
officers, employees, agents and affiliates against any loss, liability or expense (including reasonable fees and expenses of counsel) which may arise out of acts performed or
omitted, in connection with the provisions of this Deposit Agreement and of the ADRs, as the same may be amended, modified or supplemented from time to time in accordance
herewith (i) by either the Depositary or a Custodian or their respective directors, officers, employees, agents and affiliates, except for any liability or expense directly arising out of
the negligence, or willful misconduct of the Depositary or its directors, officers or affiliates acting in their capacities as such hereunder, or (ii) by the Company or any of its
directors, officers, employees, agents and affiliates.
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The indemnities set forth in the preceding paragraph shall also apply to any liability or expense which may arise out of any misstatement or alleged misstatement or
omission or alleged omission in any registration statement, proxy statement, prospectus (or placement memorandum), or preliminary prospectus (or preliminary placement
memorandum) relating to the offer, issuance, withdrawal or sale of ADSs or the deposit of Shares in connection therewith, except to the extent any such liability or expense arises
out of (i) information relating to the Depositary or its agents (other than the Company), as applicable, furnished in writing by the Depositary expressly for use in any of the
foregoing documents and not changed or altered by the Company or any other person (other than the Depositary) or (ii) if such information is provided, the failure to state a
material fact therein necessary to make the information provided, in light of the circumstance under which provided, not misleading.
(b) Indemnification by the Depositary. Subject to the limitations provided for in Section 15(c) below, the Depositary shall indemnify, defend and save harmless the
Company against any direct loss, liability or expense (including reasonable fees and expenses of counsel) incurred by the Company in respect of this Deposit Agreement to the
extent such loss, liability or expense is due to the negligence or willful misconduct of the Depositary.
(c) Damages or Lost Profits. Notwithstanding any other provision of this Deposit Agreement or the ADRs to the contrary, neither the Depositary and its agents, on
the one hand, nor the Company and its agents, on the other hand, shall be liable to the other for any indirect, special, punitive or consequential damages (excluding reasonable fees
and expenses of counsel) or lost profits, in each case of any form (collectively, “Special Damages”) incurred by any of them or by any other person or entity (including, without
limitation, Holders and Beneficial Owners), or for any fees or expenses of counsel in connection therewith, in each case whether or not such Special Damages are foreseeable and
regardless of the type of action in which a claim for Special Damages may be brought; provided, however, that (i) notwithstanding the foregoing, and for the avoidance of doubt,
the Depositary and its agents shall be entitled to indemnification from the Company for all reasonable legal fees and expenses incurred by the Depositary and/or its agents in
defending against any claim for Special Damages and (ii) to the extent Special Damages arise from or out of a claim brought by a third party (including, without limitation, Holders
and Beneficial Owners) against the Depositary or any of its agents, the Depositary and its agents shall be entitled to full indemnification from the Company for all such Special
Damages, and reasonable fees and expenses of counsel in connection therewith, unless such Special Damages are found to have been a direct result of the gross negligence or
willful misconduct of the Depositary.
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(d) Survival. The obligations set forth in this Section 15 shall survive the termination of this Deposit Agreement and the succession or substitution of any
indemnified person.
16. Notices.
(a) Notice to Holders. Notice to any Holder shall be deemed given when first mailed, first class postage prepaid, to the address of such Holder on the ADR Register
or received by such Holder. Failure to notify a Holder or any defect in the notification to a Holder shall not affect the sufficiency of notification to other Holders or to the Beneficial
Owners of ADSs evidenced by ADRs held by such other Holders. The Depositary’s only notification obligations under this Deposit Agreement and the ADRs shall be to Holders.
Notice to a Holder shall be deemed, for all purposes of the Deposit Agreement and the ADRs, to constitute notice to any and all Beneficial Owners of the ADSs evidenced by such
Holder’s ADRs.
(b) Notice to the Depositary or the Company. Notice to the Depositary or the Company shall be deemed given when first received by it at the address or facsimile
transmission number set forth in (i) or (ii), respectively, or at such other address or facsimile transmission number as either may specify to the other by written notice:
(i) JPMorgan Chase Bank, N.A.
383 Madison Avenue, Floor 11
New York, New York, 10179
Attention: Depositary Receipts Group
Fax: (302) 220-4591
(ii) Jupai Holdings Limited
10th Floor, Jin Sui Building
379 South Pudong Road
Pudong New District
Shanghai 200120
People’s Republic of China
Attention: Chief Financial Officer
Fax: +86-21 6836-7031
17. Counterparts. This Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute
one instrument. Delivery of an executed signature page of this Deposit Agreement by facsimile or other electronic transmission (including “.pdf”, “.tif” or similar format) shall be
effective as delivery of a manually executed counterpart hereof.
10
18. No Third-Party Beneficiaries; Holders and Beneficial Owners as Parties; Binding Effect. This Deposit Agreement is for the exclusive benefit of the Company,
the Depositary, the Holders, and each and any of their respective successors hereunder, and, except to the extent specifically set forth in Section 15 of this Deposit Agreement, shall
not give any legal or equitable right, remedy or claim whatsoever to any other person. The Holders and Beneficial Owners from time to time shall be parties to this Deposit
Agreement and shall be bound by all of the provisions hereof. A Beneficial Owner shall only be able to exercise any right or receive any benefit hereunder solely through the
Holder of the ADR(s) evidencing the ADSs owned by such Beneficial Owner.
19. Severability. If any provision of this Deposit Agreement or the ADRs is, or becomes, invalid, illegal or unenforceable in any respect, the remaining provisions
contained herein and therein shall in no way be affected thereby.
20. Governing Law; Consent to Jurisdiction.
(a) The Deposit Agreement, the ADSs and the ADRs shall be governed by and construed in accordance with the internal laws of the State of New York without
giving effect to the application of the conflict of law principles thereof.
(b) By the Company. The Company irrevocably agrees that any legal suit, action or proceeding against or involving the Company brought by the Depositary or any
Holder or Beneficial Owner, arising out of or based upon this Deposit Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, may be
instituted in any state or federal court in New York, New York, and irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such
proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any such suit, action or proceeding. The Company also irrevocably agrees that any legal
suit, action or proceeding against or involving the Depositary brought by the Company, arising out of or based upon this Deposit Agreement, the ADSs, the ADRs or the
transactions contemplated herein, therein, hereby or thereby, may only be instituted in a state or federal court in New York, New York. Notwithstanding the foregoing, subject to the
federal securities law carve-out set forth in Section 20(d) below, the Depositary may refer any such suit, action or proceeding to arbitration in accordance with the provisions of the
Deposit Agreement and, upon such referral, any such suit, action or proceeding instituted by the Company shall be finally decided in such arbitration rather than in such court.
(c) By Holders and Beneficial Owners. By holding an ADS or an interest therein, Holders and Beneficial Owners each irrevocably agree that, subject to the
Depositary’s rights under Section 20 (d) below, any legal suit, action or proceeding against or involving the Company or the Depositary, arising out of or based upon this Deposit
Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein or hereby, may only be instituted in a state or federal court in New York, New York, and by
holding an ADS or an interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably
submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.
11
(d) Optional Arbitration. Notwithstanding anything in this Deposit Agreement to the contrary, each of the parties hereto (i.e. the Company, the Depositary and all
Holders and Beneficial Owners) agrees that: (i) the Depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or
indirectly based on, arising out of or relating to this Deposit Agreement, the ADSs or the ADRs or the transactions contemplated hereby or thereby, including without limitation any
question regarding its or their existence, validity, interpretation, performance or termination (a “Dispute”) against any other party or parties hereto (including, without limitation,
Disputes, suits, actions or proceedings brought against Holders and Beneficial Owners), by having the Dispute referred to and finally resolved by an arbitration conducted under the
terms set out below, and (ii) the Depositary may in its sole discretion require, by written notice to the relevant party or parties, that any Dispute, suit, action, controversy, claim or
proceeding brought by any party or parties hereto (including, without limitation, Disputes, suits, actions or proceedings brought by Holders and Beneficial Owners) against the
Depositary shall be referred to and finally settled by an arbitration conducted under the terms set out below. Any such arbitration shall at the Depositary’s election be conducted
either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the
United Nations Commission on International Trade Law (UNCITRAL) with the Hong Kong International Arbitration Centre serving as the appointing authority, and the language
of any such arbitration shall be English. A notice of arbitration may be mailed to the Company at its address last specified for notices under this Deposit Agreement, and, if
applicable, to any Holders at their addresses on the ADR Register, which notice to any such Holder, for the avoidance of doubt, shall be deemed, for all purposes of the Deposit
Agreement and the ADRs, including, without limitation, the arbitration provisions contained in this clause (d), constitute notice to any and all Beneficial Owners of the ADSs
evidenced by such Holder’s ADRs. In any case where the Depositary exercises its right to arbitrate hereunder, arbitration of the Dispute shall be mandatory and any pending
litigation arising out of or related to such Dispute shall be stayed. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The
number of arbitrators shall be three, each of whom shall be disinterested in the Dispute or controversy, shall have no connection with any party thereto, and shall be an attorney
experienced in international securities transactions. Each of the Company and the Depositary shall appoint one arbitrator and the two arbitrators shall select a third arbitrator who
shall serve as chairperson of the tribunal. If a Dispute shall involve more than two parties, the parties shall attempt to align themselves in two sides (i.e., claimant and respondent),
each of which shall appoint one arbitrator as if there were only two parties to such Dispute. If either or both parties fail to select an arbitrator, or if such alignment (in the event
there are more than two parties) shall not have occurred, within thirty (30) calendar days after the Depositary serves the arbitration demand or the two arbitrators fail to select a
third arbitrator within thirty (30) calendar days of the selection of the second arbitrator, the American Arbitration Association in the case of an arbitration in New York, or the Hong
Kong International Arbitration Centre in the case of an arbitration in Hong Kong, shall appoint the remaining arbitrator or arbitrators in accordance with its rules. The parties and
the American Arbitration Association and/or the Hong Kong International Arbitration Centre, as the case may be, may appoint the arbitrators from among the nationals of any
country, whether or not the appointing party or any other party to the arbitration is a national of that country. The arbitrators shall have no authority to award damages against any
party not measured by the prevailing party’s actual damages and shall have no authority to award any consequential, special or punitive damages against any party and may not, in
any event, make any ruling, finding or award that does not conform to the terms and conditions of this Deposit Agreement. In all cases, the fees of the arbitrators and other costs
incurred by the parties in connection with such arbitration shall be paid by the party (or parties) that is (or are) unsuccessful in such arbitration. No party hereto shall be entitled to
join or consolidate Disputes by or against others in any arbitration, or to include in any arbitration any Dispute as a representative or member of a class, or act in any arbitration in
the interest of the general public or in a private attorney general capacity.
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(e) Notwithstanding the foregoing or anything in this Deposit Agreement to the contrary, any suit, action or proceeding against the Company based on this Deposit
Agreement, the ADSs, the ADRs or the transactions contemplated herein, therein, hereby or thereby, may be instituted by the Depositary in any competent court in the Cayman
Islands, Hong Kong, the People’s Republic of China and/or the United States, or by the Depositary through the commencement of an arbitration pursuant to Section 20(d) of this
Deposit Agreement.
21. Agent for Service.
(a) Appointment. The Company has appointed Cogency Global Inc., 122 East 42nd Street, 18th Floor, New York, NY 10168, as its authorized agent (the
“Authorized Agent”) upon which process may be served in any such suit, action or proceeding arising out of or based on this Deposit Agreement, the ADSs, the ADRs or the
transactions contemplated herein, therein or hereby which may be instituted in any state or federal court in New York, New York by the Depositary or any Holder, and waives any
other requirements of or objections to personal jurisdiction with respect thereto. Subject to the Company’s rights to replace the Authorized Agent with another entity in the manner
required were the Authorized Agent to have resigned, such appointment shall be irrevocable.
(b) Agent for Service of Process. The Company represents and warrants that the Authorized Agent has agreed to act as said agent for service of process, and the
Company agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and
effect as aforesaid. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any suit, action or
proceeding against the Company, by service by mail of a copy thereof upon the Authorized Agent (whether or not the appointment of such Authorized Agent shall for any reason
prove to be ineffective or such Authorized Agent shall fail to accept or acknowledge such service), with a copy mailed to the Company by registered or certified air mail, postage
prepaid, to its address provided in Section 16(b) hereof. The Company agrees that the failure of the Authorized Agent to give any notice of such service to it shall not impair or
affect in any way the validity of such service or any judgment or award rendered in any suit, action or proceeding based thereon. If, for any reason, the Authorized Agent named
above or its successor shall no longer serve as agent of the Company to receive service of process, summons, notices and documents in New York, the Company shall promptly
appoint a successor that is a legal entity with offices in New York, New York, so as to serve and will promptly advise the Depositary thereof.
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(c) Waiver of Personal Service of Process. In the event the Company fails to continue such designation and appointment in full force and effect, the Company hereby
waives personal service of process, notice and/or papers upon it and consents that any such service of process may be made by certified or registered mail, return receipt requested,
directed to the Company at its address last specified for notices hereunder, and service so made shall be deemed completed five (5) days after the same shall have been so mailed.
22. Waiver of Immunities. To the extent that the Company or any of its properties, assets or revenues may have or may hereafter be entitled to, or have attributed to it,
any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding (including any arbitration), from the giving of any relief in any respect
thereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or
judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment or arbitration award, in any
jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or other matters under or arising out of or in connection with the Shares
or Deposited Securities, the ADSs, the ADRs or this Deposit Agreement, the Company, to the fullest extent permitted by law, hereby irrevocably and unconditionally waives, and
agrees not to plead or claim, any such immunity and consents to such relief and enforcement.
23. Waiver of Jury Trial. EACH PARTY TO THIS DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH HOLDER AND BENEFICIAL
OWNER OF, AND/OR HOLDER OF INTERESTS IN, ADSS OR ADRS) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE DEPOSITARY AND/OR THE COMPANY
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE ADSs OR THE ADRs, THE DEPOSIT
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF (WHETHER BASED ON CONTRACT,
TORT, COMMON LAW OR ANY OTHER THEORY), INCLUDING, WITHOUT LIMITATION, ANY SUIT, ACTION OR PROCEEDING UNDER THE UNITED STATES
FEDERAL SECURITIES LAWS. No provision of this Deposit Agreement or any ADR is intended to constitute a waiver or limitation of any rights which Holders or Beneficial
Owners may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
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24. Amendment and Restatement of Prior Deposit Agreement. The Deposit Agreement amends and restates the Prior Deposit Agreement in its entirety to consist
exclusively of the Deposit Agreement, and each Prior Receipt is hereby deemed amended and restated to substantially conform to the form of ADR set forth in Exhibit A annexed
hereto, except that, to the extent any portion of such amendment and restatement impose or increase any fees or charges different from those set forth herein (other than charges in
connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses), or otherwise materially prejudice any
substantial existing right of Holders of Prior Receipts or Beneficial Owners of ADSs evidenced by such Prior Receipts, such portion shall not become effective as to such Holders
or Beneficial Owners with respect to such Prior Receipts until 30 days after such Holders shall have received notice thereof, such notice to be conclusively deemed given upon the
mailing to such Holders of notice of such amendment and restatement which notice contains a provision whereby such Holders can receive a copy of the form of ADR.
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IN WITNESS WHEREOF, JUPAI HOLDINGS LIMITED and JPMORGAN CHASE BANK, N.A. have duly executed this Deposit Agreement as of the day and
year first above set forth and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of ADSs issued in accordance with the terms hereof, or upon
acquisition of any beneficial interest therein.
JUPAI HOLDINGS LIMITED
By:
Name:
Title:
/s/ Jianda Ni
Jianda Ni
CEO
JPMORGAN CHASE BANK, N.A.
By:
Name:
Title:
/s/ Lisa M. Hayes
Lisa M. Hayes
Vice President
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Number
No. of ADSs:
Each ADS represents
Six Shares
CUSIP:
EXHIBIT A
ANNEXED TO AND INCORPORATED IN
DEPOSIT AGREEMENT
[FORM OF FACE OF ADR]
AMERICAN DEPOSITARY RECEIPT
evidencing
AMERICAN DEPOSITARY SHARES
representing
ORDINARY SHARES
of
JUPAI HOLDINGS LIMITED
(Incorporated under the laws of the Cayman Islands)
JPMORGAN CHASE BANK, N.A., a national banking association organized under the laws of the United States of America, as depositary hereunder (the
“Depositary”), hereby certifies that is the registered owner (a “Holder”) of American Depositary Shares (“ADSs”), each (subject to paragraph (13) (Changes Affecting
Deposited Securities)) representing six ordinary shares (including the rights to receive Shares described in paragraph (1) (Issuance of ADSs), “Shares” and, together with any other
securities, cash or property from time to time held by the Depositary in respect or in lieu of deposited Shares, the “Deposited Securities”), of Jupai Holdings Limited, a corporation
organized under the laws of the Cayman Islands (the “Company”), deposited under the Amended and Restated Deposit Agreement dated as of May 27, 2020 (as amended from
time to time, the “Deposit Agreement”) among the Company, the Depositary and all Holders and Beneficial Owners from time to time of American Depositary Receipts issued
thereunder (“ADRs”), each of whom by accepting an ADR becomes a party thereto. The Deposit Agreement and this ADR (which includes the provisions set forth on the reverse
hereof) shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to the application of the conflict of law principles
thereof. All capitalized terms used herein, and not defined herein, shall have the meanings ascribed to such terms in the Deposit Agreement.
A-1
(1) Issuance of ADSs.
(a) Issuance. This ADR is one of the ADRs issued under the Deposit Agreement. Subject to the other provisions hereof, the Depositary may so issue ADRs for
delivery at the Transfer Office (as hereinafter defined) only against deposit of: (i) Shares in a form satisfactory to the Custodian; or (ii) rights to receive Shares from the Company
or any registrar, transfer agent, clearing agent or other entity recording Share ownership or transactions.
(b) Lending. In its capacity as Depositary, the Depositary shall not lend Shares or ADSs.
(c) Representations and Warranties of Depositors. Every person depositing Shares under the Deposit Agreement represents and warrants that:
(i) such Shares and the certificates therefor are duly authorized, validly issued and outstanding, fully paid, nonassessable and legally obtained by such
person,
(ii) all pre-emptive and comparable rights, if any, with respect to such Shares have been validly waived or exercised,
(iii) the person making such deposit is duly authorized so to do,
(iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim and
(v) such Shares (A) are not “restricted securities” as such term is defined in Rule 144 under the Securities Act of 1933 (“Restricted Securities”) unless at
the time of deposit the requirements of paragraphs (c), (e), (f) and (h) of Rule 144 shall not apply and such Shares may be freely transferred and may
otherwise be offered and sold freely in the United States or (B) have been registered under the Securities Act of 1933. To the extent the person depositing
Shares is an “affiliate” of the Company as such term is defined in Rule 144, the person also represents and warrants that upon the sale of the ADSs, all of
the provisions of Rule 144 which enable the Shares to be freely sold (in the form of ADSs) will be fully complied with and, as a result thereof, all of the
ADSs issued in respect of such Shares will not be on the sale thereof, Restricted Securities.
A-2
Such representations and warranties shall survive the deposit and withdrawal of Shares and the issuance and cancellation of ADSs in respect thereof and the
transfer of such ADSs. If any of the representations or warranties are incorrect in any way, the Company and the Depositary may, at the cost of the breaching Holder and/or
Beneficial Owner, and each of them, take any and all actions necessary to correct the consequences of such misrepresentation.
(d) The Depositary may refuse to accept for such deposit any Shares identified by the Company in order to facilitate compliance with the requirements of the
laws, rules and regulations of the United States, including, but not limited to, the Securities Act of 1933 and the rules and regulations promulgated thereunder.
(2) Withdrawal of Deposited Securities. Subject to paragraphs (4) (Certain Limitations to Registration, Transfer etc.), (5) (Liability for Taxes, Duties and Other
Charges), (14) (Exoneration) and (17) (Termination), upon surrender of (a) a certificated ADR in a form satisfactory to the Depositary at the Transfer Office or (b) proper
instructions and documentation in the case of a Direct Registration ADR, the Holder hereof is entitled to delivery at, or to the extent in dematerialized form from, the Custodian’s
office of the Deposited Securities at the time represented by the ADSs evidenced by this ADR. In the Deposit Agreement the Company has agreed to ensure that each of its share
registrar and transfer agent processes Share delivery instructions without any prior input, consent or notice being required from the Company or any of the Company’s other
agents. Holders and Beneficial Owners are advised that, to the extent any such share registrar and/or transfer agent refuses to process a Share transfer and/or delivery instruction,
the Depositary may immediately terminate this Deposit Agreement in accordance with the provisions of paragraph (16) hereof. At the request, risk and expense of the Holder
hereof, the Depositary may deliver such Deposited Securities at such other place as may have been requested by the Holder. Notwithstanding any other provision of the Deposit
Agreement or this ADR, the withdrawal of Deposited Securities may be restricted only for the reasons set forth in General Instruction I.A.(1) of Form F-6 (as such instructions may
be amended from time to time) under the Securities Act of 1933.
(3) Transfers, Split-Ups and Combinations of ADRs. The Depositary or its agent will keep, at a designated transfer office (the “Transfer Office”), (i) a register (the
“ADR Register”) for the registration, registration of transfer, combination and split-up of ADRs, and, in the case of Direct Registration ADRs, shall include the Direct Registration
System, which at all reasonable times will be open for inspection by Holders and the Company for the purpose of communicating with Holders in the interest of the business of the
Company or a matter relating to the Deposit Agreement and (ii) facilities for the delivery and receipt of ADRs. The term ADR Register includes the Direct Registration System.
Title to this ADR (and to the Deposited Securities represented by the ADSs evidenced hereby), when properly endorsed (in the case of ADRs in certificated form) or upon delivery
to the Depositary of proper instruments of transfer, is transferable by delivery with the same effect as in the case of negotiable instruments under the laws of the State of New York;
provided that the Depositary, notwithstanding any notice to the contrary, may treat the person in whose name this ADR is registered on the ADR Register as the absolute owner
hereof for all purposes and neither the Depositary nor the Company will have any obligation or be subject to any liability under the Deposit Agreement or any ADR to any
Beneficial Owner, unless such Beneficial Owner is the Holder hereof. Subject to paragraphs (4) and (5), this ADR is transferable on the ADR Register and may be split into other
ADRs or combined with other ADRs into one ADR, evidencing the aggregate number of ADSs surrendered for split-up or combination, by the Holder hereof or by duly authorized
attorney upon surrender of this ADR at the Transfer Office properly endorsed (in the case of ADRs in certificated form) or upon delivery to the Depositary of proper instruments of
transfer and duly stamped as may be required by applicable law; provided that the Depositary may close the ADR Register (and/or any portion thereof) at any time or from time to
time when deemed expedient by it. Additionally, at the reasonable request of the Company, the Depositary close the issuance book portion of the ADR Register in order to enable
the Company to comply with applicable law. At the request of a Holder, the Depositary shall, for the purpose of substituting a certificated ADR with a Direct Registration ADR, or
vice versa, execute and deliver a certificated ADR or a Direct Registration ADR, as the case may be, for any authorized number of ADSs requested, evidencing the same aggregate
number of ADSs as those evidenced by the certificated ADR or Direct Registration ADR, as the case may be, substituted.
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(4) Certain Limitations to Registration, Transfer etc. Prior to the issue, registration, registration of transfer, split-up or combination of any ADR, the delivery of any
distribution in respect thereof, or, subject to the last sentence of paragraph (2) (Withdrawal of Deposited Securities), the withdrawal of any Deposited Securities, and from time to
time in the case of clause (b)(ii) of this paragraph (4), the Company, the Depositary or the Custodian may require:
(a) payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the
registration of transfers of Shares or other Deposited Securities upon any applicable register and (iii) any applicable charges as provided in paragraph (7) (Charges of Depositary)
of this ADR;
(b) the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including
without limitation, information as to citizenship, residence, exchange control approval, beneficial or other ownership of, or interest in, any securities, compliance with applicable
law, regulations, provisions of or governing Deposited Securities and terms of the Deposit Agreement and this ADR, as it may deem necessary or proper; and
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(c) compliance with such regulations as the Depositary may establish consistent with the Deposit Agreement.
The issuance of ADRs, the acceptance of deposits of Shares, the registration, registration of transfer, split-up or combination of ADRs or, subject to the last sentence of
paragraph (2) (Withdrawal of Deposited Securities), the withdrawal of Deposited Securities may be suspended, generally or in particular instances, when the ADR Register or any
register for Deposited Securities is closed or when any such action is deemed advisable by the Depositary.
(5) Liability for Taxes, Duties and Other Charges. If any tax or other governmental charges (including any penalties and/or interest) shall become payable by or on
behalf of the Custodian or the Depositary with respect to this ADR, any Deposited Securities represented by the ADSs evidenced hereby or any distribution thereon, including,
without limitation, any Chinese enterprise income tax owed if the Circular Guoshuifa [2009] No. 82 issued by the Chinese State Administration of Taxation (SAT) or any other
circular, edict, order or ruling, as issued and as from time to time amended, is applied or otherwise, such tax or other governmental charge shall be paid by the Holder hereof to the
Depositary and by holding or having held this ADR or any ADSs evidenced hereby, the Holder and all Beneficial Owners hereof and thereof, and all prior Holders and Beneficial
Owners hereof and thereof, jointly and severally, agree to indemnify, defend and save harmless each of the Depositary and its agents in respect of such tax or other governmental
charge. Each Holder of this ADR and Beneficial Owner of the ADSs evidenced hereby, and each prior Holder and Beneficial Owner hereof and thereof (collectively, the “Tax
Indemnitors”), by holding or having held an ADR or an interest in ADSs, acknowledges and agrees that the Depositary shall have the right to seek payment of amounts owing
with respect to this ADR under this paragraph (5) from any one or more Tax Indemnitor(s) as determined by the Depositary in its sole discretion, without any obligation to seek
payment from any other Tax Indemnitor(s). The Depositary may refuse to effect any registration, registration of transfer, split-up or combination hereof or, subject to the last
sentence of paragraph (2) (Withdrawal of Deposited Securities), any withdrawal of such Deposited Securities until such payment is made. The Depositary may also deduct from
any distributions on or in respect of Deposited Securities, or may sell by public or private sale for the account of the Holder hereof any part or all of such Deposited Securities, and
may apply such deduction or the proceeds of any such sale in payment of such tax or other governmental charge, the Holder hereof remaining liable for any deficiency, and shall
reduce the number of ADSs evidenced hereby to reflect any such sales of Shares. In connection with any distribution to Holders, the Company will remit to the appropriate
governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Company; and the Depositary and the Custodian will
remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Depositary or the Custodian. If
the Depositary determines that any distribution in property other than cash (including Shares or rights) on Deposited Securities is subject to any tax that the Depositary or the
Custodian is obligated to withhold, the Depositary may dispose of all or a portion of such property in such amounts and in such manner as the Depositary deems necessary and
practicable to pay such taxes, by public or private sale, and the Depositary shall distribute the net proceeds of any such sale or the balance of any such property after deduction of
such taxes to the Holders entitled thereto. Each Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian and any of their respective officers,
directors, employees, agents and affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties
or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained. The obligations of Holders and Beneficial Owners under this
paragraph (5) shall survive any transfer of ADSs, any surrender of ADSs and withdrawal of Deposited Securities and any termination of the Deposit Agreement.
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(6) Disclosure of Interests. To the extent that the provisions of or governing any Deposited Securities may require disclosure of or impose limits on beneficial or other
ownership of, or interests in, Deposited Securities, other Shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or
limits, Holders and Beneficial Owners agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable Company instructions in
respect thereof. The Company reserves the right to instruct Holders (and through any such Holder, the Beneficial Owners of ADSs evidenced by the ADRs registered in such
Holder’s name) to deliver their ADSs for cancellation and withdrawal of the Deposited Securities so as to permit the Company to deal directly with the Holder and/or Beneficial
Owner thereof as a holder of Shares and Holders and Beneficial Owners agree to comply with such instructions. The Depositary agrees to cooperate with the Company in its
efforts to inform Holders of the Company’s exercise of its rights under this paragraph and agrees to consult with, and provide reasonable assistance without risk, liability or expense
on the part of the Depositary, to the Company on the manner or manners in which it may enforce such rights with respect to any Holder, provided, however, for the avoidance of
doubt, the Depositary shall be indemnified by the Company in connection with the foregoing.
(7) Charges of Depositary.
(a) Rights of the Depositary. The Depositary may charge, and collect from, (i) each person to whom ADSs are issued, including, without limitation,
issuances against deposits of Shares, issuances in respect of Share Distributions, Rights and Other Distributions (as such terms are defined in paragraph (10) (Distributions on
Deposited Securities)), issuances pursuant to a stock dividend or stock split declared by the Company, or issuances pursuant to a merger, exchange of securities or any other
transaction or event affecting the ADSs or the Deposited Securities, and (ii) each person surrendering ADSs for withdrawal of Deposited Securities or whose ADSs are cancelled or
reduced for any other reason U.S.$5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, cancelled or surrendered (as the case may be). The Depositary may sell
(by public or private sale) sufficient securities and property received in respect of Share Distributions, Rights and Other Distributions prior to such deposit to pay such charge.
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(b) Additional charges by the Depositary. The following additional charges shall also be incurred by the Holders, the Beneficial Owners, by any party depositing
or withdrawing Shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuances pursuant to a stock dividend or stock split
declared by the Company or an exchange of stock regarding the ADSs or the Deposited Securities or a distribution of ADSs pursuant to paragraph (10) (Distributions on Deposited
Securities), whichever is applicable:
(i) a fee of U.S.$0.05 or less per ADS upon which any Cash distribution is made pursuant to the Deposit Agreement,
(ii) a fee for the distribution or sale of securities pursuant to paragraph (10) hereof, such fee being in an amount equal to the fee for the execution and
delivery of ADSs referred to above which would have been charged as a result of the deposit of such securities (for purposes of this paragraph
(7) treating all such securities as if they were Shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the
Depositary to Holders entitled thereto,
(iii) an aggregate fee of U.S.$0.05 or less per ADS per calendar year (or portion thereof) for services performed by the Depositary in administering the
ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against Holders as of the record date or record
dates set by the Depositary during each calendar year and shall be payable at the sole discretion of the Depositary by billing such Holders or by
deducting such charge from one or more cash dividends or other cash distributions), and
(iv) a fee for the reimbursement of such fees, charges and expenses as are incurred by the Depositary and/or any of its agents (including, without limitation,
the Custodian and expenses incurred on behalf of Holders in connection with compliance with foreign exchange control regulations or any law or
regulation relating to foreign investment) in connection with the servicing of the Shares or other Deposited Securities, the sale of securities (including,
without limitation, Deposited Securities), the delivery of Deposited Securities or otherwise in connection with the Depositary’s or its Custodian’s
compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against Holders as of the record
date or dates set by the Depositary and shall be payable at the sole discretion of the Depositary by billing such Holders or by deducting such charge from
one or more cash dividends or other cash distributions).
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(c) Other Obligations and Charges. The Company will pay all other charges and expenses of the Depositary and any agent of the Depositary (except the
Custodian) pursuant to agreements from time to time between the Company and the Depositary, except:
(i) stock transfer or other taxes and other governmental charges (which are payable by Holders or persons depositing Shares);
(ii) SWIFT, cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or Holders delivering Shares, ADRs
or Deposited Securities (which are payable by such persons or Holders); and
(iii) transfer or registration fees for the registration or transfer of Deposited Securities on any applicable register in connection with the deposit or withdrawal
of Deposited Securities (which are payable by persons depositing Shares or Holders withdrawing Deposited Securities).
(d) Foreign Exchange Related Matters. To facilitate the administration of various depositary receipt transactions, including disbursement of dividends or other
cash distributions and other corporate actions, the Depositary may engage the foreign exchange desk within JPMorgan Chase Bank, N.A. (the “Bank”) and/or its affiliates in order
to enter into spot foreign exchange transactions to convert foreign currency into U.S. dollars (“FX Transactions”). For certain currencies, FX Transactions are entered into with the
Bank or an affiliate, as the case may be, acting in a principal capacity. For other currencies, FX Transactions are routed directly to and managed by an unaffiliated local custodian
(or other third party local liquidity provider), and neither the Bank nor any of its affiliates is a party to such FX Transactions.
The foreign exchange rate applied to an FX Transaction will be either (a) a published benchmark rate, or (b) a rate determined by a third party local liquidity
provider, in each case plus or minus a spread, as applicable. The Depositary will disclose which foreign exchange rate and spread, if any, apply to such currency on the
“Disclosure” page (or successor page) of www.adr.com (as updated by the Depositary from time to time, “ADR.com”). Such applicable foreign exchange rate and spread may (and
neither the Depositary, the Bank nor any of their affiliates is under any obligation to ensure that such rate does not) differ from rates and spreads at which comparable transactions
are entered into with other customers or the range of foreign exchange rates and spreads at which the Bank or any of its affiliates enters into foreign exchange transactions in the
relevant currency pair on the date of the FX Transaction. Additionally, the timing of execution of an FX Transaction varies according to local market dynamics, which may include
regulatory requirements, market hours and liquidity in the foreign exchange market or other factors. Furthermore, the Bank and its affiliates may manage the associated risks of
their position in the market in a manner they deem appropriate without regard to the impact of such activities on the Company, the Depositary, Holders or Beneficial Owners. The
spread applied does not reflect any gains or losses that may be earned or incurred by the Bank and its affiliates as a result of risk management or other hedging related activity.
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Notwithstanding the foregoing, to the extent the Company provides U.S. dollars to the Depositary, neither the Bank nor any of its affiliates will execute an FX
Transaction as set forth herein. In such case, the Depositary will distribute the U.S. dollars received from the Company.
Further details relating to the applicable foreign exchange rate, the applicable spread and the execution of FX Transactions will be provided by the Depositary on
ADR.com. The Company, Holders and Beneficial Owners each acknowledge and agree that the terms applicable to FX Transactions disclosed from time to time on ADR.com will
apply to any FX Transaction executed pursuant to the Deposit Agreement.
(e) Disclosure of Potential Depositary Payments. The Depositary anticipates reimbursing the Company for certain expenses incurred by the Company that are
related to the establishment and maintenance of the ADR program upon such terms and conditions as the Company and the Depositary may agree from time to time. The
Depositary may make available to the Company a set amount or a portion of the Depositary fees charged in respect of the ADR program or otherwise upon such terms and
conditions as the Company and the Depositary may agree from time to time.
(f) The right of the Depositary to charge and receive payment of fees, charges and expenses as provided above shall survive the termination of the Deposit
Agreement. As to any Depositary, upon the resignation or removal of such Depositary, such right shall extend for those fees, charges and expenses incurred prior to the
effectiveness of such resignation or removal.
(8) Available Information. The Deposit Agreement, the provisions of or governing Deposited Securities and any written communications from the Company, which are
both received by the Custodian or its nominee as a holder of Deposited Securities and made generally available to the holders of Deposited Securities, are available for inspection
by Holders at the offices of the Depositary and the Custodian, at the Transfer Office, on the U.S. Securities and Exchange Commission’s website, or upon request from the
Depositary (which request may be refused by the Depositary at its discretion). The Depositary will distribute copies of such communications (or English translations or summaries
thereof) to Holders when furnished by the Company. The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and accordingly files
certain reports with the United States Securities and Exchange Commission (the “Commission”). Such reports and other information may be inspected and copied through the
Commission’s EDGAR system or at public reference facilities maintained by the Commission located at the date hereof at 100 F Street, NE, Washington, DC 20549.
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(9) Execution. This ADR shall not be valid for any purpose unless executed by the Depositary by the manual or facsimile signature of a duly authorized officer of the
Depositary.
Dated:
JPMORGAN CHASE BANK, N.A., as Depositary
By
Authorized Officer
The Depositary’s office is located at 383 Madison Avenue, Floor 11, New York, New York 10179.
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[FORM OF REVERSE OF ADR]
(10) Distributions on Deposited Securities. Subject to paragraphs (4) (Certain Limitations to Registration, Transfer etc.) and (5) (Liability for Taxes, Duties and other
Charges), to the extent practicable, the Depositary will distribute to each Holder entitled thereto on the record date set by the Depositary therefor at such Holder’s address shown on
the ADR Register, in proportion to the number of Deposited Securities (on which the following distributions on Deposited Securities are received by the Custodian) represented by
ADSs evidenced by such Holder’s ADRs:
(a) Cash. Any U.S. dollars available to the Depositary resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other
distribution or portion thereof authorized in this paragraph (10) (“Cash”), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld,
(ii) such distribution being impermissible or impracticable with respect to certain Holders, and (iii) deduction of the Depositary’s and/or its agents’ fees and expenses in
(1) converting any foreign currency to U.S. dollars by sale or in such other manner as the Depositary may determine to the extent that it determines that such conversion may be
made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the Depositary may determine to the extent that it determines
that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is
obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner.
(b) Shares. (i) Additional ADRs evidencing whole ADSs representing any Shares available to the Depositary resulting from a dividend or free distribution on
Deposited Securities consisting of Shares (a “Share Distribution”) and (ii) U.S. dollars available to it resulting from the net proceeds of sales of Shares received in a Share
Distribution, which Shares would give rise to fractional ADSs if additional ADRs were issued therefor, as in the case of Cash.
(c) Rights. (i) Warrants or other instruments in the discretion of the Depositary representing rights to acquire additional ADRs in respect of any rights to
subscribe for additional Shares or rights of any nature available to the Depositary as a result of a distribution on Deposited Securities (“Rights”), to the extent that the Company
timely furnishes to the Depositary evidence satisfactory to the Depositary that the Depositary may lawfully distribute the same (the Company has no obligation to so furnish such
evidence), or (ii) to the extent the Company does not so furnish such evidence and sales of Rights are practicable, any U.S. dollars available to the Depositary from the net proceeds
of sales of Rights as in the case of Cash, or (iii) to the extent the Company does not so furnish such evidence and such sales cannot practicably be accomplished by reason of the
nontransferability of the Rights, limited markets therefor, their short duration or otherwise, nothing (and any Rights may lapse).
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(d) Other Distributions. (i) Securities or property available to the Depositary resulting from any distribution on Deposited Securities other than Cash, Share
Distributions and Rights (“Other Distributions”), by any means that the Depositary may deem equitable and practicable, or (ii) to the extent the Depositary deems distribution of
such securities or property not to be equitable and practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Other Distributions as in the case of
Cash.
The Depositary reserves the right to utilize a division, branch or affiliate of JPMorgan Chase Bank, N.A. to direct, manage and/or execute any public and/or
private sale of securities hereunder. Such division, branch and/or affiliate may charge the Depositary a fee in connection with such sales, which fee is considered an expense of the
Depositary contemplated above and/or under paragraph (7) (Charges of Depositary). Any U.S. dollars available will be distributed by checks drawn on a bank in the United States
for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the Depositary in accordance with its then current practices. All purchases and sales
of securities will be handled by the Depositary in accordance with its then current policies, which are currently set forth in the “Depositary Receipt Sale and Purchase of Security”
section of https://www.adr.com/Investors/FindOutAboutDRs, the location and contents of which the Depositary shall be solely responsible for.
(11) Record Dates. The Depositary may, after consultation with the Company if practicable, fix a record date (which, to the extent applicable, shall be as near as
practicable to any corresponding record date set by the Company) for the determination of the Holders who shall be responsible for the fee assessed by the Depositary for
administration of the ADR program and for any expenses provided for in paragraph (7) hereof as well as for the determination of the Holders who shall be entitled to receive any
distribution on or in respect of Deposited Securities, to give instructions for the exercise of any voting rights, to receive any notice or to act or be obligated in respect of other
matters and only such Holders shall be so entitled or obligated.
(12) Voting of Deposited Securities.
(a) Notice of any Meeting or Solicitation. As soon as practicable after receipt from the Company of notice of any meeting at which the holders of Shares are
entitled to vote, or of solicitation of consents or proxies from holders of Shares or other Deposited Securities, the Depositary shall fix the ADS record date in accordance with
paragraph (11) above provided that if the Depositary receives a written request from the Company in a timely manner and at least 30 days prior to the date of such vote or meeting,
the Depositary shall, at the Company’s expense and provided no legal prohibitions exist, distribute to Holders a notice (the “Voting Notice”) stating (i) final information particular
to such vote and meeting and any solicitation materials, (ii) that each Holder on the record date set by the Depositary will, subject to any applicable provisions of the laws of the
Cayman Islands, be entitled to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by the ADSs evidenced by
such Holder’s ADRs and (c) the manner in which such instructions may be given, including instructions to give a discretionary proxy to a person designated by the Company. Each
Holder shall be solely responsible for the forwarding of Voting Notices to the Beneficial Owners of ADSs registered in such Holder’s name. There is no guarantee that Holders
and Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable such Holder or Beneficial
Owner to return any voting instructions to the Depositary in a timely manner.
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(b) Voting of Deposited Securities. Following actual receipt by the ADR department responsible for proxies and voting of Holders’ instructions (including,
without limitation, instructions of any entity or entities acting on behalf of the nominee for DTC), the Depositary shall, in the manner and on or before the time established by the
Depositary for such purpose, endeavor to vote or cause to be voted the Deposited Securities represented by the ADSs evidenced by such Holders’ ADRs in accordance with such
instructions insofar as practicable and permitted under the provisions of or governing Deposited Securities. The Depositary will not itself exercise any voting discretion in respect
of any Deposited Securities.
(c) Alternative Methods of Distributing Materials. Notwithstanding anything contained in the Deposit Agreement or any ADR, the Depositary may, to the extent
not prohibited by any law, rule or regulation or the rules and/or requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to
the Depositary in connection with any meeting of or solicitation of consents or proxies from holders of Deposited Securities, distribute to the Holders a notice that provides Holders
with or otherwise publicizes to Holders instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials
for retrieval or a contact for requesting copies of the materials). Holders are strongly encouraged to forward their voting instructions as soon as possible. Voting instructions will
not be deemed received until such time as the ADR department responsible for proxies and voting has received such instructions, notwithstanding that such instructions may have
been physically received by JPMorgan Chase Bank, N.A., as Depositary, prior to such time.
(d) The Depositary has been advised by the Company that under the Cayman Islands law and the Memorandum and Articles of Association of the Company,
each as in effect as of the date of the Deposit Agreement, voting at any meeting of shareholders of the Company is by show of hands unless a poll is (before or on the declaration of
the results of the show of hands) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with the Memorandum and
Articles of Association, the Depositary will refrain from voting and the voting instructions received by the Depositary from Holders shall lapse. The Depositary will not demand a
poll or join in demanding a poll, whether or not requested to do so by Holders of ADSs.
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(13) Changes Affecting Deposited Securities.
(a) Subject to paragraphs (4) (Certain Limitations to Registration, Transfer etc.) and (5) (Liability for Taxes, Duties and Other Charges), the Depositary may, in
its discretion, and shall if reasonably requested by the Company, amend this ADR or distribute additional or amended ADRs (with or without calling this ADR for exchange) or
cash, securities or property on the record date set by the Depositary therefor to reflect any change in par value, split-up, consolidation, cancellation or other reclassification of
Deposited Securities, any Share Distribution or Other Distribution not distributed to Holders or any cash, securities or property available to the Depositary in respect of Deposited
Securities from (and the Depositary is hereby authorized to surrender any Deposited Securities to any person and, irrespective of whether such Deposited Securities are surrendered
or otherwise cancelled by operation of law, rule, regulation or otherwise, to sell by public or private sale any property received in connection with) any recapitalization,
reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all the assets of the Company.
(b) To the extent the Depositary does not so amend this ADR or make a distribution to Holders to reflect any of the foregoing, or the net proceeds thereof,
whatever cash, securities or property results from any of the foregoing shall constitute Deposited Securities and each ADS evidenced by this ADR shall automatically represent its
pro rata interest in the Deposited Securities as then constituted.
(c) Promptly upon the occurrence of any of the aforementioned changes affecting Deposited Securities, the Company shall notify the Depositary in writing of
such occurrence and as soon as practicable after receipt of such notice from the Company, may instruct the Depositary to give notice thereof, at the Company’s expense, to Holders
in accordance with the provisions hereof. Upon receipt of such instruction, the Depositary shall give notice to the Holders in accordance with the terms thereof, as soon as
reasonably practicable.
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(14) Exoneration.
(a) The Depositary, the Company, and each of their respective directors, officers, employees, agents and affiliates and each of them shall: (i) incur no liability to
Holders or Beneficial Owners (A) if any present or future law, rule, regulation, fiat, order or decree of the United States, the Cayman Islands, the People’s Republic of China
(including the Hong Kong Special Administrative Region, the People’s Republic of China) or any other country or jurisdiction, or of any governmental or regulatory authority or
any securities exchange or market or automated quotation system, the provisions of or governing any Deposited Securities, any present or future provision of the Company’s
charter, any act of God, war, terrorism, nationalization, expropriation, currency restrictions, work stoppage, strike, civil unrest, revolutions, rebellions, explosions, computer failure
or circumstance beyond its direct and immediate control shall prevent or delay, or shall cause any of them to be subject to any civil or criminal penalty in connection with, any act
which the Deposit Agreement or this ADR provides shall be done or performed by it or them (including, without limitation, voting pursuant to paragraph (12) hereof), or (B) by
reason of any non-performance or delay, caused as aforesaid, in the performance of any act or things which by the terms of the Deposit Agreement it is provided shall or may be
done or performed or any exercise or failure to exercise any discretion given it in the Deposit Agreement or this ADR (including, without limitation, any failure to determine that
any distribution or action may be lawful or reasonably practicable); (ii) not incur or assume any liability to Holders or Beneficial Owners except to perform its obligations to the
extent they are specifically set forth in this ADR and the Deposit Agreement without gross negligence or willful misconduct and the Depositary shall not be a fiduciary or have any
fiduciary duty to Holders or Beneficial Owners; (iii) in the case of the Depositary and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other
proceeding in respect of any Deposited Securities, ADSs or this ADR; (iv) in the case of the Company and its agents hereunder be under no obligation to appear in, prosecute or
defend any action, suit or other proceeding in respect of any Deposited Securities, the ADSs or this ADR, which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required; and (v) not be liable to Holders
or Beneficial Owners for any action or inaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any
Holder, any other person believed by it to be competent to give such advice or information, or in the case of the Depositary only, the Company. The Depositary shall not be liable
for the acts or omissions made by, or the insolvency of, any share registrar, share transfer agent, securities depository, clearing agency or settlement system.
(b) The Depositary. The Depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any Custodian
that is not a branch or affiliate of JPMorgan Chase Bank, N.A. The Depositary shall not have any liability for the price received in connection with any sale of securities, the timing
thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained
in connection with any such sale or proposed sale. Notwithstanding anything to the contrary contained in the Deposit Agreement (including the ADRs), subject to the further
limitations set forth in subparagraph (o) of this paragraph (14), the Depositary shall not be responsible for, and shall incur no liability in connection with or arising from, any act or
omission to act on the part of the Custodian except to the extent that any Holder has incurred liability directly as a result of the Custodian having (i) committed fraud or willful
misconduct in the provision of custodial services to the Depositary or (ii) failed to use reasonable care in the provision of custodial services to the Depositary as determined in
accordance with the standards prevailing in the jurisdiction in which the Custodian is located.
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believed by them to be genuine and to have been signed, presented or given by the proper party or parties.
(c) The Depositary, its agents and the Company may rely and shall be protected in acting upon any written notice, request, direction, instruction or document
therein or thereto of any country or jurisdiction or of any governmental or regulatory authority or any securities exchange or market or automated quotation system.
(d) The Depositary shall be under no obligation to inform Holders or Beneficial Owners about the requirements of the laws, rules or regulations or any changes
which any such vote is cast or for the effect of any such vote.
(e) The Depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, for the manner in
transfer or distribution.
(f) The Depositary may rely upon instructions from the Company or its counsel in respect of any approval or license required for any currency conversion,
(g) The Depositary and its agents may own and deal in any class of securities of the Company and its affiliates and in ADRs.
(h) Notwithstanding anything to the contrary set forth in the Deposit Agreement or an ADR, the Depositary and its agents may fully respond to any and all
demands or requests for information maintained by or on its behalf in connection with the Deposit Agreement, any Holder or Holders, any ADR or ADRs or otherwise related
hereto or thereto to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative
or judicial process, banking, securities or other regulators.
refunds of non-U.S. tax paid against such Holder’s or Beneficial Owner’s income tax liability.
(i) None of the Depositary, the Custodian or the Company shall be liable for the failure by any Holder or Beneficial Owner to obtain the benefits of credits or
(j) The Depositary is under no obligation to provide the Holders and Beneficial Owners, or any of them, with any information about the tax status of the
Company. The Depositary and the Company shall not incur any liability for any tax or tax consequences that may be incurred by Holders or Beneficial Owners on account of their
ownership or disposition of the ADRs or ADSs.
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(k) The Depositary shall not incur any liability for the content of any information submitted to it by or on behalf of the Company for distribution to the Holders
or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Securities, for the validity or worth of the Deposited
Securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement or for the failure or timeliness of any notice from
the Company.
(l) Notwithstanding anything herein or in the Deposit Agreement to the contrary, the Depositary and the Custodian(s) may use third party delivery services and
providers of information regarding matters such as pricing, proxy voting, corporate actions, class action litigation and other services in connection herewith and the Deposit
Agreement, and use local agents to provide services such as, but not limited to, attendance at any meetings of security holders. Although the Depositary and the Custodian will use
reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any
errors or omissions made by them in providing the relevant information or services.
Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary.
(m) The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the
under certain circumstances.
(n) The Company has agreed to indemnify the Depositary and its agents under certain circumstances and the Depositary has agreed to indemnify the Company
(o) Neither the Depositary nor any of its agents shall be liable to Holders or Beneficial Owners for any indirect, special, punitive or consequential damages
(including, without limitation, legal fees and expenses) or lost profits, in each case of any form incurred by any person or entity (including, without limitation, Holders and
Beneficial Owners), whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
(p) No provision of the Deposit Agreement or this ADR is intended to constitute a waiver or limitation of any rights which Holders or Beneficial Owners may
have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
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(15) Resignation and Removal of Depositary; the Custodian.
(a) Resignation. The Depositary may resign as Depositary by written notice of its election so to do delivered to the Company, such resignation to take
effect upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement.
(b) Removal. The Depositary may at any time be removed by the Company by no less than 60 days’ prior written notice of such removal, to become effective
upon the later of (i) the 60th day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance of such appointment as provided
in the Deposit Agreement.
(c) The Custodian. The Depositary may appoint substitute or additional Custodians and the term “Custodian” refers to each Custodian or all Custodians as the
context requires.
(16) Amendment. Subject to the last sentence of paragraph (2) (Withdrawal of Deposited Securities), the ADRs and the Deposit Agreement may be amended by the
Company and the Depositary, provided that any amendment that imposes or increases any fees or charges on a per ADS basis (other than stock transfer or other taxes and other
governmental charges, transfer or registration fees, SWIFT, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that shall otherwise prejudice any
substantial existing right of Holders or Beneficial Owners, shall become effective 30 days after notice of such amendment shall have been given to the Holders. Every Holder and
Beneficial Owner at the time any amendment to the Deposit Agreement so becomes effective shall be deemed, by continuing to hold such ADR, to consent and agree to such
amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Holder of any ADR to surrender such ADR
and receive the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Any amendments or supplements which (i) are
reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act of 1933 or (b) the ADSs or
Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to
prejudice any substantial rights of Holders or Beneficial Owners. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or
regulations which would require amendment or supplement of the Deposit Agreement or the form of ADR to ensure compliance therewith, the Company and the Depositary may
amend or supplement the Deposit Agreement and the ADR at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit
Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for
compliance. Notice of any amendment to the Deposit Agreement or form of ADRs shall not need to describe in detail the specific amendments effectuated thereby, and failure to
describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the Holders identifies a
means for Holders and Beneficial Owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the U.S. Securities and Exchange Commission’s, the
Depositary’s or the Company’s website or upon request from the Depositary).
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(17) Termination. The Depositary may, and shall at the written direction of the Company, terminate the Deposit Agreement and this ADR by mailing notice of such
termination to the Holders at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the Depositary shall have (i) resigned as Depositary
hereunder, notice of such termination by the Depositary shall not be provided to Holders unless a successor depositary shall not be operating hereunder within 60 days of the date of
such resignation, or (ii) been removed as Depositary hereunder, notice of such termination by the Depositary shall not be provided to Holders unless a successor depositary shall
not be operating hereunder on the 60 day after the Company’s notice of removal was first provided to the Depositary. Notwithstanding anything to the contrary herein, the
Depositary may terminate the Deposit Agreement without notice to the Company, but subject to giving 30 days’ notice to the Holders, under the following circumstances: (i) in the
event of the Company’s bankruptcy or insolvency, (ii) if the Company effects (or will effect) a redemption of all or substantially all of the Deposited Securities, or a cash or share
distribution representing a return of all or substantially all of the value of the Deposited Securities, (iii) the registrar or transfer agent for the Shares refuses to process any of the
Depositary’s or its Custodian’s Share transfer and/or delivery instructions or (iv) there occurs a merger, consolidation, sale of assets or other transaction as a result of which
securities or other property are delivered in exchange for or in lieu of Deposited Securities.
th
After the date so fixed for termination, (a) all Direct Registration ADRs shall cease to be eligible for the Direct Registration System and shall be considered ADRs issued
on the ADR Register and (b) the Depositary shall use its reasonable efforts to ensure that the ADSs cease to be DTC eligible so that neither DTC nor any of its nominees shall
thereafter be a Holder. At such time as the ADSs cease to be DTC eligible and/or neither DTC nor any of its nominees is a Holder, the Depositary shall (a) instruct its Custodian to
deliver all Deposited Securities to the Company along with a general stock power that refers to the names set forth on the ADR Register and (b) provide the Company with a copy
of the ADR Register (which copy may be sent by email or by any means permitted under the notice provisions of the Deposit Agreement). Upon receipt of such Deposited
Securities and the ADR Register, the Company shall use its best efforts to issue to each Holder a Share certificate representing the Shares represented by the ADSs reflected on the
ADR Register in such Holder’s name and to deliver such Share certificate to the Holder at the address set forth on the ADR Register. After providing such instruction to the
Custodian and delivering a copy of the ADR Register to the Company, the Depositary and its agents will perform no further acts under the Deposit Agreement and this ADR and
shall cease to have any obligations under the Deposit Agreement and/or the ADRs. After the Company receives the copy of the ADR Register and the Deposited Securities, the
Company shall be discharged from all obligations under the Deposit Agreement except (i) to distribute the Shares to the Holders entitled thereto and (ii) for its obligations to the
Depositary and its agents.
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(18) Appointment; Acknowledgements and Agreements. Each Holder and each Beneficial Owner, upon acceptance of any ADSs or ADRs (or any interest in any of
them) issued in accordance with the terms and conditions of the Deposit Agreement shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit
Agreement and the applicable ADR(s), (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated
in the Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole
discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable ADR(s), the taking of such actions to be the conclusive
determinant of the necessity and appropriateness thereof, and (c) acknowledge and agree that (i) nothing in the Deposit Agreement or any ADR shall give rise to a partnership or
joint venture among the parties thereto nor establish a fiduciary or similar relationship among such parties, (ii) the Depositary, its divisions, branches and affiliates, and their
respective agents, may from time to time be in the possession of non-public information about the Company, Holders, Beneficial Owners and/or their respective affiliates, (iii) the
Depositary and its divisions, branches and affiliates may at any time have multiple banking relationships with the Company, Holders, Beneficial Owners and/or the affiliates of any
of them, (iv) the Depositary and its divisions, branches and affiliates may, from time to time, be engaged in transactions in which parties adverse to the Company or the Holders or
Beneficial Owners may have interests, (v) nothing contained in the Deposit Agreement or any ADR(s) shall (A) preclude the Depositary or any of its divisions, branches or
affiliates from engaging in such transactions or establishing or maintaining such relationships, or (B) obligate the Depositary or any of its divisions, branches or affiliates to disclose
such transactions or relationships or to account for any profit made or payment received in such transactions or relationships, (vi) the Depositary shall not be deemed to have
knowledge of any information held by any branch, division or affiliate of the Depositary and (vii) notice to a Holder shall be deemed, for all purposes of the Deposit Agreement
and this ADR, to constitute notice to any and all Beneficial Owners of the ADSs evidenced by such Holder’s ADRs. For all purposes under the Deposit Agreement and this ADR,
the Holder hereof shall be deemed to have all requisite authority to act on behalf of any and all Beneficial Owners of the ADSs evidenced by this ADR.
(19) Waiver. EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH HOLDER AND BENEFICIAL OWNER OF,
AND/OR HOLDER OF INTERESTS IN, ADSS OR ADRS) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE DEPOSITARY AND/OR THE COMPANY DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE ADSs OR THE ADRs, THE DEPOSIT AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF (WHETHER BASED ON CONTRACT, TORT, COMMON
LAW OR ANY OTHER THEORY), INCLUDING, WITHOUT LIMITATION, ANY SUIT, ACTION OR PROCEEDING UNDER THE UNITED STATES FEDERAL
SECURITIES LAWS.
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(20) Jurisdiction. By holding an ADS or an interest therein, Holders and Beneficial Owners each irrevocably agree that any legal suit, action or proceeding against or
involving Holders or Beneficial Owners brought by the Company or the Depositary, arising out of or based upon the Deposit Agreement, the ADSs or the ADRs or the transactions
contemplated thereby or hereby, may be instituted in a state or federal court in New York, New York, and by holding an ADS or an interest therein each irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any such
suit, action or proceeding. By holding an ADS or an interest therein, Holders and Beneficial Owners each also irrevocably agree that any legal suit, action or proceeding against or
involving the Company or the Depositary brought by Holders or Beneficial Owners, arising out of or based upon the Deposit Agreement, the ADSs or the ADRs or the transactions
contemplated thereby or hereby, may only be instituted in a state or federal court in New York, New York, and by holding an ADS or an interest therein each irrevocably waives
any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the exclusive jurisdiction of such courts in any such
suit, action or proceeding. Notwithstanding the above or anything in the Deposit Agreement to the contrary, in the Deposit Agreement each of the parties thereto (i.e. the Company,
the Depositary and all Holders and Beneficial Owners from time to time of ADRs issued thereunder (and any persons owning or holding interests in ADSs)) have agreed that:
(i) the Depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or indirectly based on, arising out of or relating to
the Deposit Agreement, the ADSs or the ADRs or the transactions contemplated thereby or hereby, including without limitation any question regarding its or their existence,
validity, interpretation, performance or termination (a “Dispute”) against any other party or parties hereto (including, without limitation, Disputes, suits, actions or proceedings
brought against Holders and Beneficial Owners), by having the Dispute referred to and finally resolved by an arbitration conducted under the terms set out in the Deposit
Agreement, and (ii) the Depositary may in its sole discretion require, by written notice to the relevant party or parties, that any Dispute, suit, action, controversy, claim or
proceeding brought by any party or parties hereto (including, without limitation, Disputes, suits, actions or proceedings brought by Holders and Beneficial Owners) against the
Depositary shall be referred to and finally settled by an arbitration conducted under the terms set out in the Deposit Agreement. Any such arbitration shall at the Depositary’s
election be conducted either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the
arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL) with the Hong Kong International Arbitration Centre serving as the appointing
authority, and the language of any such arbitration shall be English, in each case as provided in the Deposit Agreement.
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Description of Rights of Securities
Registered under Section 12 of the Securities Exchange Act of 1934
Exhibit 2.5
American Depositary Shares (“ADSs”), each representing six ordinary shares of Jupai Holdings Limited (“Jupai,” “we,” “our,” “our company,” or “us”) are listed and
traded on the New York Stock Exchange (“NYSE”) and, in connection therewith, the ordinary shares are registered under Section 12(b) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). This exhibit contains a description of the rights of (i) the holders of ordinary shares and (ii) the holders of ADSs. The ordinary shares underlying
the ADSs are held by JPMorgan Chase Bank, N.A., as depositary, and holders of ADSs will not be treated as holders of ordinary shares.
Description of Ordinary Shares
The following is a summary of material provisions of our currently effective fourth amended and restated memorandum and articles of association (the “Memorandum and
Articles of Association” or “our memorandum and articles of association”), as well as the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”) insofar as
they relate to the material terms of our ordinary shares. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem
important. For more complete information, you should read the entire Memorandum and Articles of Association, which has been filed with the Securities and Exchange
Commission (the “SEC”) as an exhibit to our Registration Statement on Form F-1/A (File No. 333-204950) filed with the SEC on July 7, 2015.
Type and Class of Securities (Item 9.A.5 of Form 20-F)
Each ordinary share has US$ 0.0005 par value. The number ordinary shares that have been issued as of the last day of the fiscal year ended December 31, 2020 is provided
on the cover of the annual report on Form 20-F filed on April 16, 2021 (the “Form 20-F”). Our ordinary shares may be held in either certified or uncertified form.
Preemptive Rights (Item 9.A.3 of Form 20-F)
The shareholders of Jupai do not have preemptive right.
Limitations or Qualifications (Item 9.A.6 of Form 20-F)
Not applicable.
Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)
Not applicable.
Rights of Ordinary Shares (Item 10.B.3 of Form 20-F)
General
Our ordinary shares are issued in registered form and are issued when registered in our register of members. Our shareholders who are non-residents of the Cayman
Islands may freely hold and vote their shares.
Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, our shareholders may by ordinary resolution
declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, dividends may be declared and paid only out of funds
legally available therefor, namely out of either profit or our share premium account, and provided further that a dividend may not be paid if this would result in our company being
unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights
Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more
shareholders who together hold not less than 10% of the voting share capital of our company present in person or by proxy.
A quorum required for a meeting of shareholders consists of one or more shareholders present and holding not less than a majority of all voting share capital of our
company in issue. Shareholders may be present in person or by proxy or, if the shareholder is a legal entity, by its duly authorized representative. Shareholders’ meetings may be
convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding not less than ten percent of the issued share capital of our
company that carries the right to vote at general meetings. Advance notice of at least seven calendar days is required for the convening of our annual general shareholders’ meeting
and any other general shareholders’ meeting.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a
meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast at a meeting. Both ordinary resolutions
and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Act and our
memorandum and articles of association. A special resolution will be required for important matters such as a change of name or making changes to our memorandum and articles
of association. Holders of the ordinary shares may, among other things, divide or consolidate their shares by ordinary resolution.
Transfer of Ordinary Shares
Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common
form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our
board of directors may also decline to register any transfer of any ordinary share unless:
· the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of
directors may reasonably require to show the right of the transferor to make the transfer;
· the instrument of transfer is in respect of only one class of shares;
· the instrument of transfer is properly stamped, if required;
· in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and
· fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect
thereof.
If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and
the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice requirement of the NYSE, be suspended and the register closed at such times and for such periods as
our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in
any year.
Liquidation
On a winding up of our company, if the assets available for distribution among our shareholders shall be more than sufficient to repay the whole of the share capital at the
commencement of the winding up, the surplus will be distributed among our shareholders in proportion to the par value of the shares held by them at the commencement of the
winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets
available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par
value of the shares held by them. We are a “limited liability” company registered under the Companies Act, and under the Companies Act, the liability of our members is limited to
the amount, if any, unpaid on the shares respectively held by them. Our memorandum of association contains a declaration that the liability of our members is so limited.
Calls on Shares and Forfeiture of Shares
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days
prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares
We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be
determined, before the issue of such shares, by our board of directors. Our company may also repurchase any of our shares provided that the manner and terms of such purchase
have been approved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our memorandum and articles of association. Under the
Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue of or repurchase, or out of capital
(including share premium account and capital redemption reserve) if the company can, immediately following such payment, pay its debts as they fall due in the ordinary course of
business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in
there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no
consideration.
Issuance of Additional Shares
Our memorandum and articles of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall
determine, to the extent of available authorized but unissued shares, without the need for any further approval or authorization from our shareholders.
Our memorandum and articles of association also authorizes our board of directors, without the need for any further approval or authorization from our shareholders, to
establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
· the designation of the series;
· the number of shares of the series;
· the dividend rights, dividend rates, conversion rights, voting rights; and
· the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preferred shares without the need for any further approval or authorization from, or other action by, our shareholders to the extent of
available authorized but unissued shares. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (other
than our memorandum and articles of association and special resolutions, and our register of mortgages and charges). However, we will provide our shareholders with annual
audited financial statements.
Anti-Takeover Provisions
Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders
may consider favorable, including provisions that:
· authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such
preferred shares without any further vote or action by our shareholders; and
· limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of association for a
proper purpose and for what they believe in good faith to be in the best interests of our company.
General Meetings of Shareholders and Shareholder Proposals
Our shareholders’ general meetings may be held in such place within or outside the Cayman Islands as our board of directors considers appropriate.
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our memorandum and articles of
association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting.
Shareholders’ annual general meetings and any other general meetings of our shareholders may be convened by a majority of our board of directors. Our board of directors
shall give not less than seven calendar days’ written notice of a shareholders’ meeting to those persons whose names appear as members in our register of members on the date the
notice is given (or on any other date determined by our directors to be the record date for such meeting) and who are entitled to vote at the meeting.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal
before a general meeting. However, these rights may be provided in a company’s articles of association. Our memorandum and articles of association allow our shareholders
holding not less than ten percent of the issued share capital of our company that carries the right to vote at general meetings, to requisition an extraordinary general meeting of our
shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our memorandum and
articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such
shareholders.
Requirements to Change the Rights of Holders of Ordinary Shares (Item 10.B.4 of Form 20-F)
Variations of Rights of Shares
The rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series) may be varied or abrogated with the
consent in writing of the holders of not less than two thirds of the issued shares of that class or series or with the sanction of a special resolution passed at a general meeting of the
holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of
issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking in priority thereto or pari passu with such existing class of shares.
Limitations on the Rights to Own Ordinary Shares (Item 10.B.6 of Form 20-F)
There are no limitations under the laws of the Cayman Islands or under the Memorandum and Articles of Association that limit the right of non-resident or foreign owners
to hold or vote ordinary shares.
Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)
Anti-Takeover Provisions in the Memorandum and Articles of Association
Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders
may consider favorable, including provisions that:
· authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such
preferred shares without any further vote or action by our shareholders; and
· limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of association for a
proper purpose and for what they believe in good faith to be in the best interests of our company.
Ownership Threshold (Item 10.B.8 of Form 20-F)
There are no provisions under the laws of the Cayman Islands which are applicable to the Company, or under the Memorandum and Articles of Association, that require
our company to disclose shareholder ownership above any particular ownership threshold.
Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)
The Companies Act of the Cayman Islands is modeled after that of the English companies legislation but does not follow recent English law statutory enactments, and
accordingly there are significant differences between the Companies Act of the Cayman Islands and the current Companies Act of England. In addition, the Companies Act of the
Cayman Islands differs from laws applicable to Delaware corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of
the Companies Act applicable to us and the laws applicable to Delaware corporations and their shareholders.
Mergers and Similar Arrangements
The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands
companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertakings, property and liabilities in one of such
companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the
undertakings, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company
must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such
other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the Registrar of
Companies in the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a declaration as to the assets and liabilities of each
constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that
notification of the merger or consolidation will be published in the Cayman Islands Gazette.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman
subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a
“parent” of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman
Islands.
Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if
they follow the required procedures, subject to certain exceptions. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to
which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful. Court
approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the
arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-
fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for
that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has
the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
· the statutory provisions as to the due majority vote have been met;
· the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to
promote interests adverse to those of the class;
· the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
· the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.
The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholder upon a takeover
offer. When a takeover offer is made and accepted by holders of 90% of the shares affected (within four months), the offeror may, within a two-month period commencing on the
expiration of such four-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of
the Cayman Islands, but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If the arrangement and reconstruction by way of scheme of arrangement is thus approved, or if a takeover offer is made and accepted, in accordance with the foregoing
statutory procedures, the dissenting shareholder would have no rights comparable to appraisal rights, save that objectors to a takeover offer may apply to the Grand Court of the
Cayman Islands for various orders that the Grand Court of the Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissenting
shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits
In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English
authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
· a company acts or proposes to act illegally or ultra vires;
· the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and
· those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability
The ability of Cayman Islands companies to provide in their articles of association for indemnification of officers and directors is not limited, except that any indemnity
would not be effective if it were held by the Cayman Islands courts to be contrary to public policy, which would include any attempt to provide indemnification against civil fraud
or the consequences of committing a crime. The Memorandum and Articles of Association provide that our directors and officers shall be indemnified against all actions,
proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such director or officer, other than by reason of such person’s own dishonesty, wilful
default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties,
powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in
defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard
of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification
agreements with each of our directors and executive officers that will provide such persons with additional indemnification beyond that provided in the Memorandum and Articles
of Association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing
provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components, the duty of
care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances.
Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of
loyalty requires that a director must act in a manner he or she reasonably believes to be in the best interests of the corporation. A director must not use his or her corporate position
for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interests of the corporation and its shareholders take precedence over any
interest possessed by a director, officer or controlling shareholder not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an
informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a
breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction
and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company, and therefore it is considered that
he or she owes the following duties to the company including a duty to act bona fide in the best interests of the company, a duty not to make a personal profit out of his or her
position as director (unless the company permits him or her to do so), a duty not to put himself or herself in a position where the interests of the company conflict with his or her
personal interests or his or her duty to a third party and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company
owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill
than may reasonably be expected from a person of his or her knowledge and experience. However, there are indications that the English and commonwealth courts are moving
towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Under the Memorandum and Articles of Association, our directors who are in any way, whether directly or indirectly, interested in a contract or proposed contract with our
company must declare the nature of their interest at a meeting of the board of directors. A director may vote in respect of any contract or proposed contract or arrangement
notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our board of directors at which
any such contract or proposed contract or arrangement will be considered and voted upon.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided that it complies with the
notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but
shareholders may be precluded from calling special meetings.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal
before a general meeting. However, these rights may be provided in a company’s articles of association. The Memorandum and Articles of Association allow any one or more of
our shareholders who together hold not less than ten percent of the issued share capital of our company that carries the right to vote at general meetings to requisition an
extraordinary general meeting of our shareholders, in which case our board of directors is obliged to convene an extraordinary general meeting and to put the proposals so
requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, the Memorandum and Articles of Association do not provide our shareholders
with any other right to put proposals before annual general meetings or extraordinary general meetings not called by such shareholders. As an exempted Cayman Islands company,
we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically
provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the
votes to which the shareholder is entitled for a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in
relation to cumulative voting under the laws of the Cayman Islands but the Memorandum and Articles of Association do not provide for cumulative voting.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation may be removed with the approval of a majority of the outstanding shares entitled to vote, unless
the certificate of incorporation provides otherwise. Under the Memorandum and Articles of Association, directors may be removed with or without cause, by an ordinary resolution
of our shareholders. In addition, a director’s office shall be vacated if the director (i) dies, becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is
found to be or becomes of unsound mind; (iii) resigns his office by notice in writing to the company; or (iv) is removed from office pursuant to any other provisions of the
Memorandum and Articles of Association.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has
specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an
“interested shareholder” for three years following the date on which such person becomes an interested shareholder. An interested shareholder generally is one which owns or
owned 15% or more of the target’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquiror to make a two-tiered bid
for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an
interested shareholder, the board of directors approves either the business combination or the transaction that resulted in the person becoming an interested shareholder. This
encourages any potential acquiror of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute.
However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions entered into must
be bona fide in the best interests of the company, for a proper corporate purpose and not with the effect of perpetrating a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding
100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s
outstanding shares. The Delaware General Corporation Law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in
connection with dissolutions initiated by the board of directors. Under the Companies Act, our company may be wound up by a special resolution, or by an ordinary resolution on
the basis that our company is unable to pay its debts as they fall due. The court has authority to order winding up in a number of specified circumstances including where it is, in
the opinion of the court, just and equitable to do so.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such
class, unless the certificate of incorporation provides otherwise. Under the Memorandum and Articles of Association and as permitted by the Companies Act, if our share capital is
divided into more than one class of shares, the rights attaching to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series)
may be varied or abrogated with the consent in writing of the holders of not less than two-thirds of the issued shares of that class or series or with the sanction of a special
resolution passed at a general meeting of the holders of the shares of that class or series.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to
vote, unless the certificate of incorporation provides otherwise. Under the Companies Act, the Memorandum and Articles of Association may only be amended by a special
resolution of our shareholders.
Anti-takeover Provisions
Some provisions of the Memorandum and Articles of Association may discourage, delay or prevent a change of control of our company or management that shareholders
may consider favorable, including a provision that authorizes our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences,
privileges and restrictions of such preferred shares without any further vote or action by our shareholders and limit the ability of shareholders to requisition and convene general
meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under the Memorandum and Articles of Association for a
proper purpose and for what they believe in good faith to be in the best interests of our company.
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by foreign law or by the Memorandum and Articles of Association on the rights of non-resident or foreign shareholders to hold or
exercise voting rights on our ordinary shares.
Disclosure of Ownership Threshold
There are no provisions in the Memorandum and Articles of Association that require our company to disclose shareholder ownership above any particular ownership
threshold.
Directors’ Power to Issue Shares
Under the Memorandum and Articles of Association, our board of directors is empowered to issue or allot shares or grant options and warrants with or without preferred,
deferred, qualified or other special rights or restrictions.
Exempted Company
The Companies Act in the Cayman Islands distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman
Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are
essentially the same as for an ordinary company except for the exemptions and privileges listed below:
· an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;
· an exempted company’s register of members is not required to be open to inspection;
· an exempted company does not have to hold an annual general meeting;
· an exempted company may issue no par value shares;
· an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first
instance);
· an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
· an exempted company may register as a limited duration company; and
· an exempted company may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholder’s shares of the company (except in
exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be
prepared to pierce or lift the corporate veil).
Changes in Capital (Item 10.B.10 of Form 20-F)
Our shareholders may from time to time by ordinary resolutions:
· consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;
· convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination;
· subdivide its existing shares, or any of them into shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the
amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and
· cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share
capital by the amount of the shares so cancelled.
Subject to the Companies Act, our shareholders may by special resolution reduce our share capital and any capital redemption reserve in any manner authorized by law.
Debt Securities (Item 12.A of Form 20-F)
Not applicable.
Warrants and Rights (Item 12.B of Form 20-F)
Not applicable.
Other Securities (Item 12.C of Form 20-F)
Not applicable.
American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)
JPMorgan Chase Bank, N.A., as depositary, registers and delivers the ADSs. Each ADS represents an ownership of six ordinary shares, deposited with a custodian, as
agent of the depositary. Each ADS also represents ownership of any other securities, cash or other property which may be held by the depositary.
The depositary’s office is located at 383 Madison Avenue, Floor 11, New York, NY 10179.
The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, or DTC, pursuant to which the depositary may register the
ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto.
You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name
on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution
nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. You should consult with your broker
or financial institution to find out what those procedures are.
As an ADR holder or beneficial owner, we will not treat you as a shareholder of ours and you will not have any shareholder rights. Cayman Island law governs
shareholder rights. Because the depositary or its nominee will be the shareholder of record for the shares represented by all outstanding ADSs, shareholder rights rest with such
record holder. Your rights are those of an ADR holder or of a beneficial owner. Such rights derive from the terms of the deposit agreement to be entered into among us, the
depositary and all holders and beneficial owners from time to time of ADRs issued under the deposit agreement and, in the case of a beneficial owner, from the arrangements
between the beneficial owner and the holder of the corresponding ADRs. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the
depositary or its nominee will actually be the registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf.
The following is a summary of the material provisions of the deposit agreement, as amended and restated from time to time. This summary description assumes you have
opted to own the ADSs directly by means of an ADS registered in your name and, as such, we will refer to you as the “holder.” When we refer to “you,” we assume the reader owns
ADSs and will own ADSs at the relevant time. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your
ADSs. The form of amended and restated deposit agreement has been filed with the SEC as an exhibit to a post-effective amendment No. 1 to Form F-6 (File No. 333-205526) filed
on May 20, 2020. The form of ADR is incorporated in the amended and restated deposit agreement.
Share Dividends and Other Distributions
How will I receive dividends and other distributions on the shares underlying my ADSs?
We may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable, it will pay to you the cash dividends or
other distributions it or the custodian receives on shares or other deposited securities, after converting any cash received into U.S. dollars (if it determines such conversion may be
made on a reasonable basis) and, in all cases, making any necessary deductions provided for in the deposit agreement. The depositary may utilize a division, branch or affiliate of
JPMorgan Chase Bank, N.A. to direct, manage, and/or execute any public and/or private sale of securities under the deposit agreement. Such division, branch, and/or affiliate may
charge the depositary a fee in connection with such sales, which fee is considered an expense of the depositary. You will receive these distributions in proportion to the number of
underlying securities that your ADSs represent.
Except as stated below, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following manner:
· Cash. The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any
other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld,
(ii) such distribution being impermissible or impracticable with respect to certain registered ADR holders, and (iii) deduction of the depositary’s and/or its agents’
expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis, (2)
transferring foreign currency or U.S. dollars to the United States by such means as the depositary may determine to the extent that it determines that such transfer
may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is
obtainable at a reasonable cost and within a reasonable time, and (4) making any sale by public or private means in any commercially reasonable manner. If
exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution.
· Shares. In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole
ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the
ADR holders entitled thereto.
· Rights to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we timely provide evidence
satisfactory to the depositary that it may lawfully distribute such rights, the depositary will distribute warrants or other instruments in the discretion of the
depositary representing such rights. However, if we do not timely furnish such evidence, the depositary may: (i) sell such rights if practicable and distribute the
net proceeds in the same manner as cash to the ADR holders entitled thereto; or (ii) if it is not practicable to sell such rights by reason of the non-transferability of
the rights, limited markets therefor, their short duration or otherwise, do nothing and allow such rights to lapse, in which case ADR holders will receive nothing
and the rights may lapse.
· Other Distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities
or property in any manner it deems equitable and practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be
equitable and practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash.
If the depositary determines in its discretion that any distribution described above is not practicable with respect to any specific registered ADR holder, the depositary may
choose any method of distribution that it deems practicable for such ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items,
without paying interest on or investing them, on behalf of the ADR holder as deposited securities, in which case the ADSs will also represent the retained items.
Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and
dealt with by the depositary in accordance with its then current practices.
The depositary is not responsible if it fails to determine that any distribution or action is lawful or reasonably practicable.
There can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a
specified price, nor that any of such transactions can be completed within a specified time period. All purchases and sales of securities will be handled by the depositary in
accordance with its then current policies, which are currently set forth on the “Disclosures” page (or successor page) of www.adr.com (as updated by the depositary from time to
time, “ADR.com”).
Deposit, Withdrawal and Cancellation
How does the depositary issue ADSs?
The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian and pay the fees and expenses owing to the
depositary in connection with such issuance.
Shares deposited with the custodian must be accompanied by certain delivery documentation and shall, at the time of such deposit, be registered in the name of JPMorgan
Chase Bank, N.A., as depositary for the benefit of holders of ADRs or in such other name as the depositary shall direct.
The custodian will hold all deposited shares for the account and to the order of the depositary, in each case for the benefit of ADR holders. ADR holders and beneficial
owners thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional
securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as “deposited securities”.
Deposited securities are not intended to, and shall not, constitute proprietary assets of the depositary, the custodian or their nominees. Beneficial ownership in deposited
securities is intended to be, and shall at all times during the term of the deposit agreement continue to be, vested in the beneficial owners of the ADSs representing such deposited
securities. Notwithstanding anything else contained herein, in the deposit agreement, in the form of ADR and/or in any outstanding ADSs, the depositary, the custodian and their
respective nominees are intended to be, and shall at all times during the term of the deposit agreement be, the record holder(s) only of the deposited securities represented by the
ADSs for the benefit of the ADR holders. The depositary, on its own behalf and on behalf of the custodian and their respective nominees, disclaims any beneficial ownership
interest in the deposited securities held on behalf of the ADR holders.
After any such deposit of shares, the custodian shall notify the depositary of such deposit and of the information contained in any related delivery order by letter, first class
airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by SWIFT, cable, telex or facsimile transmission. After receiving such notice from the
custodian, the depositary, subject to the deposit agreement, shall properly issue at the transfer office, to or upon the order of any person named in such notice, an ADR or ADRs
registered as requested and evidencing the aggregate ADSs to which such person is entitled.
How do ADR holders cancel an ADS and obtain deposited securities?
When you turn in your ADR certificate at the depositary’s office, or when you provide proper instructions and documentation in the case of direct registration ADSs, the
depositary will, upon payment of certain applicable fees, charges, and taxes, deliver the underlying shares to you or upon your written order. Delivery of deposited securities in
certificated form will be made at the custodian’s office. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request.
The depositary may only restrict the withdrawal of deposited securities in connection with:
· temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or
the payment of dividends;
· the payment of fees, taxes, and similar charges; or
· compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities.
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Record Dates
The depositary may, after consultation with us if practicable, fix record dates (which, to the extent applicable, shall be as near as practicable to any corresponding record
dates set by us) for the determination of the registered ADR holders who will be entitled (or obligated, as the case may be):
· to receive any distribution on or in respect of deposited securities,
· to give instructions for the exercise of voting rights at a meeting of holders of shares,
· to pay the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR, or
· to receive any notice or to act in respect of other matters,
all subject to the provisions of the deposit agreement.
Voting Rights
How do I vote?
If you are an ADR holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares
which underlie your ADSs. As soon as practicable after receipt from us of notice of any meeting at which the holders of shares are entitled to vote, or of our solicitation of consents
or proxies from holders of shares, the depositary shall fix the ADS record date in accordance with the provisions of the deposit agreement, provided that if the depositary receives a
written request from us in a timely manner and at least 30 days prior to the date of such vote or meeting, the depositary shall, at our expense, distribute to the registered ADR
holders a “voting notice” stating (i) final information particular to such vote and meeting and any solicitation materials, (ii) that each ADR holder on the record date set by the
depositary will, subject to any applicable provisions of Cayman Islands law, be entitled to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the
deposited securities represented by the ADSs evidenced by such ADR holder’s ADRs, and (iii) the manner in which such instructions may be given or deemed to be given pursuant
to the terms of the deposit agreement, including instructions for giving a discretionary proxy to a person designated by us. Each ADR holder shall be solely responsible for the
forwarding of voting notices to the beneficial owners of ADSs registered in such ADR holder’s name. There is no guarantee that ADR holders and beneficial owners generally or
any holder or beneficial owner in particular will receive the notice described above with sufficient time to enable such ADR holder or beneficial owner to return any voting
instructions to the depositary in a timely manner.
Following actual receipt by the ADR department responsible for proxies and voting of ADR holders’ instructions (including, without limitation, instructions of any entity
or entities acting on behalf of the nominee for DTC), the depositary shall, in the manner and on or before the time established by the depositary for such purpose, endeavor to vote
or cause to be voted the deposited securities represented by the ADSs evidenced by such ADR holders’ ADRs in accordance with such instructions insofar as practicable and
permitted under the provisions of or governing deposited securities.
To the extent that (i) we have provided the depositary with at least 35 days’ notice of the proposed meeting, (ii) the voting notice will be received by all ADR holders and
beneficial owners no less than 10 days prior to the date of the meeting and/or the cut-off date for the solicitation of consents, and (iii) the depositary does not receive instructions on
a particular agenda item from an ADR holder (including, without limitation, any entity or entities acting on behalf of the nominee for DTC) in a timely manner, such ADR holder
shall be deemed, and in the deposit agreement the depositary is instructed to deem such ADR holder, to have instructed the depositary to give a discretionary proxy for such agenda
item(s) to a person designated by us to vote the deposited securities represented by the ADSs for which actual instructions were not so given by all such ADR holders on such
agenda item(s), provided that no such instruction shall be deemed given and no discretionary proxy shall be given unless (1) we inform the depositary in writing (and we agree to
provide the depositary with such instruction promptly in writing) that (a) we wish such proxy to be given with respect to such agenda item(s), (b) there is no substantial opposition
existing with respect to such agenda item(s), and (c) such agenda item(s), if approved, would not materially or adversely affect the rights of holders of shares, and (2) the depositary
has obtained an opinion of counsel, in form and substance satisfactory to the depositary, confirming that (A) the granting of such discretionary proxy does not subject the depositary
to any reporting obligations in the Cayman Islands, (B) the granting of such proxy will not result in a violation of the laws, rules, regulations or permits of the Cayman Islands, (C)
the voting arrangement and deemed instruction as contemplated herein will be given effect under the laws, rules, and regulations of the Cayman Islands, and (D) the granting of
such discretionary proxy will not under any circumstances result in the shares represented by the ADSs being treated as assets of the depositary under the laws, rules or regulations
of the Cayman Islands.
The depositary may from time to time access information available to it to consider whether any of the circumstances described above exist, or request additional
information from us in respect thereto. By taking any such action, the depositary shall not in any way be deemed or inferred to have been required, or have had any duty or
responsibility (contractual or otherwise), to monitor or inquire whether any of the circumstances described above existed. In addition to the limitations provided for in the deposit
agreement, ADR holders and beneficial owners are advised and agree that (a) the depositary will rely fully and exclusively on us to inform it of any of the circumstances set forth
above, and (b) neither the depositary, the custodian nor any of their respective agents shall be obliged to inquire or investigate whether any of the circumstances described above
exist and/or whether we complied with our obligation to timely inform the depositary of such circumstances. Neither the depositary, the custodian nor any of their respective agents
shall incur any liability to ADR holders or beneficial owners (i) as a result of our failure to determine that any of the circumstances described above exist or our failure to timely
notify the depositary of any such circumstances or (ii) if any agenda item which is approved at a meeting has, or is claimed to have, a material or adverse effect on the rights of
holders of shares. Because there is no guarantee that ADR holders and beneficial owners will receive the notices described above with sufficient time to enable such ADR holders
or beneficial owners to return any voting instructions to the depositary in a timely manner, ADR holders and beneficial owners may be deemed to have instructed the depositary to
give a discretionary proxy to a person designated by us in such circumstances, and neither the depositary, the custodian nor any of their respective agents shall incur any liability to
ADR holders or beneficial owners in such circumstances.
ADR holders are strongly encouraged to forward their voting instructions to the depositary as soon as possible. For instructions to be valid, the ADR department of the
depositary that is responsible for proxies and voting must receive them in the manner and on or before the time specified, notwithstanding that such instructions may have been
physically received by the depositary prior to such time. The depositary will not itself exercise any voting discretion in respect of deposited securities. The depositary and its agents
will not be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any voting instructions are given or deemed to be
given in accordance with the terms of the deposit agreement, including instructions to give a discretionary proxy to a person designated by us, for the manner in which any vote is
cast, including, without limitation, any vote cast by a person to whom the depositary is instructed to grant a discretionary proxy (or deemed to have been instructed pursuant to the
terms of the deposit agreement), or for the effect of any such vote. Notwithstanding anything contained in the deposit agreement or any ADR, the depositary may, to the extent not
prohibited by any law, regulation, or requirement of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the depositary in
connection with any meeting of or solicitation of consents or proxies from holders of deposited securities, distribute to the registered holders of ADRs a notice that provides such
ADR holders with or otherwise publicizes to such ADR holders instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website
containing the materials for retrieval or a contact for requesting copies of the materials).
We have advised the depositary that under Cayman Islands law and our constituent documents, each as in effect as of the date of the deposit agreement, voting at any
meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded. In the event that voting on any resolution
or matter is conducted on a show of hands basis in accordance with our constituent documents, the depositary will refrain from voting and the voting instructions received by the
depositary from ADR holders shall lapse. The depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by ADR holders or beneficial
owners.
There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through
brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Reports and Other Communications
Will ADR holders be able to view our reports?
The depositary will make available for inspection by ADR holders at the offices of the depositary and the custodian the deposit agreement, the provisions of or governing
deposited securities, and any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally
available to the holders of deposited securities.
Additionally, if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English translations or summaries) to
the depositary, it will distribute the same to registered ADR holders.
Fees and Expenses
What fees and expenses will I be responsible for paying?
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share
distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities, or any
other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or
reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell
(by public or private sale) sufficient securities and property received in respect of a share distribution, rights, and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall also be incurred by the ADR holders, the beneficial owners, by any party depositing or withdrawing shares or by any party
surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock
regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
· a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;
· a fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be
charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary
during each calendar year and shall be payable in the manner described in the next succeeding provision);
· a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the
custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to
foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited
securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or
regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be
payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions);
· a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the US$0.05 per ADS
issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if
they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto;
· stock transfer or other taxes and other governmental charges;
· cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares;
· transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of
deposited securities;
· in connection with the conversion of foreign currency into U.S. dollars, JPMorgan Chase Bank, N.A. shall deduct out of such foreign currency the fees, expenses
and other charges charged by it and/or its agent (which may be a division, branch or affiliate) so appointed in connection with such conversion; and
· fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/or private sale of securities
under the deposit agreement.
To facilitate the administration of various depositary receipt transactions, including disbursement of dividends or other cash distributions and other corporate actions, the
depositary may engage the foreign exchange desk within JPMorgan Chase Bank, N.A. (the “Bank”) and/or its affiliates in order to enter into spot foreign exchange transactions to
convert foreign currency into U.S. dollars. For certain currencies, foreign exchange transactions are entered into with the Bank or an affiliate, as the case may be, acting in a
principal capacity. For other currencies, foreign exchange transactions are routed directly to and managed by an unaffiliated local custodian (or other third party local liquidity
provider), and neither the Bank nor any of its affiliates is a party to such foreign exchange transactions.
The foreign exchange rate applied to an foreign exchange transaction will be either (a) a published benchmark rate, or (b) a rate determined by a third party local liquidity
provider, in each case plus or minus a spread, as applicable. The depositary will disclose which foreign exchange rate and spread, if any, apply to such currency on the
“Disclosures” page (or successor page) of ADR.com. Such applicable foreign exchange rate and spread may (and neither the depositary, the Bank nor any of their affiliates is under
any obligation to ensure that such rate does not) differ from rates and spreads at which comparable transactions are entered into with other customers or the range of foreign
exchange rates and spreads at which the Bank or any of its affiliates enters into foreign exchange transactions in the relevant currency pair on the date of the foreign exchange
transaction. Additionally, the timing of execution of an foreign exchange transaction varies according to local market dynamics, which may include regulatory requirements, market
hours and liquidity in the foreign exchange market or other factors. Furthermore, the Bank and its affiliates may manage the associated risks of their position in the market in a
manner they deem appropriate without regard to the impact of such activities on the depositary, us, holders or beneficial owners. The spread applied does not reflect any gains or
losses that may be earned or incurred by the Bank and its affiliates as a result of risk management or other hedging related activity.
Notwithstanding the foregoing, to the extent we provide U.S. dollars to the depositary, neither the Bank nor any of its affiliates will execute a foreign exchange transaction
as set forth herein. In such case, the depositary will distribute the U.S. dollars received from us.
Further details relating to the applicable foreign exchange rate, the applicable spread and the execution of foreign exchange transactions will be provided by the
depositary on ADR.com. Each holder and beneficial owner by holding or owning an ADR or ADS or an interest therein, and we, each acknowledge and agree that the terms
applicable to foreign exchange transactions disclosed from time to time on ADR.com will apply to any foreign exchange transaction executed pursuant to the deposit agreement.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us
and the depositary.
The right of the depositary to receive payment of fees, charges, and expenses survives the termination of the deposit agreement, and shall extend for those fees, charges,
and expenses incurred prior to the effectiveness of any resignation or removal of the depositary.
The fees and charges described above may be amended from time to time by agreement between us and the depositary.
The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and
conditions as we and the depositary may agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or
surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees
from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from
cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts
owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to
provide any further services to ADR holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all
fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary.
Payment of Taxes
ADR holders or beneficial owners must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or
distribution. If any taxes or other governmental charges (including any penalties and/or interest) shall become payable by or on behalf of the custodian or the depositary with
respect to any ADR, any deposited securities represented by the ADSs evidenced thereby or any distribution thereon, including, without limitation, any Chinese Enterprise Income
Tax owing if the Circular Guoshuifa [2009] No. 82 issued by the Chinese State Administration of Taxation (SAT) or any other circular, edict, order or ruling, as issued and as from
time to time amended, is applied or otherwise, such tax or other governmental charge shall be paid by the ADR holder thereof to the depositary and by holding or owning, or
having held or owned, an ADR or any ADSs evidenced thereby, the ADR holder and all beneficial owners thereof, and all prior ADR holders and beneficial owners thereof, jointly
and severally, agree to indemnify, defend and save harmless each of the depositary and its agents in respect of such tax or other governmental charge. Notwithstanding the
depositary’s right to seek payment from current and former beneficial owners, by holding or owning, or having held or owned, an ADR, the ADR holder thereof (and prior ADR
holder thereof) acknowledges and agrees that the depositary has no obligation to seek payment of amounts owing from any current or former beneficial owner. If an ADR holder
owes any tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell deposited securities (by public or private sale)
and deduct the amount owing from the net proceeds of such sale. In either case the ADR holder remains liable for any shortfall. If any tax or governmental charge is unpaid, the
depositary may also refuse to effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited securities until such payment
is made. If any tax or governmental charge is required to be withheld on any cash distribution, the depositary may deduct the amount required to be withheld from any cash
distribution or, in the case of a non-cash distribution, sell the distributed property or securities (by public or private sale) in such amounts and in such manner as the depositary
deems necessary and practicable to pay such taxes and distribute any remaining net proceeds or the balance of any such property after deduction of such taxes to the ADR holders
entitled thereto.
As an ADR holder or beneficial owner, you will be agreeing to indemnify us, the depositary, its custodian and any of our or their respective officers, directors, employees,
agents and affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out
of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.
Reclassifications, Recapitalizations and Mergers
If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of
deposited securities or (ii) any distributions of shares or other property not made to holders of ADRs or (iii) any recapitalization, reorganization, merger, consolidation, liquidation,
receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to, and shall if reasonably requested by us:
· amend the form of ADR;
· distribute additional or amended ADRs;
· distribute cash, securities or other property it has received in connection with such actions;
· sell any securities or property received and distribute the proceeds as cash; or
· none of the above.
If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each
ADS will then represent a proportionate interest in such property.
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. ADR holders must be given at least 30 days’ notice
of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, SWIFT,
cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADR holders or beneficial owners. Such
notice need not describe in detail the specific amendments effectuated thereby, but must identify to ADR holders and beneficial owners a means to access the text of such
amendment. If an ADR holder continues to hold an ADR or ADRs after being so notified, such ADR holder and any beneficial owner are deemed to agree to such amendment and
to be bound by the deposit agreement as so amended. No amendment, however, will impair your right to surrender your ADSs and receive the underlying securities, except in order
to comply with mandatory provisions of applicable law.
Any amendments or supplements which (i) are reasonably necessary (as agreed by us and the depositary) in order for (a) the ADSs to be registered on Form F-6 under the
Securities Act of 1933 or (b) the ADSs or shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be
borne by ADR holders, shall be deemed not to prejudice any substantial rights of ADR holders or beneficial owners. Notwithstanding the foregoing, if any governmental body or
regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit agreement or the form of ADR to ensure compliance
therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any time in accordance with such changed laws, rules or regulations. Such
amendment or supplement to the deposit agreement in such circumstances may become effective before a notice of such amendment or supplement is given to ADR holders or
within any other period of time as required for compliance.
Notice of any amendment to the deposit agreement or form of ADRs shall not need to describe in detail the specific amendments effectuated thereby, and failure to
describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the ADR holders identifies
a means for ADR holders and beneficial owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the SEC’s, the depositary’s or our website or upon
request from the depositary).
How may the deposit agreement be terminated?
The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of
ADRs at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit
agreement, notice of such termination by the depositary shall not be provided to registered ADR holders unless a successor depositary shall not be operating under the deposit
agreement within 60 days of the date of such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary shall not be
provided to registered holders of ADRs unless a successor depositary shall not be operating under the deposit agreement on the 60th day after our notice of removal was first
provided to the depositary.
After the date so fixed for termination, (i) all direct registration ADRs shall cease to be eligible for the direct registration system and shall be considered ADRs issued on
the ADR register maintained by the depositary and (ii) the depositary shall use its reasonable efforts to ensure that the ADSs cease to be DTC eligible so that neither DTC nor any
of its nominees shall thereafter be a holder of ADRs. At such time as the ADSs cease to be DTC eligible and/or neither DTC nor any of its nominees is a holder of ADRs, the
depositary shall (i) instruct its custodian to deliver all deposited securities to us along with a general stock power that refers to the names set forth on the ADR register maintained
by the depositary and (ii) provide us with a copy of the ADR register maintained by the depositary. Upon receipt of such deposited securities and the ADR register maintained by
the depositary, we have agreed to use our best efforts to issue to each ADR holder a share certificate representing the shares represented by the ADSs reflected on the ADR register
maintained by the depositary in such registered ADR holder’s name and to deliver such share certificate to the registered ADR holder at the address set forth on the ADR register
maintained by the depositary. After providing such instruction to the custodian and delivering a copy of the ADR register to us, the depositary, and its agents will perform no
further acts under the deposit agreement or the ADRs and shall cease to have any obligations under the deposit agreement and/or the ADRs. After we receive the copy of the ADR
register and the shares and/or deposited securities from the depositary, we shall be discharged from all obligations under the deposit agreement except (i) to distribute the shares to
the registered ADR holders entitled thereto and (ii) for its obligations to the depositary and its agents.
Notwithstanding anything to the contrary, in connection with any such termination, the depositary may, in its sole discretion and without notice to us, establish an
unsponsored American depositary share program (on such terms as the depositary may determine) for our shares and make available to ADR holders a means to withdraw the
shares represented by the ADSs issued under the deposit agreement and to direct the deposit of such shares into such unsponsored American depositary share program, subject, in
each case, to receipt by the depositary, at its discretion, of the fees, charges, and expenses provided for under the deposit agreement and the fees, charges, and expenses applicable
to the unsponsored American depositary share program.
Limitations on Obligations and Liability to ADR holders
Limits on our obligations and the obligations of the depositary; limits on liability to ADR holders and holders of ADSs
Prior to the issue, registration, registration of transfer, split-up, combination, or cancelation of any ADRs, or the delivery of any distribution in respect thereof, and from
time to time in the case of the production of proofs as described below, we or the depositary or its custodian may require:
· payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the
registration of transfers of shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the deposit
agreement;
· the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without
limitation, information as to citizenship, residence, exchange control approval, beneficial or other ownership of, or interest in, any securities, compliance with
applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADRs, as it may deem necessary or
proper; and
· compliance with such regulations as the depositary may establish consistent with the deposit agreement.
The issuance of ADRs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADRs or the withdrawal of shares, may be
suspended, generally or in particular instances, when the ADR register or any register for deposited securities is closed or when any such action is deemed advisable by the
depositary; provided that the ability to withdraw shares may only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of the
depositary or our transfer books or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes, and
similar charges, and (iii) compliance with any laws or governmental regulations relating to ADRs or to the withdrawal of deposited securities.
The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents, provided, however, that no disclaimer of liability
under the Securities Act of 1933 is intended by any of the limitations of liabilities provisions of the deposit agreement. The deposit agreement provides that each of us, the
depositary and our respective agents will:
· incur or assume no liability (including, without limitation, to holders or beneficial owners) if any present or future law, rule, regulation, fiat, order or decree of the
Cayman Islands, Hong Kong, the People’s Republic of China, the United States or any other country or jurisdiction, or of any governmental or regulatory
authority or securities exchange or market or automated quotation system, the provisions of or governing any deposited securities, any present or future provision
of our charter, any act of God, war, terrorism, nationalization, expropriation, currency restrictions, work stoppage, strike, civil unrest, revolutions, rebellions,
explosions, computer failure, or circumstance beyond our, the depositary’s, or our respective agents’ direct and immediate control shall prevent or delay, or shall
cause any of them to be subject to any civil or criminal penalty in connection with, any act which the deposit agreement or the ADRs provide shall be done or
performed by us, the depositary or our respective agents (including, without limitation, voting);
· incur or assume no liability (including, without limitation, to holders or beneficial owners) by reason of any non-performance or delay, caused as aforesaid, in the
performance of any act or things which by the terms of the deposit agreement it is provided shall or may be done or performed or any exercise or failure to
exercise discretion under the deposit agreement or the ADRs including, without limitation, any failure to determine that any distribution or action may be lawful
or reasonably practicable;
· incur or assume no liability (including, without limitation, to holders or beneficial owners) if it performs its obligations under the deposit agreement and ADRs
without gross negligence or willful misconduct;
· in the case of the depositary and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited
securities the ADSs or the ADRs;
· in the case of us and our agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities
the ADSs or the ADRs, which in our or our agents’ opinion, as the case may be, may involve it in expense or liability, unless indemnity satisfactory to us or our
agent, as the case may be against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be requested;
· not be liable (including, without limitation, to holders or beneficial owners) for any action or inaction by it in reliance upon the advice of or information from any
legal counsel, any accountant, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give
such advice or information and/or, in the case of the depositary, us; or
· may rely and shall be protected in acting upon any written notice, request, direction, instruction or document believed by it to be genuine and to have been signed,
presented or given by the proper party or parties.
Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the
ADSs or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADSs
or the ADRs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and
liability is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf
in connection with the deposit agreement, any registered holder or holders of ADRs, any ADRs or otherwise related to the deposit agreement or ADRs to the extent such
information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking,
securities or other regulators. The depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement
system. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch
or affiliate of JPMorgan. Notwithstanding anything to the contrary contained in the deposit agreement or any ADRs, the depositary shall not be responsible for, and shall incur no
liability in connection with or arising from, any act or omission to act on the part of the custodian except to the extent that any registered ADR holder has incurred liability directly
as a result of the custodian having (i) committed fraud or willful misconduct in the provision of custodial services to the depositary or (ii) failed to use reasonable care in the
provision of custodial services to the depositary as determined in accordance with the standards prevailing in the jurisdiction in which the custodian is located. The depositary and
the custodian(s) may use third party delivery services and providers of information regarding matters such as, but not limited to, pricing, proxy voting, corporate actions, class
action litigation, and other services in connection with the ADRs and the deposit agreement, and use local agents to provide services such as, but not limited to, attendance at any
meetings of security holders of issuers. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and
retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services. The
depositary shall not have any liability for the price received in connection with any sale of securities, the timing thereof or any delay in action or omission to act nor shall it be
responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale.
The depositary has no obligation to inform ADR holders or beneficial owners about the requirements of the laws, rules or regulations or any changes therein or thereto of
the Cayman Islands, Hong Kong, the People’s Republic of China, the United States or any other country or jurisdiction or of any governmental or regulatory authority or any
securities exchange or market or automated quotation system.
Additionally, none of the depositary, the custodian or us, or any of their or our respective directors, officers, employees, agents or affiliates shall be liable for the failure by
any registered holder of ADRs or beneficial owner therein to obtain the benefits of credits or refunds of non-U.S. tax paid against such ADR holder’s or beneficial owner’s income
tax liability. The depositary is under no obligation to provide the ADR holders and beneficial owners, or any of them, with any information about our tax status. Neither the
depositary or us shall incur any liability for any tax or tax consequences that may be incurred by registered ADR holders or beneficial owners on account of their ownership or
disposition of ADRs or ADSs.
Neither the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any
voting instructions are given or deemed to be given pursuant to the terms of the deposit agreement, including instructions to give a discretionary proxy to a person designated by us,
for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the depositary is instructed to grant a discretionary proxy (or deemed to
have been instructed pursuant to the terms of the deposit agreement), or for the effect of any such vote. The depositary may rely upon instructions from us or our counsel in respect
of any approval or license required for any currency conversion, transfer or distribution. The depositary shall not incur any liability for the content of any information submitted to
it by us or on our behalf for distribution to ADR holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the
deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the deposit
agreement or for the failure or timeliness of any notice from us. The depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection
with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary. Neither the depositary nor any
of its agents shall be liable for any indirect, special, punitive or consequential damages (including, without limitation, legal fees and expenses) or lost profits, in each case of any
form incurred by any person or entity (including, without limitation holders or beneficial owners of ADRs and ADSs), whether or not foreseeable and regardless of the type of
action in which such a claim may be brought.
In the deposit agreement each party thereto (including, for avoidance of doubt, each ADR holder and beneficial owner) irrevocably waives, to the fullest extent permitted
by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the
shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort,
common law or any other theory). No provision of the deposit agreement or the ADRs is intended to constitute a waiver or limitation of any rights which an ADR holder or any
beneficial owner may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
The depositary and its agents may own and deal in any class of securities of our company and our affiliates and in ADRs.
Disclosure of Interest in ADSs
To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of, or interest in,
deposited securities, other shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, you as ADR holders or
beneficial owners agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect
thereof. We reserve the right to instruct you to deliver your ADSs for cancellation and withdrawal of the deposited securities so as to permit us to deal with you directly as a holder
of shares and, by holding an ADS or an interest therein, you and beneficial owners will be agreeing to comply with such instructions.
Books of Depositary
The depositary or its agent will maintain a register for the registration, registration of transfer, combination, and split-up of ADRs, which register shall include the
depositary’s direct registration system. Registered holders of ADRs may inspect such records at the depositary’s office at all reasonable times, but solely for the purpose of
communicating with other ADR holders in the interest of the business of our company or a matter relating to the deposit agreement. Such register may be closed at any time or
from time to time, when deemed expedient by the depositary.
The depositary will maintain facilities for the delivery and receipt of ADRs.
Appointment
In the deposit agreement, each registered holder of ADRs and each beneficial owner, upon acceptance of any ADSs or ADRs (or any interest in any of them) issued in
accordance with the terms and conditions of the deposit agreement will be deemed for all purposes to:
· be a party to and bound by the terms of the deposit agreement and the applicable ADR or ADRs,
· appoint the depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the deposit agreement and the
applicable ADR or ADRs, to adopt any and all procedures necessary to comply with applicable laws and to take such action as the depositary in its sole discretion
may deem necessary or appropriate to carry out the purposes of the deposit agreement and the applicable ADR and ADRs, the taking of such actions to be the
conclusive determinant of the necessity and appropriateness thereof, and
· acknowledge and agree that (i) nothing in the deposit agreement or any ADR shall give rise to a partnership or joint venture among the parties thereto, nor establish a
fiduciary or similar relationship among such parties, (ii) the depositary, its divisions, branches and affiliates, and their respective agents, may from time to time be in
the possession of non-public information about us, ADR holders, beneficial owners and/or their respective affiliates, (iii) the depositary and its divisions, branches and
affiliates may at any time have multiple banking relationships with us, ADR holders, beneficial owners and/or the affiliates of any of them, (iv) the depositary and its
divisions, branches and affiliates may, from time to time, be engaged in transactions in which parties adverse to us, ADR holders, beneficial owners and/or their
respective affiliates may have interests, (v) nothing contained in the deposit agreement or any ADR(s) shall (A) preclude the depositary or any of its divisions,
branches or affiliates from engaging in any such transactions or establishing or maintaining any such relationships, or (B) obligate the depositary or any of its
divisions, branches or affiliates to disclose any such transactions or relationships or to account for any profit made or payment received in any such transactions or
relationships, (vi) the depositary shall not be deemed to have knowledge of any information held by any branch, division or affiliate of the depositary and (vii) notice
to an ADR holder shall be deemed, for all purposes of the deposit agreement and the ADRs, to constitute notice to any and all beneficial owners of the ADSs
evidenced by such ADR holder’s ADRs. For all purposes under the deposit agreement and the ADRs, the ADR holders thereof shall be deemed to have all requisite
authority to act on behalf of any and all beneficial owners of the ADSs evidenced by such ADRs.
Governing Law
The deposit agreement, the ADSs and the ADRs are governed by and construed in accordance with the internal laws of the State of New York without giving effect to the
application of the conflict of law principles thereof.
Under the deposit agreement, by holding an ADS or an interest therein, ADR holders and beneficial owners each irrevocably agree that any legal suit, action or proceeding
against or involving ADR holders or beneficial owners brought by us or the depositary, arising out of or based upon the deposit agreement, the ADSs or the ADRs or the
transactions contemplated thereby or therein, may be instituted in a state or federal court in New York, New York, and by holding an ADS or an interest therein each irrevocably
waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in
any such suit, action or proceeding. Under the deposit agreement, by holding an ADS or an interest therein, ADR holders and beneficial owners each also irrevocably agree that any
legal suit, action or proceeding against or involving us or the depositary brought by ADR holders or beneficial owners, arising out of or based upon the deposit agreement, the
ADSs or the ADRs or the transactions contemplated thereby or therein, may only be instituted in a state or federal court in New York, New York, and by holding an ADS or an
interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the exclusive
jurisdiction of such courts in any such suit, action or proceeding.
Notwithstanding the foregoing, (i) the depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or
indirectly based on, arising out of or relating to the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, including without limitation any
question regarding its or their existence, validity, interpretation, performance or termination, against any other party or parties to the deposit agreement (including, without
limitation, against ADR holders and beneficial owners of interests in ADSs), by having the matter referred to and finally resolved by an arbitration conducted under the terms
described below, and (ii) the depositary may in its sole discretion require, by written notice to the relevant party or parties, that any dispute, suit, action, controversy, claim or
proceeding against the depositary by any party or parties to the deposit agreement (including, without limitation, by ADR holders and beneficial owners of interests in ADSs) shall
be referred to and finally settled by an arbitration conducted under the terms described in the deposit agreement. Any such arbitration shall be conducted in the English language
either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the
United Nations Commission on International Trade Law (UNCITRAL).
Notwithstanding the foregoing or anything in the deposit agreement to the contrary, any suit, action or proceeding against us based on the deposit agreement, the ADSs,
the ADRs or the transactions contemplated therein or thereby, may be instituted by the depositary in any competent court in the Cayman Islands, Hong Kong, the People’s Republic
of China and/or the United States, or by the depositary through the commencement of an arbitration pursuant to the deposit agreement.
Jury Trial Waiver
In the deposit agreement, each party thereto (including, for the avoidance of doubt, each holder and beneficial owner of, and/or holder of interests in, ADSs or ADRs)
irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly
or indirectly arising out of, based on or relating in any way to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction
contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory), including, without limitation, any suit, action or proceeding under
the united states federal securities laws.
List of Significant Subsidiaries and Consolidated Entities
Subsidiaries
Shanghai Juxiang Investment Management Consulting Co., Ltd.
Baoyi Investment Consulting (Shanghai) Co., Ltd.
Jupai HongKong Investment Limited
Shanghai Baoyixuan Investment Management Center (Limited Partnership)
Consolidated Entities
Juzhou Asset Management (Shanghai) Co., Ltd.
Shanghai Yidezhen Investment Management Center (Limited Partnership)
Shanghai Jupai Yumao Fund Sales Co., Ltd.
Exhibit 8.1
Place of Incorporation
PRC
PRC
Hong Kong
PRC
Place of Incorporation
PRC
PRC
PRC
* Other subsidiaries and consolidated entities of Jupai Holdings Limited have been omitted from this list since, considered in the aggregate as a single entity, they would not
constitute a significant subsidiary.
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.1
I, Jianda Ni, certify that:
1. I have reviewed this annual report on Form 20-F of Jupai Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by this annual report that
has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors
and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
Date: April 16, 2021
By:
/s/ Jianda Ni
Name:
Title:
Jianda Ni
Chairman of the Board of Directors and Chief Executive Officer
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.2
I, Min Liu, certify that:
1. I have reviewed this annual report on Form 20-F of Jupai Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by this annual report that
has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors
and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
Date: April 16, 2021
By:
/s/ Min Liu
Name:
Title:
Min Liu
Chief Financial Officer
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.1
In connection with the Annual Report of Jupai Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2020 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Jianda Ni, Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 16, 2021
By:
/s/ Jianda Ni
Name:
Title:
Jianda Ni
Chairman of the Board of Directors and Chief Executive Officer
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.2
In connection with the Annual Report of Jupai Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2020 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Min Liu, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 16, 2021
By:
/s/ Min Liu
Name:
Title:
Min Liu
Chief Financial Officer
源泰律师事务所
YUAN TAI LAW OFFICES
Exhibit 15.1
中国上海浦东新区浦东南路 256 号华夏银行大厦 14 楼
邮编：200120
电话：86-21-51150298
传真：86-21-51150398
14/F,Huaxia Bank Plaza,256 South Pudong Road
Pu Dong New Area
Shanghai 200120, P.R.China
Tel: 86-21-51150298
Fax: 86-21-51150398
Date: April 16, 2021
Dear Sirs,
We, Yuan Tai Law Offices, consent to the reference to our firm under the headings “Item 4. Information on the Company—B. Business Overview—Regulation” and “Item 4.
Information on the Company—C. Organizational Structure” in the Annual Report of Jupai Holdings Limited (the “Company”) on Form 20-F for the year ended December 31,
2020, which will be filed with the Securities and Exchange Commission (hereinafter the “SEC”) on April 16, 2021, and further consent to the incorporation by reference of the
summaries of our opinions under these headings into the Company’s registration statement on Form S-8 (File No. 333-206553), which was filed on August 25, 2015 and
registration statement on Form S-8 (File No. 333-209924), which was filed on March 4, 2016. We also consent to the filing with the SEC of this consent as an exhibit to the Annual
Report of the Company on Form 20-F for the year ended December 31, 2020.
Yours faithfully,
For and on behalf of
Yuan Tai Law Offices
/s/ Shao Jun
Name: Shao Jun
Designation: Partner
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements No. 333-209924 and No. 333-206553, respectively, on Form S-8 of our report dated April 16,
2021, with respect to the consolidated financial statements and financial statement schedule of Jupai Holdings Limited included in this Annual Report (Form 20-F) of Jupai
Holdings Limited for the year ended December 31, 2020.
Exhibit 15.2
/s/ B F Borgers CPA PC
Lakewood, Colorado
April 16, 2021
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements No. 333-209924 and No. 333-206553, respectively, on Form S-8 of our report dated April 26, 2019,
relating to the consolidated statements of comprehensive loss, changes in shareholders' deficit, and cash flows of Jupai Holdings Limited, its subsidiaries and its variable interest
entities for the year ended December 31, 2018, appearing in this Annual Report on Form 20-F for the year ended December 31, 2020.
Exhibit 15.3
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Shanghai, China
April 16, 2021