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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021.
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 __________
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 201102
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 201102
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
Trading Symbol
Name of each exchange on which registered
American Depositary Shares, each representing six ordinary shares
Ordinary shares, par value US$0.0005 per share*
JP
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.
None
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
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, 2021, there were 194,862,818 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), 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. ☐ Yes ☒ 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. ☐ Yes ☒ 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. ☒ Yes ☐ 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). ☒ Yes ☐ 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 ☐
Accelerated filer ☐
Non-accelerated filer ☒
Emerging growth company ☐
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. ☐
† 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. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐
Other ☐
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. ☐ Item 17 ☐ 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). ☐ Yes ☒ 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. ☐ Yes ☐ No
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TABLE OF CONTENTS
INTRODUCTION
1
FORWARD-LOOKING STATEMENTS
2
PART I
3
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
3
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
3
ITEM 3.
KEY INFORMATION
3
ITEM 4.
INFORMATION ON THE COMPANY
58
ITEM 4A.
UNRESOLVED STAFF COMMENTS
95
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
95
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
116
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
126
ITEM 8.
FINANCIAL INFORMATION
127
ITEM 9.
THE OFFER AND LISTING
128
ITEM 10.
ADDITIONAL INFORMATION
129
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
139
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
140
PART II.
143
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
143
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
143
ITEM 15.
CONTROLS AND PROCEDURES
143
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
144
ITEM 16B.
CODE OF ETHICS
144
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
144
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
144
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
145
ITEM 16F.
CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
146
ITEM 16G.
CORPORATE GOVERNANCE
146
ITEM 16H.
MINE SAFETY DISCLOSURE
146
PART III.
147
ITEM 17.
FINANCIAL STATEMENTS
147
ITEM 18.
FINANCIAL STATEMENTS
147
ITEM 19.
EXHIBITS
147
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INTRODUCTION
Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:
•
“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.
•
“VIEs” are to Shanghai Jupai Investment Group Co., Ltd., Shanghai E-Cheng Asset Management Co., Ltd. and Shanghai Yedu Enterprise
Management Co., Ltd.
This annual report on Form 20-F includes our audited consolidated financial statements including the statement of operations for the years
ended December 31, 2019, 2020 and 2021 and the consolidated balance sheets as of December 31, 2020 and 2021.
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 RMB6.3726 to US$1.00, the noon
buying rate for December 30, 2021 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.
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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.
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PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
Our Holding Company Structure and Contractual Arrangements with our VIEs and Their Shareholders
Jupai Holdings Limited is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in its variable
interest entities. We conduct our operations in China through (i) our PRC subsidiaries and (ii) our variable interest entities with which we have maintained
contractual arrangements. PRC laws and regulations restrict and impose conditions on foreign investment in direct sales of mutual fund and asset
management plans, market surveys and asset management business. Accordingly, we operate these businesses in China through our variable interest
entities, and rely on contractual arrangements among our PRC subsidiaries, our variable interest entities and their shareholders to control the business
operations of our variable interest entities. Revenues contributed by our variable interest entities accounted for approximately 62.2%, 61.2% and 58.8% of
our total revenues in 2019, 2020 and 2021, respectively. As used in this annual report, “we,” “us,” “our company” and “our” refer to Jupai Holdings
Limited, its subsidiaries and, in the context of describing our operations and consolidated financial information, our VIEs in China, including Shanghai
Jupai Investment Group Co., Ltd. , or Shanghai Jupai, Shanghai E-Cheng Asset Management Co., Ltd., or Shanghai E-Cheng, and Shanghai Yedu
Enterprise Management Co., Ltd., or Shanghai Yedu. Our VIEs and their subsidiaries are consolidated for accounting purposes. Investors in our ADSs are
not purchasing equity interest in our VIEs in China but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands.
A series of contractual agreements, including operating agreement, call option agreement, equity pledge agreement, voting proxy agreement,
consulting services agreement, exclusive support agreement, loan agreement, and exclusive call option agreement, have been entered into by and among
our subsidiaries, our VIEs and their respective shareholders. Terms contained in each set of contractual arrangements with our variable interest entities and
their respective shareholders are substantially similar. These agreements have not been tested in courts. For more details of these contractual arrangements,
see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangement with Shanghai Jupai” and “Item 4. Information on the
Company—C. Organizational Structure—Contractual Arrangement with Shanghai E-Cheng.”
However, the contractual arrangements may not be as effective as direct ownership in providing us with control over our VIEs and their
subsidiaries and we may incur substantial costs to enforce the terms of the arrangements. See “Item 3. Key Information—D. Risk Factors—Risks Related
to Our Corporate Structure—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” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Corporate Structure—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.”
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules
regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with our VIEs and their shareholders.
It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would
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provide. If we or any of our VIEs is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the
required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures.
See “Item 3. Key Information—D. Risk Factors—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.” and “—Substantial uncertainties exist with respect to the interpretation and implementation of the 2019 PRC Foreign Investment Law
and its Implementation Rules and how they may impact the viability of our current corporate structure, corporate governance, and operations.”
Our corporate structure is subject to risks associated with our contractual arrangements with our VIEs. If the PRC government deems that our
contractual arrangements with our VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these
regulations or the interpretation of existing regulations change or are interpreted differently in the future, it would likely result in a material change in our
operations and/or a material change in the value of our ADSs, including that it could cause the value of our ADSs to significantly decline or become
worthless, and we could also be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company, our PRC
subsidiaries and VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the
enforceability of the contractual arrangements with our VIEs and, consequently, significantly affect the financial performance of our VIEs and our
company as a whole. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key
Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China, and we
are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings,
oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United
States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or
completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed
description of risks related to doing business in China, please refer to risks disclosed under “Item 3.D. Key Information—Risk Factors—Risks Related to
Doing Business in China.”
PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and
foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors.
Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline. For more details, see “Item 3.
Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our
business operation could result in a material adverse change in our operations and the value of our ADSs.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly
evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item
3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in the
interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
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Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and VIEs in China. Our operations in China are governed by PRC laws and
regulations. As of the date of this annual report, our PRC subsidiaries and VIEs have obtained the requisite licenses and permits from the PRC government
authorities that are material for the business operations of our holding company and our VIEs in China, including, among others, private fund manager
registrations with Asset Management Association of China by Juzhou Asset Management (Shanghai) Co., Ltd., Shanghai Yiju Asset Management Co.,
Ltd., Shanghai Yidezhen Investment Management Center (Limited Partnership), Hangzhou Yideshanzhen Investment Management Partnership (L.P.),
Shanghai Yidexin Equity Investment Management Co., Ltd., Shanghai Yidezeng Equity Investment Management Center (L.P.) and Shanghai Jupeng Asset
Management Co., Ltd., the Insurance Brokerage Business License by Shanghai Jupai Yongyu Insurance Brokers Co., Ltd. and the Securities and Futures
Business License by Shanghai Jupai Yumao Fund Sales Co., Ltd. Given the uncertainties of interpretation and implementation of relevant laws and
regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals
for the functions and services of our platform in the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related
to Doing Business in China— Uncertainties with respect to the PRC legal system and changes in the interpretation and enforcement of PRC laws and
regulations could limit the legal protections available to you and us.”
Furthermore, in connection with our issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of
the date of this annual report, we, our PRC subsidiaries and our VIEs, (i) are not required to obtain permissions from the China Securities Regulatory
Commission, or the CSRC, (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have
not received or were denied such requisite permissions by any PRC authority.
However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas
and/or foreign investment in China-based issuers, enhancing supervision over China-based companies listed overseas using a variable interest entity
structure. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of the
CSRC or other PRC government authorities may be required in connection with our future offshore offerings under PRC law, and, if required, we cannot
predict whether or for how long we will be able to obtain such approval.”
Cash Flows through Our Organization
Jupai Holdings Limited is a holding company with no operations of its own. We conduct our operations in China through our PRC subsidiaries
and VIEs and their respective subsidiaries in China. As a result, although other means are available for us to obtain financing at the holding company level,
Jupai Holdings Limited’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC
subsidiaries. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay
dividends to Jupai Holdings Limited. In addition, our PRC subsidiaries are permitted to pay dividends to Jupai Holdings Limited only out of their retained
earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and VIEs are required to make
appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends
except in the event of a solvent liquidation of the companies. For more details, see “Item 5. Operating and Financial Review and Prospects—Liquidity and
Capital Resources—Holding Company Structure.”
Under PRC laws and regulations, our PRC subsidiaries and VIEs are subject to certain restrictions with respect to paying dividends or
otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to
examination by the banks designated by the State
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Administration of Foreign Exchange, or SAFE. The amounts restricted include the paid-up capital and the statutory reserve funds of our PRC subsidiaries
and the net assets of our VIEs, in which we have no legal ownership, totaling negative net assets of RMB91.4 billion (US$14.3 billion) in 2021 and
positive net assets of RMB298.6 million and RMB425.9 million in 2020 and 2019, respectively. Our PRC subsidiaries, our VIEs and their subsidiaries
generate their revenue primarily in Renminbi and the conversion of Renminbi to other currencies is subject to various restrictions. As a result, any
restriction on currency exchange may limit the ability of our PRC subsidiaries to pay dividends to us. For risks relating to the fund flows of our operations
in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—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.”
Under PRC laws and regulations, Jupai Holdings Limited may provide funding to our PRC subsidiaries only through capital contributions or
loans, and to our PRC variable interest entities only through loans, subject to satisfaction of applicable government registration and approval requirements.
In 2019, 2020 and 2021, no loans was extended by Jupai Holdings Limited to our intermediate holding companies and subsidiaries, and our VIEs received
no capital contribution or loan investment from our Cayman Islands holding company.
Our VIEs may transfer cash to our relevant PRC subsidiaries by paying service fees according to the consulting services agreement, exclusive
support agreement and exclusive business operation agreement. Our VIEs agree to pay our PRC subsidiaries service fees, the amount of which are subject
to adjustment at our PRC subsidiaries’ sole discretion taking into consideration of the actual operation of our VIEs, among others. In 2019, 2020 and 2021,
no service fees was paid to our PRC subsidiaries by our VIEs in China.
Jupai Holdings Limited has not declared or paid any cash dividends, nor does it has any present plan to pay any cash dividends on its ordinary
shares in the foreseeable future. We currently intend to retain all of our available funds and any future earnings to operate and expand our business. See
“Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States federal
income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”
In 2019, 2020 and 2021, no assets other than cash were transferred through our organization.
Condensed Consolidating Schedule Disaggregating Our Operations
We conduct our operations in China through our PRC subsidiaries and VIEs and their respective subsidiaries in China. For accounting
purposes, we receive the economic benefits of our VIEs and their subsidiaries through the contractual arrangements, which enable us to consolidate the
financial results of our VIEs and their subsidiaries in our consolidated financial statements under U.S. GAAP. This structure involves unique risks to
investors.
The following tables set forth selected condensed consolidated financial data of Jupai Holdings Limited, its subsidiaries and the VIEs and the
subsidiaries of VIEs for the fiscal years ended December 31, 2021 and 2020, and balance sheet data as of December 31, 2021 and 2020, which have been
derived from our audited consolidated financial statements for those years.
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Selected condensed consolidated statements of income information
For the Year Ended December 31, 2021
Jupai Holdings
Limited
Subsidiaries
VIEs and their
Subsidiaries
Eliminations
Consolidated
Total
Revenue
—
147,883,472
211,170,667
—
359,054,139
Operating cost and expenses
(8,661,282)
(173,681,843)
(245,086,293)
67,199,716
(360,229,702)
Net loss
(267,861,722)
(35,743,308)
(318,719,762)
327,687,001
(294,637,791)
For the Year Ended December 31, 2020
Jupai Holdings
Limited
Subsidiaries
VIEs and their
Subsidiaries
Eliminations
Consolidated
Total
Revenue
2,058,504
148,732,281
237,380,958
—
388,171,743
Operating cost and expenses
(16,222,819)
(319,494,886)
(200,598,616)
113,718,118
(422,598,203)
Net loss
(31,367,648)
(135,464,850)
(2,034,547)
132,242,599
(36,624,446)
Selected condensed consolidated balance sheets
For the Year Ended December 31, 2021
Jupai Holdings
Limited
Subsidiaries
VIEs and their
Subsidiaries
Eliminations
Consolidated
Total
Cash and cash equivalents
17,664,031
466,620,867
117,485,051
—
601,769,949
Restricted cash
—
1,560,052
8,769,250
—
10,329,302
Total current assets
19,214,964
476,781,295
190,104,647
—
686,100,906
Investments in subsidiaries
and VIE
681,955,145
—
—
(681,955,145)
—
Total assets
884,433,042
830,604,574
296,534,665
(681,955,145)
1,329,617,136
Total liabilities
23,196,824
77,836,153
387,948,478
488,981,455
Total shareholders' equity
861,236,218
752,768,421
(91,413,813)
(681,955,145)
840,635,681
Total liabilities and
shareholders' equity
884,433,042
830,604,574
296,534,665
(681,955,145)
1,329,617,136
For the Year Ended December 31, 2020
Jupai Holdings
Limited
Subsidiaries
VIEs and their
Subsidiaries
Eliminations
Consolidated
Total
Cash and cash equivalents
19,582,251
421,168,323
189,666,212
630,416,786
Restricted cash
—
—
26,819,159
26,819,159
Total current assets
22,249,958
437,080,042
295,384,381
754,714,381
Investments in subsidiaries
and VIE
942,821,008
—
—
(942,821,008)
—
Total assets
1,152,704,061
781,649,751
419,869,512
(942,821,008)
1,411,402,316
Total liabilities
14,263,225
131,278,705
121,298,437
266,840,367
Total shareholders' equity
1,138,440,836
650,371,046
298,571,075
(942,821,008)
1,144,561,949
Total liabilities and shareholders'
equity
1,152,704,061
781,649,751
419,869,512
(942,821,008)
1,411,402,316
Selected condensed consolidated statements of cash flows
For the Year Ended December 31, 2021
Jupai Holdings
Limited
Subsidiaries
VIEs and their
Subsidiaries
Eliminations
Consolidated
Total
Net cash provided by (used
in) operating activities
2,836,801
65,404,849
(94,348,770)
—
(26,107,120)
Net cash provided by (used
in) investing activities
79,696
(14,056,888)
4,117,700
—
(9,859,492)
Net cash used in financing
activities
(4,462,990)
—
—
—
(4,462,990)
For the Year Ended December 31, 2020
Jupai Holdings
Limited
Subsidiaries
VIEs and their
Subsidiaries
Eliminations
Consolidated
Total
Net cash provided by (used
in) operating activities
(11,628,287)
154,126,194
(141,962,448)
—
535,459
Net cash provided by (used
in) investing activities
—
(32,884,311)
455,829
—
(32,428,482)
Net cash used in financing
activities
(7,085,100)
—
—
—
(7,085,100)
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A
[Reserved]
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Summary of Risk Factors
Risks Related to Our Business and Industry
Risks and uncertainties relating to our business and industry include, but are not limited to, the following:
•
Our operating history and track record may not be indicative of our future performance and prospects.
•
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 .
•
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.
•
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.
•
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.
•
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 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 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.
•
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.
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Risks Related to Our Corporate Structure
Risks and uncertainties relating to our corporate structure include, without limitation, the following:
•
If the PRC government deems that our contractual arrangements with our VIEs do not comply with PRC regulatory restrictions on
foreign investment in 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 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.
•
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.
Risks Related to Doing Business in China
We are also subject to risks and uncertainties relating to doing business in China in general, including, but are not limited to, the following:
•
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;
•
Uncertainties with respect to the PRC legal system and changes in the interpretation and enforcement of PRC laws and regulations could
limit the legal protections available to you and us.
•
If the Chinese government were to impose new requirements for approval from the PRC authorities to our future offshore offerings, such
action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of
such securities to significantly decline or be worthless.
•
The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our
operations and the value of our ADSs.
•
The approval of the CSRC or other PRC government authorities may be required in connection with our future offshore offerings under
PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval.
•
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; and
•
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
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Risks Related to Our ADSs
In addition to the risks described above, we are subject to general risks related to the ADSs, including, without limitation, the following:
•
The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors;
•
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;
•
The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price; and
•
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.
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
RMB0.8 billion in 2019, RMB0.4 billion in 2020 and RMB359.1 million (US$56.3 million) in 2021. 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 RMB141.7 million (US$22.2 million) in 2021, representing a decrease of 12.6% from 2020. 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 3.3% from
RMB6.5 billion in 2020 to RMB6.2 billion (US$1.0 billion) in 2021.
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 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.
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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. The transition
period provided under the New Asset Management Measures has expired on December 31, 2021 and all provisions shall be fully complied with.
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.
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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.
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, 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
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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.
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 addition, according to the requirements of AMAC, if private fund managers encounter abnormal operation situations, special legal opinions
shall be submitted within required time period. If the private fund managers fail to submit satisfied legal opinions, the registration of such private fund
managers shall be de-registered. In the event that any of the special legal opinions is not accepted by the AMAC, such private fund manager registration
may be cancelled.
In January 2021, Shanghai Yidezeng Equity Investment Management Center (LP), or Shanghai Yidezeng, received a Notice on Submission of
Special Legal Opinion from AMAC, which requires Shanghai Yidezeng to submit a special legal opinion on confirming certain aspects of the fund
manager including the sales of fund products, products filing, deferred payment, detailed information on all funds under its management and its operations
within three months. Before AMAC accepts such special legal opinion, Shanghai Yidezeng is not allowed to change fund manager, file its fund products
with AMAC, establish new fund managers through its affiliates, or increase the scale of its fund products or the number of investors. Shanghai Yidezeng
submitted the special legal opinion on May 6, 2021. On March 18, 2022, Shanghai Yidezeng further received a notice from AMAC stating that the special
legal opinion was not accepted and a legal opinion on abnormal operation shall be re-rendered within three days. On March 21, 2022, Shanghai Yidezeng
submitted a request for a 30-day extension and in light of the resurgence of COVID-19 in Shanghai and pandemic control measures taken, Shanghai
Ydezeng submitted another request for a further extension of 45 days on April 18, 2022. As of the date of this annual report, Shanghai Yidezeng has not
received any updates from AMAC. If Shanghai Yidezeng fails to submit qualified legal opinion, its registration as being private fund managers will be de-
registered, and its legal representative, senior management or other practitioners may be subject to disciplinary sanctions such as cancellation of fund
qualifications and being added to the “blacklist,” if the violation is deemed to be serious.
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In December 2021, one of our subsidiaries, Shanghai Yiju Assets Management Co., Ltd., or Shanghai Yiju, received a warning notice from
AMAC for its unfair treatment to investors and failure to register fund products. In June 2021, our another subsidiary, Shanghai Yidezhen Investment
Management Center (Limited Partnership), or Shanghai Yidezhen, received a Written Decision on Adoption of Administrative Supervision from CSRC
Shanghai Bureau for its failure to register fund and failure to disclose information as agreed in the agreement with investors. Upon receipt of the notice,
Shanghai Yidezhen urged the relevant manager to complete the registration process for unregistered fund products and make required disclosures.
Meanwhile, Shanghai Yidezhen also disclosed investment operation information to investors through e-mails and other means. As of the date of this annual
report, we have completed all the requisite rectification measures. The warning notice and written decision did not have a material adverse effect on our
business.
On December 30, 2020, the CSRC issued the Several Provisions on Strengthening Supervision of Private Investment Fund, or the Provisions,
to further strengthen the supervision and administration of private investment funds. The Provisions optimized the supervision on group-based private
investment fund managers, reiterated and refined the requirements on non-public offering and qualified investors, prohibited private investment fund
managers from using the property of private investment fund in investing non-private fund investment activities such as loans, guarantee, debt in the name
of equity, credit-like assets, or engaging in investments with unlimited liabilities, among others. The Provisions also require fund managers and private
investment sales agencies to fulfill prudence and diligence obligations and reiterate forbidden acts such as mixing of fund properties, self-financing,
transfer of benefits.
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
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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.
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.
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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.”
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;
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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.
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, 2021, we recorded impairment loss
from equity in affiliates of RMB2.6 million (US$0.4 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, a significant portion of the products that we distribute involve real estate or related assets. 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 100%, 100% and 100% of the total transaction value of all fixed income products we distributed in 2019, 2020 and
2021, respectively. In addition, a fractional portion of the total transaction value of all private equity and venture capital products we distributed in 2021
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 64.5% of the total transaction value of all products we distributed in 2021.
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
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refinancing of properties difficult or impracticable, and other factors that are beyond our control. For example, due to the slow-down of economic growth
and the outbreak of liquidity issues of certain market players, 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. For example, 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.
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.
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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.
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;
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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,
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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.
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, 2021, we derived our revenues from 22 client centers in 22 affluent cities in mainland China and Hong Kong. In 2021,
approximately 11.6% 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.
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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.
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
cybersecurity 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.
Our business is subject to various evolving PRC laws and regulations regarding data privacy and cybersecurity. Failure of cybersecurity and data
privacy concerns could subject us to penalties, damage our reputation and brand, and harm our business and results of operations.
We face significant challenges with respect to cybersecurity and data privacy, including the storage, transmission, and sharing of confidential
information. We transmit and store confidential and private information of our clients, such as personal information, including names, address and portfolio
holdings.
We are subject to various regulatory requirements relating to cybersecurity and data privacy, including, without limitation, the PRC Civil Code
and the PRC Cybersecurity Law. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Privacy Protection and
Cybersecurity.” We are required by these laws and regulations to ensure the confidentiality, integrity, availability, and authenticity of the information of our
users and distributors, which is also essential to maintaining their confidence in our vehicles and services. We have adopted strict information security
policies and deployed advanced measures to implement the policies, including, among others, advanced encryption technologies. If we are unable to protect
our systems, and hence the information stored in our systems, from unauthorized access, use, disclosure, disruption, modification, or destruction, such
problems or security breaches could cause a loss, give rise to our liabilities to the owners of confidential information, or subject us to fines and other
penalties. In addition, complying with various laws and regulations could cause us to incur substantial costs or require us to change our business practices,
including our data practices, in a manner adverse to our business.
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In addition, regulatory requirements on cybersecurity and data privacy are constantly evolving and can be subject to varying interpretations or
significant changes, resulting in uncertainties about the scope of our responsibilities in that regard. For example, on June 10, 2021, the Standing Committee
of the National People’s Congress promulgated the PRC Data Security Law, effective from September 1, 2021. The PRC Data Security Law, among other
things, provides for a security review procedure for the data activities that may affect national security. On August 20, 2021, the state council promulgated
the Personal Information Protection Law of the People’s Republic of China, effective from November 1, 2021. The Personal Information Protection Law
requires, among others, that (i) the processing of personal information should have a clear and reasonable purpose which should be directly related to the
processing purpose, in a method that has the least impact on personal rights and interests, and (ii) the collection of personal information should be limited
to the minimum scope necessary to achieve the processing purpose to avoid the excessive collection of personal information. Entities handling personal
information must bear responsibilities for their personal information handling activities and adopt necessary measures to safeguard the security of the
personal information they handle. If entities that handle personal information intend to transmit the personal information to outside the PRC, they shall
complete security review conducted by the CAC, and shall obtain personal information protection certification from professional institutions as prescribed
by the CAC. Otherwise, the entities handling personal information could be ordered to correct, or suspend or terminate the provision of services, and face
confiscation of illegal income, fines or other penalties. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on
Privacy Protection and Cybersecurity.” We cannot assure you that relevant regulators will not interpret or implement the laws or regulations in ways that
negatively affect us. In addition, it is possible that we may become subject to additional or new laws and regulations in this regard, particularly to data
security and protection laws in other jurisdiction if we extend our business outside of China in the future, which may result in additional expenses to us and
subject us to potential liability and negative publicity. We expect that these areas will receive greater attention and focus from regulators and attract
continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and
challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to penalties, fines, suspension of
business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.
The PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas or foreign
investments in China-based issuers. On December 28, 2021, the CAC, the NDRC, the Ministry of Industry and Information Technology, or the MIIT, and
several other PRC governmental authorities jointly issued the Cybersecurity Review Measures, which further restates and expands the applicable scope of
the cybersecurity review in effect. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet
products and services and network platform operators engaging in data processing activities must be subject to the cybersecurity review if their activities
affect or may affect national security. The Cybersecurity Review Measures further stipulate that network platform operators holding over one million users’
personal information shall apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange.
Given the Cybersecurity Review Measures were recently promulgated, there are substantial uncertainties as to the interpretation, application, and
enforcement of the Cybersecurity Review Measures. On August 17, 2021, the State Council promulgated the Regulations on Protection of Critical
Information Infrastructure, effective from September 1, 2021, which defined critical information infrastructure as any important network facilities or
information systems of the important industry or field such as public communication and information service, energy, communications, water conservation,
finance, public services, e-government affairs, and national defense science, which may endanger national security, people’s livelihood, and public interest
in case of damage, function loss, or data leakage. In addition, according to the Regulations on Protection of Critical Information Infrastructure, relevant
administration departments of each critical industry and sector should be responsible to formulate eligibility criteria and determine the scope of critical
information infrastructure operator in the respective industry or sector. The operators shall be informed about the final determination as to whether they are
categorized as critical information infrastructure operators. As of the date
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of this annual report, no detailed rules or implementation has been issued by any government authorities and we have not been informed as a critical
information infrastructure operator by any government authorities. Furthermore, the exact scope of “critical information infrastructure operators” under the
current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these
laws. Therefore, it is uncertain whether we would be deemed as a critical information infrastructure operator under PRC law. If so, we will be subject to
more scrutiny from the relevant governmental authorities, which may increase our compliance costs and affect our ability to conduct offshore offerings.
Furthermore, on November 14, 2021, the CAC published the Administration Regulations on Cyber Data Security (Draft for Comments), which
reiterates the circumstances under which data processors must apply for cybersecurity review, including, among others, (i) the data processors who process
personal information of at least one million users apply for foreign listing; and (ii) the data processors’ proposed listing in Hong Kong affects or may
possibly affect national security. However, there remain uncertainties whether we would be subject to the cybersecurity review for our future offshore
offering pursuant to such measures. As of the date of this annual report, there is no schedule as to when it will be enacted. Substantial uncertainties exist
with respect to its enactment timetable, final content, interpretation, and implementation.
It also remains uncertain whether the future regulatory changes would impose additional restrictions on companies like us. We cannot predict
the impact of these future regulatory changes, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If
future regulatory updates mandate clearance of cybersecurity review and other specific actions to be completed by China-based companies listed on a
foreign stock exchange, such as us, we face uncertainties as to whether such clearance can be timely obtained, or at all. As of the date of this annual report,
there had been no material incident of data or personal information leakage, infringement of data protection and privacy laws and regulations, or
investigation or other legal proceeding, pending or threatened against us initiated by relevant government authorities or third parties, that will materially
and adversely affect our business and operations. We have not been involved in any formal investigations on cybersecurity review made by the CAC on
such basis. However, if we are not able to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, we may be subject to
government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal of our app from the relevant
application stores, among other sanctions, which could materially and adversely affect our business and results of operations.
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
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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.
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.
In June 2016, Juzhou Assets Management (Shanghai) Co., Ltd., or Juzhou Assets, one of the subsidiaries of Shanghai Jupai, established Juzhou
Intelligent Manufacturing 2018 Private Equity Investment Fund, or Juzhou Fund. A substantial portion of Juzhou Fund was misappropriated by the
controlling person of an enterprise invested by the Juzhou Fund. The controlling person, who is not a director, officer or employee of the Company, has
been suspected of contract fraud and has been investigated since December 2019. The investors of the Juzhou Fund filed a series of lawsuits against Juzhou
Assets and Shanghai Jupai for their losses from early 2020, which have been suspended due to COVID-19 outbreak. As of the date of this annual report, 73
investors have filed lawsuits against Juzhou Assets, and the total principal amount of their investments involved is RMB90,650,000. The courts have
entered the final judgement in certain cases, pursuant to which Juzhou Assets shall assume liability for the actual losses suffered by investors, including
their principals and the interest losses, due to its failure in performing obligations in selling fund products and/or as a fund manager. Shanghai Jupai shall
also assume the compensation liability for the actual losses suffered by investors jointly and severally according to the judgement. These lawsuits have
caused a material adverse effect on our business, financial condition and results of operations. We have made a provision of RMB282.5 million due to these
lawsuits.
We may also face new legal proceedings, claims and investigations arising in the ordinary course of our business in the future. 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.
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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.
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, 2022, 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 36.8% 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 16.8% and 11.4% of our total outstanding shares as of March 31, 2022,
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.”
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, 2022, options to purchase 15,642,600 ordinary shares and 9,937,100 restricted shares have been granted, and options to
purchase 7,804,497 ordinary shares and 791,616 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
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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, 2021 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, 2021.
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.
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
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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 2021, 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 2022 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.
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. 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 2021. The conflict in Ukraine and the imposition of broad economic sanctions on Russia could raise energy prices
and disrupt global markets. 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
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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 deems that our contractual arrangements with our VIEs do not comply with PRC regulatory restrictions on foreign investment
in 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.
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) (2021 Version), or the Negative
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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.
Our contractual arrangements with Shanghai Jupai, Shanghai E-Cheng and Shanghai Yedu and their respective shareholders enable us to (i)
have power to direct the activities that most significantly affect the economic performance of Shanghai Jupai, Shanghai E-Cheng and Shanghai Yedu; (ii)
receive substantially all of the economic benefits from Shanghai Jupai, Shanghai E-Cheng and Shanghai Yedu 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,
Shanghai E-Cheng and Shanghai Yedu when and to the extent permitted by PRC law, or request any existing shareholder of Shanghai Jupai, Shanghai E-
Cheng and Shanghai Yedu to transfer any or part of the equity interest in Shanghai Jupai, Shanghai E-Cheng and Shanghai Yedu 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,
Shanghai E-Cheng and Shanghai Yedu and hence treat each of Shanghai Jupai, Shanghai E-Cheng and Shanghai Yedu as our VIEs, 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, Shanghai Yedu 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.
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Although we believe we, our PRC subsidiaries and our VIEs comply with current PRC laws and regulations, we cannot assure you that the
PRC government would agree that our contractual arrangements comply with PRC licensing, registration, or other regulatory requirements, with existing
policies or with requirements or policies that may be adopted in the future. The PRC government has broad discretion in determining rectifiable or punitive
measures for non-compliance with or violations of PRC laws and regulations. If the PRC government determines that we or our VIEs do not comply with
applicable law, it could revoke the business and operating licenses of our VIEs and their subsidiaries, require our VIEs or their subsidiaries to discontinue
or restrict their operations, restrict their right to collect revenues, block their websites, require us to restructure the operations of our VIEs and their
subsidiaries, impose additional conditions or requirements with which our VIEs may not be able to comply, impose restrictions on the business operations
of our VIEs or their subsidiaries or on their customers, or take other regulatory or enforcement actions against our VIE structure that could be harmful to
our business. Any of these or similar occurrences could significantly disrupt our or our VIEs’ business operations or restrict our VIEs from conducting a
substantial portion of their business operations, which could materially and adversely affect the business, financial condition, and results of operations of
our VIEs and us. If any of these occurrences results in our inability to direct the activities of any of our VIEs that most significantly impact its economic
performance, and/or failure to receive the economic benefits from any of our VIEs, we may not be able to consolidate these entities in our consolidated
financial statements in accordance with U.S. GAAP.
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, Shanghai E-Cheng and Shanghai Yedu, 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 2019, 2020 and 2021, Shanghai Jupai, Shanghai E-Cheng, Shanghai Yedu and their respective subsidiaries and branches contributed 62.2%,
61.2% and 58.8% 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, Shanghai Yedu 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, Shanghai Yedu and their respective subsidiaries and branches into our consolidated financial
statements in accordance with U.S. GAAP.
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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.
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, Shanghai E-Cheng and Shanghai Yedu. 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. 70.0% equity interest of Shanghai Yedu is held by Ms. Qimin Wu and the remaining 30.0% equity
interest of Shanghai Yedu is held by Mr. Guowen Zhang. 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.
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Our ability to enforce the equity pledge agreements between us and the shareholders of Shanghai Jupai, Shanghai E-Cheng and Shanghai Yedu 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. Pursuant to the equity pledge agreement relating to Shanghai Yedu, the shareholders
of Shanghai Yedu pledged their equity interests in Shanghai Yedu to Shanghai Baoyi to secure Shanghai Yedu’s performance of the obligations and
indebtedness under the exclusive call option agreement, proxy agreement and the exclusive business cooperation 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 and Shanghai Yedu 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, Shanghai E-Cheng or
Shanghai Yedu 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, Shanghai E-Cheng or Shanghai Yedu, 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.
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
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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 1% to 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 2021) jointly promulgated by the Ministry of Commerce and the NDRC, or the 2021 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.
Substantial uncertainties exist with respect to the interpretation and implementation of the 2019 PRC Foreign Investment Law and its Implementation
Rules and how they may impact the viability of our current corporate structure, corporate governance, and operations.
On March 15, 2019, the National People’s Congress promulgated the 2019 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.
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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 and latest updated in January 2022. 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.
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 with respect to the PRC legal system and changes 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.
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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.
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.
PRC government has significant oversight over the conduct of our business and it has recently indicated an intent to exert more oversight over
offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our
ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
If the Chinese government were to impose new requirements for approval from the PRC authorities to our future offshore offerings, such action could
significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to
significantly decline or be worthless.
As of the date of this annual report, we, our PRC subsidiaries, and our VIEs, (i) are not required to obtain permissions from any PRC
government authorities on the operation of our PRC subsidiaries and VIEs and the issuance of our ADSs to foreign investors, (ii) are not required to obtain
permissions from the CSRC, CAC or any other government authorities on our PRC subsidiaries and VIEs’ operations, and (iii) have not received or were
denied such permissions by any PRC government authorities.
Nevertheless, on July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the
State Council jointly issued Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law, or the Opinions. The
Opinions emphasized the need to strengthen the administration over illegal securities activities, and the supervision over overseas listings by China-based
companies. As a follow-up, on December 24, 2021, the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities
Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the
Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Draft Measures”), which were opened for
public comments until January 23, 2022. These draft measures propose to establish a new filing-based regime to regulate overseas offerings and listings by
domestic companies. Specifically, an overseas offering and listing by a PRC company, whether directly or indirectly, an initial or follow-on offering, must
be filed with the CSRC.
According to the Administration Provision and the Draft Measures, new initial public offerings and refinancing by existing overseas listed
China-based companies will be required to complete the filing procedures
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with PRC regulatory authorities; other existing overseas listed companies will be allowed sufficient transition period to complete such filing procedure. We
may be required to complete the filing procedure as an existing overseas listed China-based companies in the future. However, it is uncertain when the
Administration Provision and the Draft Measures will take effect or if they will take effect as currently drafted. If it is determined in the future that the
approval of the CSRC, the CAC or any other regulatory authority is required for listed companies like us, we may face sanctions by the CSRC, the CAC or
other PRC regulatory agencies. These regulatory agencies may impose fines or penalties on our operations in China, limit our ability to pay dividends
outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds into China or take other actions that could have a material
adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs. The CSRC, the CAC, or
other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to suspend the listing or trading of our ADSs before
completing required procedures. Any uncertainties or negative publicity regarding such approval could have a material adverse effect on the trading price
of our ADSs.
Given the current PRC regulatory environment, it is uncertain when and whether we, our PRC subsidiaries or our VIEs, will be required to
obtain permission from the PRC government for listing overseas in the future, and even when such permission is obtained, whether it will be denied or
rescinded. We have been closely monitoring regulatory developments in China regarding any necessary approvals from the CSRC or other PRC
governmental authorities required for overseas listing. As of the date of this annual report, we have not received any inquiry, notice, warning, sanctions or
regulatory objection to our listing from the CSRC or other PRC governmental authorities. However, there remains significant uncertainty as to the
enactment, interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities.
The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations
and the value of our ADSs.
We conduct our business primarily through our variable interest entities and their subsidiaries in China. Our operations in China are governed
by PRC laws and regulations. The PRC government has significant oversight and discretion over the conduct of our business, and it may influence our
operations, which could result in a material adverse change in our operation and/or the value of our ADSs. Also, the PRC government has recently
indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For
example, on July 6, 2021, the relevant PRC government authorities made public the Opinions on Strictly Scrutinizing Illegal Securities Activities in
Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on
overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to
deal with the risks and incidents faced by China-based overseas-listed companies. On December 28, 2021, the CAC, together with certain other PRC
governmental authorities, jointly released the Revised Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Revised
Cybersecurity Review Measures, network platform operator with personal information of over one million users shall apply with the Cybersecurity Review
Office for a cybersecurity review before any listing abroad. Given the Cybersecurity Review Measures were recently promulgated, substantial uncertainties
exist with respect to the interpretation, application and enforcement of the Cybersecurity Review Measures. It remains uncertain as to how PRC
governmental authorities will regulate overseas listing in general and whether we are required to obtain any specific regulatory approvals from the CSRC,
CAC or any other relevant PRC governmental authorities for our future offshore offerings and refinancing. If the CSRC, CAC or other regulatory agencies
later promulgate new rules or explanations requiring that we obtain their approvals for our future offshore offerings, we may be unable to obtain such
approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could significantly limit or
completely hinder our ability to continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. In
addition, implementation of industry-wide regulations directly targeting our operations could cause the value of our securities to significantly decline.
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Therefore, investors of our company and our business face potential uncertainty from actions taken by the PRC government affecting our business.
The approval of the CSRC or other PRC government authorities may be required in connection with our future offshore offerings under PRC law, and,
if required, we cannot predict whether or for how long we will be able to obtain such approval.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC
regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC
domestic companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purpose
vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may
ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how long it will take us to obtain the approval
and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our
offshore offerings, or a rescission of such approval if obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory
authorities, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China,
and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities in
accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on
overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to
deal with the risks and incidents faced by China-based overseas-listed companies. As these opinions are recently issued, official guidance and related
implementation rules have not been issued yet and the interpretation of these opinions remains unclear at this stage. We cannot assure you that any new
rules or regulations promulgated in the future will not impose additional requirements on us. If it is determined in the future that approval from the CSRC
or other regulatory authorities or other procedures, including the cybersecurity review under the enacted version of the revised Measures for Cybersecurity
Review, are required for our offshore offerings or refinancing in the future, it is uncertain whether we can or how long it will take us to obtain such
approval or complete such procedures and any such approval could be rescinded. Any failure to obtain or delay in obtaining such approval or completing
such procedures for our offshore offerings or refinancing in the future, or a rescission of any such approval if obtained by us, would subject us to sanctions
by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or other government authorization for our offshore offerings or
refinancing in the future. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside
of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other
actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our
listed securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to suspend or halt the
listing or trading of our ADSs. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery,
they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or
explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we
may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or
negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and
the trading price of our listed securities.
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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.
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
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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
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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.
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
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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. 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.
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
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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.
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.
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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.
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
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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, 2021. 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.
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
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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, 2022. 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.
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
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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-PRC 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
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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.
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
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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.
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 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
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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.
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, 2022, based on a review of our register of shareholders, we had 191,052,818 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, 108,121,098 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.
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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, 2022, our executive officers and directors, together with our principal shareholders existing before our initial public offering,
beneficially owned approximately 130,569,953 ordinary shares, or 66.1% 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.
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.
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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.
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
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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.
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
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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.
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
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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, 2021, 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, 2021, 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 Hong Kong 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.
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
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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.
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.
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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.
In January 2021, Shanghai Yedu was established by Ms. Qimin Wu and Mr. Guowen Zhang, both of whom are our employees. In August 2021,
Shanghai Yedu acquired all the equity interest of Shanghai Yidexin Equity Investment Management Co., Ltd. from Shanghai E-Cheng. In August 2021,
Shanghai Baoyi entered into a series of contractual arrangements with Shanghai Yedu and its shareholders. The contractual arrangements between
Shanghai Baoyi, Shanghai Yedu and its shareholders enable us to (i) exercise effective control over Shanghai Yedu; (ii) receive substantially all of the
economic benefits of Shanghai Yedu in consideration for the consulting services provided by Shanghai Baoyi; and (iii) have an exclusive option to
purchase all of the equity interests and assets of Shanghai Yedu when and to the extent permitted under PRC laws and regulations.
Our principal executive offices are located at Global Creative Center, T2, 15/F, No 166 Min Hong Road, Minhang District, Shanghai 201102,
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.
The 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.report. 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 22 client centers in 22
economically vibrant cities as of December 31, 2021, 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 2019, 2020 and 2021, we had 2,973, 1,700 and 1,248
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 contacts 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 7.3 years of industry experience. We believe our wide spectrum of
value-added services offered,
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before, during and after distribution of wealth management products have helped us generate client loyalty. Among our active clients in 2019, 2020 and
2021, approximately 75.0%, 83.1% and 83.3% 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 2019, 2020 and 2021, the aggregate value of wealth management products we distributed
reached RMB9.8 billion, RMB6.5 billion and RMB6.2 million (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.
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, 2021, the amount of total assets under
our sole or shared management was RMB31.3 billion (US$4.9 billion), compared to RMB33.8 billion as of December 31, 2020. 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 2021 declined as compared to that of 2020 primarily due to the uncertainty of macro-economic conditions and the regulatory
changes of the industry. Our net revenues decreased from RMB0.8 billion in 2019 to RMB0.4 billion in 2020 and to RMB359.1 million (US$56.3 million)
in 2021. We recorded a net loss attributable to our shareholders of RMB164.7 million, RMB31.4 million and RMB267.9 million (US$42.0 million) in
2019, 2020 and 2021, respectively. Our net revenues in 2021 from one-time commissions, recurring management fees, recurring services fees and other
service fees were RMB141.7 million (US$22.2 million), RMB102.5 million (US$16.1 million), RMB114.9 million (US$18.0 million) and nil, respectively.
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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.
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 2019, 2020 and 2021, we provided wealth management product advisory services to 2,973, 1,700
and 1,248 active clients, respectively. In 2019, 2020 and 2021, the aggregate value of wealth management products we distributed reached RMB9.8 billion,
RMB6.5 billion and RMB6.2 billion (US$1.0 billion), respectively. We believe our clients are loyal to our brand and services. Among our active clients in
2019, 2020 and 2021, approximately 75.0%, 83.1% and 83.3% 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
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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.
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 7.3 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
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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 22 client centers in 22 economically vibrant cities in mainland China and Hong Kong as of December 31, 2021, 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, 2021, we operated 22 client centers 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.
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.
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The table below lists the funds under our management invested in each product category for the three years ended December 31, 2021.
As of December 31,
2019
2020
2021
Product Categories (Asset Under Management(1))
%
%
%
Fixed Income Products
32
30
31
Private equity and venture capital fund products
63
63
61
Public Market Products
2
3
5
Other Products
3
4
3
(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 RMB41.8 billion, RMB33.8 billion and RMB31.3 billion (US$4.9 billion)
as of December 31, 2019, 2020 and 2021, 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 2021, we sourced products from 9 domestic
and 14 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.
•
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
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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 100%, 100% and 100% of the
total transaction value of all fixed income products we distributed in 2019, 2020 and 2021, respectively. The total transaction value of the secondary market
equity fund products accounted for around 26% of the total transaction value of all the products we distributed in 2021. A significant percentage of the total
transaction value of all private equity and venture capital products we distributed in 2021 were invested in health care and high-tech 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 64.5% of the total transaction value of all products we distributed in 2021. All 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 2019 and 2020, 5.4% and 13.7%, respectively, of the aggregate
amount of the real estate development-related products we distributed were to fund projects in Beijing, Xi’an, Shanghai and Suzhou. In 2021, we initiated
product transformation and started to reduce the proportion of our investment in the real estate-related assets while increasing in secondary market equity
fund products, private equity products, and other products.
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
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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.
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.
Seventeen of the products that we distributed in 2021 were subject to redemption by our clients, and the aggregate value of these products that
remained subject to possible redemption amounted to RMB0.6 billion, RMB0.7 billion and RMB0.7 million (US$0.1 billion) as of December 31, 2019,
2020 and 2021, 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, 2021, the team was comprised of 99 members. We started to develop products in-house in 2013. In
terms of value, approximately RMB9.2 billion, RMB6.4 billion and RMB6.2 million (US$1.0 billion) of the products that we distributed in 2019, 2020 and
2021, 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.
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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.
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:
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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. In 2021, we co-hosted the 2021 China Economy Forum with Shanghai Development Research Foundation under the theme of solid recovery against
challenges. In April 2021, we held our VIP clients event to host ultra-high-net-worth individuals in Hangzhou. 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.
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 2021, we hosted most of
our activities online due to the spread 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
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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.
•
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 13 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.
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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.
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.
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Since January 1, 2022, the Asset Management Administration Measures and the Asset Management Plan Operation Measures have been fully
implemented.
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 and requires fund managers and private investment sales agencies to
fulfill prudence and diligence obligations.
In addition, according to the notices issued by AMAC, if private fund managers encounter abnormal operation situations, special legal opinions
shall be submitted within required time period. If the private fund managers fail to submit satisfied legal opinions, the registration of such private fund
managers shall be de-
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registered. In the event that any of the special legal opinions is not be accepted by the AMAC, such private fund manager registration may be cancelled.
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.
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
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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.
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
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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.
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
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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.
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
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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.
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(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.
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.
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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.
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
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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.
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.
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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.
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-
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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 Cybersecurity
Regulations on Privacy Protection
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these
rights. In recent years, PRC government authorities have enacted legislation on internet use to protect personal information from any unauthorized
disclosure. The Network Information Protection Decision provides that electronic information that identifies a citizen or involves privacy of any citizen is
protected by law and must not be unlawfully collected or provided to others. 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.
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.
On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection
Law, which integrates the scattered rules with respect to personal information rights
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and privacy protection and took effect on November 1, 2021. Personal information refers to information related to identified or identifiable natural persons
which is recorded by electronic or other means, excluding anonymized information. The Personal Information Protection Law provides that a personal
information processor could process personal information only under prescribed circumstances such as with the consent of the individual concerned and
where it is necessary for the conclusion or performance of a contract to which such individual is a party to the contract. If a personal information processor
shall provide personal information to overseas parties, it shall complete security evaluation by the national network department and obtain personal
information protection certification from professional institutions. We only collect basic client personal information that is necessary to provide the
corresponding services. We do not collect any sensitive personal information or other excessive personal information that is not related to the
corresponding services. We update our privacy policies from time to time to meet the latest regulatory requirements of Cyberspace Administration of China
and other authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way. Nonetheless, the Personal Information
Protection Law raises the protection requirements for processing personal information, and many specific requirements of the Personal Information
Protection Law remain to be clarified by the Cyberspace Administration of China, other regulatory authorities, and courts in practice. We may be required
to make further adjustments to our business practices to comply with the personal information protection laws and regulations.
Regulations on Cybersecurity
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.
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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.
For the further purposes of regulating data processing activities, safeguarding data security, promoting data development and utilization,
protecting the lawful rights and interests of individuals and organizations, and maintaining national sovereignty, security, and development interests, on
June 10, 2021, Standing Committee of the PRC National People’s Congress published the Data Security Law of the People’s Republic of China, which
took effect on September 1, 2021. The Data Security Law requires data processing, which includes the collection, storage, use, processing, transmission,
provision, publication of data, to be conducted in a legitimate and proper manner. The Data Security Law provides for data security and privacy obligations
on entities and individuals carrying out data activities. The Data Security Law also introduces a data classification and hierarchical protection system based
on the importance of data in economic and social development, and the degree of harm it may cause to national security, public interests, or legitimate
rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally acquired or illegally used. The appropriate
level of protection measures is required to be taken for each respective category of data. For example, a processor of important data is required to designate
the personnel and the management body responsible for data security, carry out risk assessments of its data processing activities and file the risk assessment
reports with the competent authorities. State core data, i.e. data having a bearing on national security, the lifelines of national economy, people’s key
livelihood and major public interests, shall be subject to stricter management system. Moreover, the Data Security Law provides a national security review
procedure for those data activities which affect or may affect national security and imposes export restrictions on certain data and information. In addition,
the Data Security Law also provides that any organization or individual within the territory of the PRC shall not provide any foreign judicial body and law
enforcement body with any data without the approval of the competent PRC governmental authorities. As the Data Security Law was recently promulgated
and has not yet taken effect, we may be required to make further adjustments to our business practices to comply with this law, as well as any adjustments
that may be required by the Personal Information Protection Law.
On July 6, 2021, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which, among
others, provides for improving relevant laws and regulations on data security, cross-border data transmission, and confidential information management. It
provided that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of
securities overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of
cross-border information provision mechanisms and procedures.
On December 28, 2021, the Cyberspace Administration of China together with other 12 departments jointly issued the Measures for
Cybersecurity Review, or the Measures, which became effective from February 15, 2022. The scope of review under the Measures extends to critical
information infrastructure operators that intend to purchase internet products and services and data processing operators engaging in data processing
activities, which affect or may affect national security. According to Article 7 of the Measures, network platform operators who
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possess personal information of over a million users shall apply to the Cybersecurity Review Office for cybersecurity reviews before listing in a foreign
country. Besides, the Measures also provides that if the relevant authorities consider that certain network products and services, data processing activities
affect or may affect national security, the authorities may initiate a cybersecurity review even if the operators do not have an obligation to report for a
cybersecurity review under such circumstances. The Measures also elaborated the factors to be considered when assessing the national security risks of the
relevant activities, including among others, risks of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and
illegally used or exited the country and risks of critical information infrastructure, core data, important data or a large amount of personal information data
being affected, controlled and maliciously used by foreign governments after a foreign listing.
On November 14, 2021, the Cyberspace Administration of China released the Regulations on the Network Data Security (Draft for Comments),
or the draft Regulations, and will accept public comments until December 13, 2021. The draft Regulations provide that data processors refer to individuals
or organizations that autonomously determine the purpose and the manner of processing data. If a data processor that processes personal data of more than
one million users would like to list overseas, it shall apply for a cybersecurity review according to the draft Regulations. Besides, data processors that are
listed overseas shall carry out an annual data security assessment. Currently, the Revised Draft and the draft Regulations have not directly affected our
business and operations, but in anticipation of the strengthened implementation of cybersecurity laws and regulations and the continued expansion of our
business, we face potential risks if we are deemed as a critical information infrastructure operator under the PRC cybersecurity laws and regulations. In
such case, we must fulfill certain obligations as required under the PRC cybersecurity laws and regulations, including, among others, storing personal
information and important data collected and produced within the PRC territory during our operations in China, which we have fulfilled in our business,
and we may be subject to review when purchasing internet products and services. If a final version of the draft Regulations is adopted, we may be subject
to review when conducting data processing activities and annual data security assessment and may face challenges in addressing its requirements and make
necessary changes to our internal policies and practices in data processing. Based on the foregoing, our PRC legal counsel do not expect that, as of the date
of this annual report, the current applicable PRC laws on cybersecurity would have a material adverse impact on our business.
In addition, the State Secrecy Bureau has issued provisions authorizing the blocking of access to any website it deems to be leaking state
secrets or failing to comply with the relevant legislation regarding the protection of state secrets during online information distribution. Specifically,
internet companies in the PRC with bulletin boards, chat rooms or similar services must apply for specific approval prior to operating such services.
On October 21, 2019, the Supreme People’s Court and the Supreme People’s Procuratorate of the PRC jointly issued the Interpretations on
Certain Issues Regarding the Applicable of Law in the Handling of Criminal Case Involving Illegal Use of Information Networks and Assisting
Committing Internet Crimes, which came into effect on November 1, 2019, and further clarifies the meaning of Internet service provider and the severe
situations of the relevant crimes.
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
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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. 8, 2021, effective from January 1, 2021 to December 31, 2022, as
for enterprise income tax for small-profit enterprises, they enjoy a discount of 12.5% for the part of taxable income less than RMB1.0 million at the
preferential tax rate at 20% and a discount of 50% for the part of taxable income 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, 2022:
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)
Shanghai Yedu is one of our VIEs. Ms. Qimin Wu and Mr. Guowen Zhang hold 70% and 30% of the equity interest in Shanghai Yedu. Both Ms.
Qimin Wu and Mr. Guowen Zhang are our employees.
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(5)
The remaining 15% of the equity interest is owned by an unrelated party.
(6)
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.
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.
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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.
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
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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
exclusive support 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.
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 Baoyi in a yearly basis.
Contractual Arrangement with Shanghai Yedu
Exclusive Business Operation Agreement. Under the exclusive business operation agreement between Shanghai Baoyi and Shanghai Yedu
dated August 24, 2021, Shanghai Baoyi provides Shanghai Yedu with a series of technology and business support and relevant consulting services on an
exclusive basis. Shanghai Yedu irrevocably and exclusively granted to Shanghai Baoyi an option to purchase at any time, to the extent permitted under
PRC law, any and all of the assets of Shanghai Yedu at the lowest price permitted by PRC law. Shanghai Baoyi is entitled to receive service fees which
shall be approximately equal to Shanghai Yedu’s net revenue. The term of the exclusive business operation agreement is 20 years and it may be extended
with Shanghai Baoyi’s written confirmation. Shanghai Baoyi is entitled to terminate the agreement early at any time by sending a written notice 30 days in
advance, for any reason whereas Shanghai Yedu cannot early terminate the agreement.
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Exclusive Call Option Agreement. Under the exclusive call option agreement among Shanghai Baoyi, Shanghai Yedu and its shareholders
dated August 24, 2021, each of the shareholders of Shanghai Yedu 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 their respective equity interests in Shanghai Yedu. Also, Shanghai Baoyi or
its designee has the right to acquire any and all of the assets of Shanghai Yedu. The acquisition price for the shares or assets will be the corresponding
capital contribution in Shanghai Yedu’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. Without Shanghai Baoyi’s prior written consent, Shanghai Yedu’s shareholders cannot transfer their equity interests in Shanghai Yedu, and
Shanghai Yedu cannot transfer its assets. The agreement will not be terminated until after all of the equity interest and assets of Shanghai Yedu have been
transferred to Shanghai Baoyi or its designee.
Equity Interest Pledge Agreement. Under the equity pledge agreement among Shanghai Baoyi, Shanghai Yedu and its shareholders dated
August 24, 2021, the shareholders of Shanghai Yedu pledged all of their equity interests in Shanghai Yedu to Shanghai Baoyi to guarantee the performance
of all of their obligations and the obligations of Shanghai Yedu under the exclusive business option agreement, voting rights proxy agreement and the
exclusive call option agreement. If Shanghai Yedu 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.
Shareholder Voting Rights Proxy Agreement. Under the shareholder voting rights proxy agreement among Shanghai Baoyi, Shanghai Yedu
and its shareholders dated August 24, 2021, each shareholder of Shanghai Yedu 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 their respective equity interests in
Shanghai Yedu, including but not limited to the power to vote on its behalf on all matters of Shanghai Yedu requiring shareholder approval in accordance
with the articles of association of Shanghai Yedu. 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 Baoyi on a yearly basis.
In the opinion of our PRC counsel, Yuan Tai Law Offices, the contractual arrangements with respect to Shanghai Jupai, Shanghai E-Cheng and
Shanghai Yedu 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.”
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D.
Property, Plant and Equipment
Our principal executive offices are located on premises comprising approximately 6,590 square meters in Shanghai, China. As of December 31,
2021, we have in aggregate 22 client centers in 22 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
Term
Shanghai premises
Starting from
June 1, 2019
to
October 31,2022
Expiring from
July 31, 2021
to
October 31, 2022
Beijing premises
September 1, 2021
to
August 31, 2024
Hangzhou premises
October 1, 2019
to
September 30, 2022
Tianjin premises
January 1, 2020
to
December 31, 2022
Dongguan premise
April 11, 2020
to
April 10, 2022
Hong Kong premise
March 1, 2022
to
December 31, 2022
Suzhou premises
March 1, 2021
to
February 28, 2023
Xiamen premise
June 15, 2021
to
June 14, 2024
Chengdu premise
November 1, 2021
to
April 30, 2022
Chongqing premise
January 1, 2021
to
December 31, 2022
Guangzhou premise
June 16, 2021
to
June 15, 2024
Qingdao premise
April 1, 2021
to
March 31, 2022
Quanzhou premise
May 1, 2021
to
April 30, 2022
Wuhan premise
June 1, 2020
to
May 31, 2022
Yiwu premise
January 20, 2022
to
January 19, 2024
Xi’an premise
January 1, 2022
to
December 31, 2022
Jiangyin premise
February 26, 2019
to
February 25, 2024
Dalian premise
October 1, 2021
to
September 30, 2024
Changshu premise
July 20, 2021
to
July 19, 2022
Huhhot premise
April 1, 2021
to
March 31, 2023
Putian premise
February 1, 2021
to
January 31, 2022
Taiyuan premise
April 1, 2021
to
March 31, 2023
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.
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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 2019, 2020 and 2021, the aggregate value of wealth management products we distributed to our clients reached RMB9.8 billion, RMB6.5 billion and
RMB6.2 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 RMB31.3 billion (US$4.9 billion) as of December 31, 2021.
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 2019, 2020 and 2021, our one-time commissions and other service fees in combination
accounted for 42.3%, 41.8% and 39.5% of our total net revenues, respectively; and our recurring service, and recurring management fees combined
accounted for 57.7%, 58.2% and 60.5% 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 RMB42.4 million (US$6.7 million) and accounted for 11.8% of our
total net revenues in 2021.
Our net revenues decreased from RMB0.8 billion in 2019, RMB0.4 billion in 2020 and RMB359.1 million (US$56.3 million) in 2021. We
recorded a net loss attributable to our shareholders of RMB164.7 million, RMB31.4 million and RMB267.9 million (US$42.0 million) in 2019, 2020 and
2021, respectively.
Key Components of Our Results of Operations
Net Revenues
We derive net revenues mainly from the provision of wealth management product related services and asset management services. Prior to
2015, one-time commissions received from distribution of fixed income products in connection with our wealth management product related services
accounted for substantially all of our revenues. In 2013, we started to provide asset management services. In 2016, we provided consulting services to some
peer firms
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in the asset management industry and charged them consulting service fees determined on a case-by-case basis depending on the nature and extent of our
services. We also categorize revenues into third-party revenues and related-party revenues. Our related-party revenues consist primarily of one-time
commissions and recurring management fees paid by limited partnership funds where we serve as general partner or co-general partner or other funds
where we serve as managers. The following table sets forth the principal components of our net revenues by amounts and percentages of our net revenues
for the periods indicated:
Year Ended December 31,
2019
2020
2021
RMB
%
RMB
%
RMB
US$
%
Net revenues:
One-time commission
318,853,996
40.5 162,151,804
41.8 141,700,366 22,235,880
39.5
Related party
60,352,190
7.7
58,151,175
15.0
13,421,106
2,106,064
3.7
Third party
258,501,806
32.8 104,000,629
26.8 128,279,260 20,129,816
35.8
Recurring service fee
114,542,160
14.6 128,028,205
33.0 114,890,626 18,028,846
32.0
Related party
1,424,854
0.2
20,138,903
5.2
9,983,297
1,566,597
2.8
Third party
113,117,306
14.4 107,889,302
27.8 104,907,329 16,462,249
29.2
Recurring management fees(1)
338,646,568
43.1
97,991,734
25.2 102,463,147 16,078,704
28.5
Related party
338,646,568
43.1
97,991,734
25.2 102,463,147 16,078,704
28.5
Third party
—
—
—
—
—
—
—
Other service fee
13,904,488
1.8
—
—
—
—
—
Related party
—
—
—
—
—
—
—
Third party
13,904,488
1.8
—
—
—
—
—
Net revenues
785,947,212
100.0 388,171,743
100.0 359,054,139 56,343,430
100.0
Note:
(1)
We recognized RMB159.0 million, RMB24.3 million and RMB42.4 million (US$6.7 million) carried interest as part of our recurring service and
management fees in 2019, 2020 and 2021, 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 2019 to 2021, 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 39.5%.
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 2019, 2020 and 2021, we recorded RMB2.1 million, RMB10.6 million and RMB31.8 million (US$5.0 million) of
such performance fees, respectively. From 2020 to 2021, recurring service fee decreased as we provided on-going services to less 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
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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 increased from 2020 to 2021 due to the change in product mix. The amount of assets under our sole or shared
management declined from RMB41.8 billion in 2019 to RMB33.8 billion in 2020 and to RMB31.3 billion (US$4.9 billion) in 2021. As a component of our
recurring management fees, the amount of revenue from performance fees or carried interest was RMB156.9 million, RMB13.7 million and RMB10.6
million (US$1.7 million) in 2019, 2020 and 2021, respectively.
Other Service Fees. Other service fees refer 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
2019, 2020 and 2021, the amount of other service fees was RMB13.9 million, nil 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
2019, 2020 and 2021, we incurred channel fees in the amount of RMB19.1 million, RMB2.0 million and nil, 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.
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
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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:
Year Ended December 31,
2019
2020
2021
Product type
RMB in
millions
% (1)
RMB in
millions
% (1)
RMB in
millions
US$ in
millions
% (1)
(in millions, except for percentage)
Fixed income products
7,219
73.5
4,116
63.7
4,027
632
64.5
Private equity and venture capital
fund products
1,526
15.5
1,017
15.8
344
54
5.5
Public market products
291
3.0
1,173
18.2
1,616
254
25.9
Other products
791
8.0
147
2.3
253
40
4.1
All products
9,827
100.0
6,453
100.0
6,240
980
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
RMB9.2 billion, RMB6.4 billion and RMB6.2 billion (US$1.0 billion) of the products that we distributed in 2019, 2020 and 2021, 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
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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:
2021 compared to 2020
As of December 31,
2020
Inflows
Outflows
2021
Product type
Balance
(RMB in
millions)
% (1)
(RMB in
millions)
(RMB in
millions)
Balance
(RMB in
millions)
Balance
(US$ in
millions)
% (1)
Fixed income products
10,148.9
30.0
4,026.9 (4,509.2)
9,666.6
1,516.9
30.9
Private equity and venture capital
fund products
21,549.2
63.7
343.5 (2,864.7) 19,028.0
2,985.9
60.8
Public market products
968.2
2.9
719.62
(213.4)
1,474.5
231.4
4.7
Other products
1,162.9
3.4
0.0
(10.5)
1,152.4
180.8
3.6
All products
33,829.2
100.0
5,090.0 (7,597.8) 31,321.5
4,915.0
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 RMB31.3 billion (US$4.9 billion) as of December 31, 2021, a decrease of RMB2.5 billion
(US$0.4 billion), or 7.4%, from RMB33.8 billion as of December 31, 2020. The net decrease was due to:
Inflows of RMB5.1 billion (US$0.8 billion) contributions related to:
•
RMB4.0 billion (US$0.6 billion) in fixed income products primarily due to RMB4.0 billion (US$0.6 billion) raised for products with
underlying assets in real estate;
•
RMB0.7 billion (US$0.1 billion) in public market products contributed by RMB0.7 billion (US$0.1 billion) raised for products in private
placement related fund.
Outflows of RMB7.6 billion (US$1.2 billion) attributable to:
•
RMB4.5 billion (US$0.7 billion) in fixed income products primarily due to RMB4.5 billion (US$0.7 billion) liquidation of products with
underlying assets in real estate upon maturity; and
•
RMB2.9 billion (US$0.5 billion) in private equity and venture capital fund products primarily due to liquidation of products in real estate
of RMB2.3 billion (US$0.4 billion).
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2020 compared to 2019
As of December 31,
2019
Inflows
Outflows
2020
Product type
Balance
(RMB in
millions)
% (1)
(RMB in
millions)
(RMB in
millions)
Balance
(RMB in
millions)
% (1)
Fixed income products
13,454.4
32.2
4,116.4
(7,421.9)
10,148.9
30.0
Private equity and venture capital
fund products
26,294.0
62.9
1,017.0
(5,761.8)
21,549.2
63.7
Public market products
928.7
2.2
342.0
(302.5)
968.2
2.9
Other products
1,147.4
2.7
20.3
(4.8)
1,162.9
3.4
All products
41,824.5
100.0
5,495.7 (13,491.0)
33,829.2
100.0
(7)
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 as of December 31, 2020, a decrease of RMB8.0 billion, or 19%, from
RMB41.8 billion as of December 31, 2019. The net decrease was due to:
Inflows of RMB5.5 billion contributions related to:
•
RMB4.1 billion in fixed income products primarily due to RMB4.1 billion raised for products with underlying assets in real estate;
•
RMB1.0 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 RMB13.5 billion attributable to:
•
RMB7.4 billion in fixed income products primarily due to RMB7.4 billion liquidation of products with underlying assets in real estate
upon maturity; and
•
RMB5.8 billion in private equity and venture capital fund products primarily due to liquidation of products in real estate of RMB4.3
billion.
2019 compared to 2018
As of December 31,
2018
Inflows
Outflows
2019
Product type
Balance
(RMB in
millions)
% (1)
(RMB in
millions)
(RMB in
millions)
Balance
(RMB in
millions)
% (1)
Fixed income products
19,845.8
35.0
7,219.6 (13,611.1)
13,454.4
32.2
Private equity and venture capital
fund products
34,033.0
60.0
1,525.5
(9,264.5)
26,294.0
62.9
Public market products
1,657.5
2.9
1.0
(729.8)
928.7
2.2
Other products
1,215.5
2.1
180.9
(249.0)
1,147.4
2.7
All products
56,751.9
100.0
8,927.0 (23,854.4)
41,824.5
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.
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 2021 typically ranges from three months to fifteen months. The one-time commission rates we charge on fixed income products
typically range from 0.5% to 4.5%. The recurring service fee rates that we charge on fixed income products are within the range of 0.3% to 3.0% per year.
The tenure of equity related products we distributed in 2021 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 1.0% to 3.5%. The recurring service fee rates that we
charge on equity related products are within the range of 0.3% to 1.5% 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.
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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:
Year Ended December 31,
2019
2020
2021
Product type
%
%
%
Fixed income products
0.56
0.44
0.58
Private equity and venture capital
fund products
0.62
0.61
0.52
Public market products
0.56
0.66
0.73
Other products
0.72
0.59
0.58
All products
0.60
0.56
0.55
Operating Costs and Expenses
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 911 as of December 31, 2019 to 580 as of December 31, 2020 and further decreased to 459 as of December 31, 2021.
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 51, 31 and 22 client centers as of December 31, 2019, 2020 and 2021, respectively. Our rental expenses in 2021 have also decreased in
line with the decrease in the total office area of our client centers.
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:
Year Ended December 31,
2019
2020
2021
RMB
%
RMB
%
RMB
US$
%
Operating costs and expenses:
Cost of revenues
481,746,067
61.3 205,634,704
53.0 156,114,484 24,497,769
43.4
Selling expenses
206,777,405
26.3
84,903,304
21.9
90,062,565 14,132,782
25.1
General and administrative and
expenses
265,527,496
33.8 153,650,898
39.6 119,449,923 18,744,300
33.3
Government subsidies
(31,429,802)
(4.0) (21,590,703)
(5.6)
(5,397,270)
(846,949)
(1.5)
Total operating costs and expenses
922,621,166
117.4 422,598,203
108.9 360,229,702 56,527,902
100.3
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.
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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 $2 million from April 1, 2018, on their taxable income
generated from operations in Hong Kong. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived
income. In addition, payments of dividends from our Hong Kong subsidiary to us are not subject to any Hong Kong withholding tax.
PRC
Our PRC subsidiary and the VIEs are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on their
taxable income in accordance with the relevant PRC income tax laws. Under the Law of the People’s Republic of China on Enterprise Income Tax, or the
EIT Law, which became effective on January 1, 2008 and most recently amended on December 29, 2018 and its amendment promulgated on February 24,
2017 and most recently amended on April 23, 2019, domestically-owned enterprises and foreign-invested enterprises are subject to a uniform tax rate of
25%. Additionally, in accordance with the EIT Law, dividends, which arise from profits of foreign-invested corporations earned after January 1, 2008, are
subject to a 5% to 10% withholding income tax.
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Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts and as
percentages of our net revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere
in this annual report. The results of operations in any period are not necessarily indicative of the results that may be expected for any future period.
For the Years Ended December 31,
2019
2020
2021
RMB
RMB
RMB
US$
Revenues:
Third-party revenues
387,870,253
212,783,752
234,173,007
36,746,855
Related party revenues
402,889,899
177,025,427
126,399,990
19,834,917
Total revenues
790,760,152
389,809,179
360,572,997
56,581,772
Business taxes and related surcharges
(4,812,940)
(1,637,436)
(1,518,858)
(238,342)
Net revenues
785,947,212
388,171,743
359,054,139
56,343,430
Operating cost and expenses:
Cost of revenues
(481,746,067)
(205,634,704)
(156,114,484)
(24,497,769)
Selling expenses
(206,777,405)
(84,903,304)
(90,062,565)
(14,132,782)
General and administrative expenses
(265,527,496)
(153,650,898)
(119,449,923)
(18,744,300)
Government subsidies
31,429,802
21,590,703
5,397,270
846,949
Total operating cost and expenses
(922,621,166)
(422,598,203)
(360,229,702)
(56,527,902)
Loss from operations
(136,673,954)
(34,426,460)
(1,175,563)
(184,472)
Other income (loss):
Interest income
6,136,600
5,162,441
7,515,933
1,179,414
Investment income (loss)
12,627,142
(7,333,446)
(12,261,086)
(1,924,032)
Loss on litigation
—
—
(282,450,000)
(44,322,568)
Exchange gain (loss)
3,409,000
2,382,302
(32,782)
(5,144)
Total other income (loss)
22,172,742
211,297
(287,227,935)
(45,072,330)
Loss before taxes and loss from equity in
affiliates
(114,501,212)
(34,215,163)
(288,403,498)
(45,256,802)
Income tax expense
(52,944,639)
(796,524)
(2,345,334)
(368,034)
Loss from equity in affiliates
(5,015,063)
(1,612,759)
(3,888,959)
(610,263)
Net loss
(172,460,914)
(36,624,446)
(294,637,791)
(46,235,099)
Net loss attributable to non-controlling
interests
7,774,839
5,256,798
26,776,069
4,201,750
Net loss attributable to ordinary
shareholders
(164,686,075)
(31,367,648)
(267,861,722)
(42,033,349)
2021 Compared to 2020
Net Revenues. Our net revenues decreased by 7.5% from RMB0.4 billion in 2020 to RMB359.1 million (US$56.3 million) in 2021.
Our net revenues from one-time commissions decreased by 12.6% from RMB162.2 million in 2020 to RMB141.7 million (US$22.2 million) in
2021, primarily attributable to a decrease in the aggregate value of wealth management products distributed.
Our net revenues from recurring service fees decreased by 10.3% from RMB128.0 million in 2020 to RMB114.9 million (US$18.0 million) in
2021 primarily because we provided ongoing services to less products in 2021. As part of the recurring services fees, our recognized variable performance
fees increased from RMB10.6 million in 2020 to RMB31.8 million (US$5.0 million) in 2021.
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Our net revenues from recurring management fees increased by 4.6% from RMB98.0 million in 2020 to RMB102.5 million (US$16.1 million)
in 2021, which was primarily attributable to the change in product mix. In 2020 and 2021, RMB13.7 million and RMB10.6 million (US$1.7 million)
carried interest was recognized as part of our recurring management fees, respectively.
Operating Costs and Expenses. Our total operating costs and expenses decreased by 14.8% from RMB422.6 million in 2020 to RMB360.2
million (US$56.5 million) in 2021, primarily due to the decreases in cost of revenues and general and administrative expenses.
•
Cost of Revenues. Cost of revenues decreased by 24.1% from RMB205.6 million in 2020 to RMB156.1 million (US$24.5 million) in
2021, 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.
•
Selling Expenses. Our selling expenses increased by 6.1% from RMB84.9 million in 2020 to RMB90.1 million (US$14.1 million) in
2021, primarily due to increases in marketing and promotion expenses.
•
General and Administrative Expenses. Our general and administrative expenses decreased by 22.3% from RMB153.7 million in 2020 to
RMB119.4 million (US$18.7 million) in 2021, due to the continuous improvement in our operating efficiency.
•
Government Subsidies. Government subsidies decreased by 75.0% from RMB21.6 million in 2020 to RMB5.4 million (US$0.8 million)
in 2021.
Other Income and Expenses. We had total other income of RMB0.2 million in 2020, compared to total other loss of RMB287.2 million
(US$45.1 million) in 2021. The change was primarily due to a provision of RMB282.5 million incurred in relation to lawsuits related to Juzhou Assets. See
“Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—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.”
Loss from Equity in Affiliates. Our loss from equity in affiliates increased from RMB1.6 million in 2020 to RMB3.9 million (US$0.6 million) in
2021, which was mainly due to an increase of impairment of investment in affiliates from RMB1.3 million in 2020 to RMB2.6 million (US$0.4 million) in
2021.
Income Tax Expense. Our income tax expense increased by 194.4% from RMB0.8 million in 2020 to RMB2.3 million (US$0.4 million) in
2021, mainly due to an increase in taxable income.
Net Loss. As a result of the above, we recorded a net loss of RMB294.6 million (US$46.2 million) in 2021, as compared to a net loss of RMB36.6
million in 2020.
2020 Compared to 2019
Net Revenues. Our net revenues decreased by 50.6% from RMB0.8 billion in 2019 to RMB0.4 billion in 2020.
Our net revenues from one-time commissions decreased by 49.1% from RMB318.9 million in 2019 to RMB162.2 million in 2020, primarily
attributable to a decrease in the aggregate value of wealth management products distributed.
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Our net revenues from recurring service fees increased by 11.8% from RMB114.5 million in 2019 to RMB128.0 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 in 2020.
Our net revenues from recurring management fees decreased by 71.1% from RMB338.6 million in 2019 to RMB98.0 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 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 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 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.
•
Selling Expenses. Our selling expenses decreased by 58.9% from RMB206.8 million in 2019 to RMB84.9 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 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 in 2020.
Other Income and Expenses. Our total other income decreased from RMB22.2 million in 2019 to RMB0.2 million 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 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 in 2020.
Income Tax Expense. Our income tax expense decreased by 98.5% from RMB52.9 million in 2019 to RMB0.8 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 in 2020, as compared to a net loss of RMB172.5 million in 2019.
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
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principal uses of cash for the years ended December 31, 2019, 2020 and 2021 were for operating, financing and investing activities. As of December 31,
2021, we had RMB0.6 billion (US$0.1 billion) in cash, cash equivalents and restricted cash. Approximately 63.9% of our cash, cash equivalent and
restricted cash as of December 31, 2021 was held in China, more than 32.3% of which was held by our VIEs and their respective subsidiaries denominated
in Renminbi. As of December 31, 2021, 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:
For the Years Ended December 31,
2019
2020
2021
RMB
RMB
RMB
US$
Summary of Statement of Cash Flow Data
Net cash provided by (used in) operating
activities
(213,255,822)
535,459
(26,107,120)
(4,096,778)
Net cash used in investing activities
(365,663,454)
(32,428,482)
(9,859,492)
(1,547,170)
Net cash provided by (used in) financing
activities
29,636
(7,085,100)
(4,462,990)
(700,341)
Effect of exchange rate changes
(11,369,704)
(16,091,630)
(4,707,092)
(738,643)
Net decrease in cash, cash equivalent and
restricted cash
(590,259,344)
(55,069,753)
(45,136,694)
(7,082,932)
Cash, cash equivalents and restricted cash —
beginning of the year
1,302,565,042
712,305,698
657,235,945
103,134,662
Cash, cash equivalents and restricted cash —
end of the year
712,305,698
657,235,945
612,099,251
96,051,730
Operating Activities
Net cash used in operating activities in 2021 was RMB26.1 million (US$4.1 million), primarily attributable to a net loss of RMB294.6 million
(US$46.2 million) and a net increase of RMB230.5 million (US$36.2 million) due to change in working capital, offset by non-cash items of RMB38.0
million (US$5.9 million). The change in working capital was primarily attributable to an increase of RMB272.1 million (US$42.7 million) in other current
liabilities, partially offset by a decrease of RMB21.3 million (US$3.3 million) in accrued payroll and welfare expenses and a decline of RMB15.8 million
(US$2.5 million) in deferred revenue.
Net cash provided by operating activities in 2020 was RMB0.5 million, primarily attributable to a net loss of RMB36.6 million and a net
decrease of RMB6.1 million due to change in working capital, offset by non-cash items of RMB43.2 million. The change in working capital was primarily
attributable to a decline of RMB51.3 million in deferred revenue and a decrease of RMB7.3 million in other current liabilities in aggregate, partially offset
by an increase of RMB49.8 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.
Investing Activities
Net cash used in investing activities in 2021 was RMB9.9 million (US$1.5 million). Our investments consist primarily of purchases of
property, plant, equipment, loan origination and investments, which, in the aggregate, accounted for cash out-flow of RMB73.1 million (US$11.4 million),
partially offset by proceeds from investments and loan collection of RMB63.2 million (US$9.9 million).
Net cash used in investing activities in 2020 was RMB32.4 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, partially offset by proceeds from investments
and loan collection of RMB29.7 million.
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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.
Financing Activities
Net cash used in financing activities in 2021 was RMB4.5 million (US$0.7 million), primarily attributable to the shares repurchase.
Net cash used in financing activities in 2020 was RMB7.1 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.
Cash Requirements
Our material cash requirements mainly include contractual obligations and capital expenditures.
Capital expenditures
Our capital expenditures were RMB13.2 million, RMB2.1 million and RMB5.7 million (US$0.9 million) in 2019, 2020 and 2021, respectively.
We currently do not have any commitment for capital expenditures or other cash requirements other than those in our ordinary course of business.
Contractual obligations
The following table sets forth our contractual obligations as of December 31, 2021:
Payment due by Period
Total
Less than 1
year
1-3 years
3-5 years
More than
5 years
Operating leases
29,459,838
18,409,478
11,050,360
—
—
Other long term liabilities(1)
38,546,000
38,546,000
—
—
—
Total
68,005,838
56,955,478
11,050,360
—
—
(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.
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
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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.
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.
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, 2021 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.
Critical Accounting Estimates
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.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of
different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of
operations. Such critical estimates are discussed below. For further information on our other significant accounting estimates, see Note 2 to our
consolidated financial statements included elsewhere in this annual report.
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Loss on Litigation
On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought against it. While it is typically very difficult to
determine the timing and ultimate outcome of these actions, we use best estimate to determine if it is probable that we will incur an expense related to the
settlement or final adjudication of these matters and whether a reasonable estimation of the probable loss, if any, can be made. We accrue a liability when a
loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and
potential recovery, it is possible that disputed matters may be resolved for amounts materially different from any provisions or disclosures that we have
previously made.
Critical Accounting Policies
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.
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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.
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.
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.
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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.
As of December 31, 2020 and 2021, total amount of deferred revenue are RMB31.7 million and RMB15.9 (US$2.5 million), respectively, of
which RMB19.0 million and RMB14.4 million (US$2.3 million) estimated to be recognized within one year, RMB12.7 million and RMB1.5 million
(US$0.2 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 RMB2.7 million, RMB1.3 million and
RMB2.6 million (US$0.4 million) for the years ended December 31, 2019, 2020 and 2021, respectively. Please refer to Note 6 to Consolidated Financial
Statements for our assessment on each investment in affiliates.
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 RMB59.2 million, RMB11.1 million and nil for the years ended December 31, 2019, 2020 and 2021, respectively.
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
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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 VIEs and the VIEs’ subsidiaries. To provide Scepter Pacific effective control over, and the ability to receive substantially
all of the economic benefits of, its VIEs and its subsidiaries, Shanghai Baoyi entered into a series of contractual arrangements with Shanghai E-Cheng, and
the shareholders of Shanghai E-Cheng. On August 24, 2021, Shanghai Yedu acquired the whole equity interest of Shanghai Yidexin Equity Investment
Management Co., Ltd. from Shanghai E-Cheng. On the same date, Shanghai Baoyi entered into a series of contractual arrangements with Shanghai Yedu
and its shareholders in order to exercise effective control over Shanghai Yidexin Equity Investment Management Co., Ltd.
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
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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.
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, 2021, operating loss carried forward amounted to RMB229.6 million (US$36.0 million) for the PRC and HK income tax
purposes. The loss carrying forward will begin to expire this year. Valuation allowance of RMB56.5 million (US$8.9 million) was recorded as of December
31, 2021 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.
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
Age
Position/Title
Jianda Ni
59
Chairman of the Board of Directors and Chief Executive Officer
Xin Zhou
54
Director
Guoping Yang
66
Independent Director
Bang Zhang
54
Independent Director
Hongchao Zhu
62
Independent Director
Min Liu
48
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
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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 the 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 the 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, a director of The Nature Conservancy China, vice chairman of China Real Estate Developers and Investors
Association and the 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.
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. since October 1988 and the chairman of the board of Shanghai Dazhong Public Utilities (Group)
Co., Ltd. since January 1992. 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. Mr. Zhang served as the chief corporate officer at Octave Institute from 2018 to 2021, an independent
director of China Cache International Holdings Limited (Nasdaq: CCIH) from August 2017 to November 2020, the chief financial officer at DG Group
from 2016 to 2017, and the chief financial officer at Golden Jaguar from 2013 to 2015. 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 founding partner and senior partner of Shanghai United Law Firm and has been practicing with
Shanghai United Law Firm since 1986. Mr. Zhu is now an arbitrator of Shanghai International Economic and Trade Arbitration Commission (Shanghai
International Arbitration Center) and Shanghai Arbitration Commission. Mr. Zhu is a vice president 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.
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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.
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, 2021, 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.
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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, 2022, options to acquire a total of 15,642,600 ordinary shares and 9,937,100 restricted shares have been granted and options to
acquire 7,804,497 ordinary shares and 791,616 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.
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.
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The following table summarizes, as of March 31, 2022, 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
Ordinary Shares
Underlying
Options
Restricted
Shares Awarded
Exercise Price
(US$/Share)
Date of
Grant
Date of
Expiration
Jianda Ni
*
US$1.00
April 21, 2015
April 1, 2025
Jianda Ni
*
—
August 26, 2015
August 25, 2025
Xin Zhou
*
US$0.66
July 16, 2015
August 7, 2024
Guoping Yang
*
—
August 26, 2015
August 25, 2025
Bang Zhang
*
—
August 26, 2015
August 25, 2025
Hongchao Zhu
*
—
August 26, 2015
August 25, 2025
Hongchao Zhu
*
US$0.66
July 16, 2015
August 7, 2024
Min Liu
*
US$0.48
July 1, 2014
June 30, 2024
Min Liu
*
—
February 27, 2017
February 26, 2027
Total
4,317,084
(1)
*Less than 1% of our total outstanding share capital.
As of March 31, 2022, other employees as a group held options/restricted shares to purchase 6,450,111 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.
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
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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.
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; and
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•
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 911, 580 and 459 employees as of December 31, 2019, 2020 and 2021, respectively. The following table sets forth the number of our
employees by function as of December 31, 2021:
Functional Area
Number of
Employees
%(1)
of Total
Wealth Management
214
47%
Product Sourcing, Monitoring and Development
99
22%
Marketing
11
2%
Management and Administration
135
29%
Total
459
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, 2022 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 191,052,818 ordinary shares outstanding as of March 31, 2022, 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
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the percentage ownership of any other person. Ordinary shares held by a shareholder are determined in accordance with our register of members.
Ordinary Shares Beneficially Owned
Number
Percentage
Directors and Executive Officers:**
Jianda Ni(1)
26,596,794
13.8
Xin Zhou(2)
43,884,591
23.0
Guoping Yang(3)
*
*
Bang Zhang(4)
*
*
Hongchao Zhu(5)
*
*
Min Liu(6)
4,886,112
2.5
All Directors and Executive Officers as a Group
75,997,701
39.3
Principal Shareholders:
E-House (China) Holdings Limited(2)(7)
43,809,591
22.9
Tianxiang Hu(8)
32,773,912
16.8
SINA Corporation(9)
21,798,340
11.4
UBS(10)
19,340,406
10.1
High-Gold Worldwide Limited(1)(11)
19,853,538
10.4
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 191,052,818 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, 2022.
*
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, the 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, 2022.
(2)
Represents (i) 75,000 ordinary shares issuable to Mr. Xin Zhou upon exercise of options shares within 60 days after March 31, 2022, 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 788 Guangzhong Road, Jing’an District, Shanghai 200072, the People’s Republic of China.
(3)
The business address of Mr. Guoping Yang is 22/F, 1515 Zhongshan Road West, Shanghai, the People’s Republic of China.
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(4)
The business address of Mr. Bang Zhang is 7/F, 3162 Yan’an Road West, Shanghai, the 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, 2022, and (ii)
3,885,112 ordinary shares (represented by 647,552 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 788 Guangzhong Road, Jing’an District, Shanghai 200072, the 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, 2022.
(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 19,340,406 ordinary shares held by UBS Asset Management Americas Inc as last reported in a Schedule 13F-HR filed by UBS on
February 14, 2022. 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, the People’s Republic of China.
None of our existing shareholders have different voting rights from other shareholders.
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, 2022, we had 191,052,818 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 57% 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 40 funds in 2021. In 2021, we generated revenues from one-time commission fee in a total amount of
RMB13.5 million (US$2.1 million), recurring management fee in a total amount of RMB102.9 million (US$16.1 million) (including carried interest of
RMB10.6 million (US$1.7 million)), and recurring service fee in a total amount of RMB10.0 million (US$1.6 million) (including carried interest of nil). As
of December 31, 2021, we had RMB4.8 million (US$0.8 million) unpaid service fees due from these funds and had RMB5.7 million (US$0.9 million)
prepaid services fees from these funds recorded as deferred revenues.
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, recurring management fee in a total amount of RMB98.4 million (including carried interest of RMB13.7 million), and recurring service
fee in a total amount of RMB20.2 million (including carried interest of RMB0.5 million). As of December 31, 2020, we had RMB4.9 million unpaid
service fees due from these funds and had RMB21.8 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.
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Amount Due to Related Parties
As of December 31, 2021, we had RMB16.6 million (US$2.6 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, 2020, we had RMB16.6 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.
Amount Due from Related Parties
As of December 31, 2021, we had RMB243.8 million (US$38.3 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, 2020, we had RMB249.3 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, 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.
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.
ITEM 8.
FINANCIAL INFORMATION
O A.
Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
O Legal and Administrative Proceedings
We are subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. In June 2016, Juzhou
Assets, one of the consolidated affiliated entities of the Company, established Juzhou Fund. A substantial portion of the Juzhou Fund had been
misappropriated by the controlling person of an enterprise invested by the Juzhou Fund. The controlling person, who is not a director, officer or employee
of the Company, has been suspected of contract fraud and has been investigated from December 2019. The investors of the Juzhou Fund filed a series of
lawsuits against Juzhou Assets and its parent company, Shanghai Jupai, for their losses from early 2020 and the lawsuits have been suspended due to
COVID-19 outbreak. As to the date of this annual report, 73 investors have filed lawsuits and the total principal amount of their investments involved is
RMB90,650,000. The courts have entered the final judgement in certain cases, pursuant to which Juzhou Assets shall assume liability for the actual losses
suffered by investors, including their principals and the interest losses, due to its failure in performing obligations in selling fund products and/or as a fund
manager. Shanghai Jupai
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shall also assume the compensation liability for the actual losses suffered by investors jointly and severally according to the judgement. These lawsuits
have caused a material adverse effect on our business, financial condition and results of operations. We have made a provision of RMB282.5 million due to
these lawsuits.
Other than the above lawsuit, 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.
o Dividend Policy
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.
o 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
o A.
Offering and Listing Details
o 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.”
o B.
Plan of Distribution
Not applicable.
o 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.”
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o D.
Selling Shareholders
Not applicable.
o E.
Dilution
Not applicable.
o 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
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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.
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.
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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.”
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:
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•
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
•
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 by 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.”
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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, 2022, 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.
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
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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.
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.
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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, 2021, 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.
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
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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 (but not our ordinary shares) are listed on the NYSE and is considered readily tradable on an
established securities market in the United States. 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, 2021, 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.
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, which may limit the ability
to use a foreign tax credit. 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. Pursuant to recently issued United States Treasury Regulations, however, if a
U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply the Treaty, then such holder may not be able to claim a foreign tax credit
arising from any PRC tax imposed on the disposition of ADSs or ordinary shares. The rules regarding foreign tax credits and deduction of foreign taxes
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are complex. U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular
circumstances, including their eligibility for benefits under the Treaty and the potential impact of the recently issued United States Treasury Regulations.
Passive Foreign Investment Company Rules
As mentioned above, we believe that we were a PFIC for the taxable year ended December 31, 2021, 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 on a qualified exchange or other market, as defined in the applicable United States Treasury
regulations. For those purposes, our ADSs, but not our ordinary shares, are listed on the NYSE, which is a qualified exchange. 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.
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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.
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 RMB6.1 million,
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RMB5.2 million and RMB7.5 million (US$1.2 million) in 2019, 2020 and 2021, 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.
We had cash, cash equivalents and restricted cash of RMB612.1 million (US$96.1 million) as of December 31, 2021, and interest income of
RMB7.5 million (US$1.2 million) for the year ended December 31, 2021 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 2019, 2020 and 2021 were increases of 4.5%, 0.2% and 1.5%, 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
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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.
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
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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.
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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PART II.
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
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, 2021. 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, 2021 using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of
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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, 2021.
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.
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 B F
Borgers CPA PC, our principal external auditors, for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below.
For the Years Ended December 31,
2020
2021
(in thousands of RMB)
Audit fees(1)
5,560
5,000
Other service fee
—
—
(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 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.
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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 February 25, 2022.
Period
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
January 2021
—
—
539,142
$
9,258,446.18
February 2021
—
—
539,142
$
9,258,446.18
March 2021
—
—
539,142
$
9,258,446.18
April 2021
—
—
539,142
$
9,258,446.18
September 2021
85,641
$
1.1010
624,783
$
9,164,158.54
October 2021
21,600
$
1.0753
646,383
$
9,140,931.88
November 2021
396,300
$
1.0646
1,042,683
$
8,719,042.56
December 2021
244,497
$
1.0645
1,287,180
$
8,458,775.59
January 2022
244,800
$
0.8882
1,531,980
$
8,241,346.78
February 2022
390,200
$
0.8537
1,922,180
$
7,908,229.52
Total
1,922,180
1,922,180
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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.
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.
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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
Description of Document
1.1
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))
2.1
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3)
2.2
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))
2.3
Amended and Restated Deposit Agreement, among the Registrant, the depositary and holder of the American Depositary Receipts dated May 27, 2020
(incorporated herein by reference to Exhibit 2.3 to the Form 20-F filed on April 16, 2021 (File No. 001-37485))
2.4
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))
2.5*
Description of Securities
4.1
Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Form S-8 filed on March 4, 2016 (File No.333-209924))
4.2
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))
4.3
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))
4.4
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))
4.5
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))
4.6
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))
4.7
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))
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Exhibit
Number
Description of Document
4.8
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))
4.9
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))
4.10
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))
4.11
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))
4.12
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))
4.13
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))
4.14
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))
4.15
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))
4.16
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))
4.17
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))
4.18
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))
4.19
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))
4.20
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))
4.21
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))
4.22
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))
148
Table of Contents
Exhibit
Number
Description of Document
4.23
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))
4.24
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))
4.25
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))
4.26
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))
4.27
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))
4.28*
English translation of Exclusive Business Operation Agreement between Shanghai Baoyi and Shanghai Yedu dated August 24, 2021.
4.29*
English translation of Exclusive Call Option Agreement by and among Shanghai Baoyi, Shanghai Yedu, Qimin Wu and Guowen Zhang dated August 24,
2021.
4.30*
English translation of Equity Interest Pledge Agreement by and among Shanghai Baoyi, Shanghai Yedu, Qimin Wu and Guowen Zhang dated August 24,
2021.
4.31*
English translation of Shareholder Voting Rights Proxy Agreement by and among Shanghai Baoyi, Shanghai Yedu, Qimin Wu and Guowen Zhang dated
August 24, 2021.
8.1*
List of significant subsidiaries and consolidated entities
11.1
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))
12.1*
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*
Consent of Yuan Tai Law Offices
15.2*
Consent of B F Borgers CPA PC
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))
149
Table of Contents
Exhibit
Number
Description of Document
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Scheme Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed with this Annual Report on Form 20-F.
**
Furnished with this Annual Report on Form 20-F.
150
Table of Contents
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.
JUPAI HOLDINGS LIMITED
By:
/s/ Jianda Ni
Name:
Jianda Ni
Title:
Chairman of the Board of Directors and Chief Executive
Officer
Date: April 25, 2022
151
Table of Contents
Jupai Holdings Limited
Index to Consolidated Financial Statements
For the Years Ended December 31, 2019, 2020 and 2021
Report of Independent Registered Public Accounting Firm
F-2 — 4
Consolidated Balance Sheets as of December 31, 2020 and 2021
F-5
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2020 and 2021
F-6
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2020 and 2021
F-7
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2019, 2020 and 2021
F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2020 and 2021
F-9
Notes to Consolidated Financial Statements
F-10 — 33
Additional Information — Financial Statement Schedule I
F-34 — 37
F-1
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, 2020 and 2021, 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, 2021, 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, 2020 and 2021, and the
results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, 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 15 to the financial statements, the
Company had approximately RMB 223.19 million loan receivable balance from related parties outstanding as of December 31, 2021.
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.
F-2
Table of Contents
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.
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 assessments 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. As of December 31,
2021, the account balance of long-term investment in equity securities was RMB 202.82 million, and the Company recorded an impairment loss of RMB
10.00 million for the year ended December 31, 2021.
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.
Legal Proceedings Contingencies
As described in Note 16 to the consolidated financial statements, management records liabilities for legal proceedings in those instances where it can
reasonably estimate the amount of the loss and when the liability is probable. Where the reasonable estimate of the probable loss is a range, management
records the most likely estimate of the loss, or the low end of the range if there is no one best estimate. Management either discloses the amount of a
possible loss or range of loss in excess of established accruals if estimable, or states that such an estimate cannot be made. Management discloses
significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or both, if management believes there is at
least a reasonable possibility that a loss may be incurred.
Our principal considerations for our determination that performing procedures relating to legal proceedings contingencies is a critical audit matter as there
was significant judgment by management when assessing the likelihood of a loss being incurred and when estimating the loss or range of loss for each
claim, which in turn led to significant auditor judgment, subjectivity,
F-3
Table of Contents
and effort in performing procedures and evaluating management’s assessment of the liabilities and disclosures related to legal proceedings.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial
statements. These procedures included, among others, obtaining and evaluating the letters of audit inquiry with external legal counsel, reviewing public
accessible information regarding the Company’s litigation cases, evaluating the reasonableness of management’s assessment regarding whether an
unfavorable outcome is reasonably possible or probable and reasonably estimable, and evaluating the sufficiency of the Company’s disclosures related to
legal proceedings.
/s/ B F Borgers CPA PC
We have served as the Company’s auditor since 2020.
Lakewood, Colorado
April 25, 2022
(PCAOB ID Number 5041)
F-4
Table of Contents
Jupai Holdings Limited
Consolidated Balance Sheets
(In RMB except for share data)
As of December 31,
2020
2021
2021
RMB
RMB
USD
Assets
Current assets:
Cash and cash equivalents
630,416,786
601,769,949
94,430,837
Restricted cash
26,819,159
10,329,302
1,620,893
Short-term investment
—
166,465
26,122
Accounts receivable (net of allowance for doubtful accounts of RMB26,102,138 and RMB26,102,138
as of December 31, 2020 and 2021, respectively)
6,539
135,521
21,266
Other receivables (net of allowance for doubtful accounts of RMB2,080,597 and RMB11,480,597
as of December 31, 2020 and 2021, respectively)
61,254,793
45,199,373
7,092,768
Amounts due from related parties (net of allowance for doubtful accounts of RMB107,453,024
and RMB107,453,024 as of December 31, 2020 and 2021, respectively)
20,182,412
14,953,199
2,346,483
Other current assets
16,034,692
13,547,097
2,125,835
Total current assets
754,714,381
686,100,906
107,664,204
Long-term investments
218,950,000
202,819,390
31,826,788
Intangible assets, net
34,177,021
30,806,932
4,834,280
Amounts due from related parties — non-current
229,154,928
228,832,572
35,908,824
Investment in affiliates
100,341,909
122,187,351
19,173,862
Property and equipment, net
17,093,837
14,615,709
2,293,524
Other non-current assets
13,538,437
11,736,493
1,841,712
Right-of-use assets
39,119,312
28,356,766
4,449,795
Deferred tax assets
4,312,491
4,161,017
652,954
Total Assets
1,411,402,316
1,329,617,136
208,645,943
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 RMB30,708,606 and
RMB 29,283,711 as of December 31, 2020 and 2021, respectively)
57,926,124
36,586,982
5,741,296
Income tax payable (including income tax payable of the consolidated VIEs and VIEs’ subsidiaries
without recourse to Jupai Holdings Limited of RMB52,409,793 and RMB51,926,637 as of
December 31, 2020 and 2021, respectively)
85,592,667
85,448,960
13,408,806
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, 2020 and 2021,
respectively)
2,643,970
750,706
117,802
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
RMB11,011,967 and RMB11,131,830 as of December 31,2020 and 2021, respectively)
16,625,680
16,617,178
2,607,598
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 RMB10,267,812 and
RMB 5,068,643 as of December 31,2020 and 2021, respectively)
10,364,519
5,404,145
848,028
Deferred revenue (including deferred revenue of the consolidated VIEs and VIEs’ subsidiaries
without recourse to Jupai Holdings Limited of RMB7,594,166 and RMB625,118 as of December 31,
2020 and 2021, respectively)
8,598,708
8,989,449
1,410,641
Contingent liabilities (including contingent liabilities of the consolidated VIEs and VIEs’ subsidiaries
without recourse to Jupai Holdings Limited of nil and RMB282,450,000 as of December 31, 2020
and 2021, respectively)
—
282,450,000
44,322,568
Other current liabilities (including other current liabilities of the consolidated VIEs and VIEs’
subsidiaries without recourse to Jupai Holdings Limited of RMB7,700,862 and RMB
7,184,238 as of December 31, 2020 and 2021, respectively)
59,759,820
41,230,282
6,469,931
Total current liabilities
241,511,488
477,477,702
74,926,670
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 RMB
1,362,240 and RMB278,301 as of December 31, 2020 and 2021, respectively)
11,425,388
278,302
43,672
Deferred revenue — non-current (including deferred revenue of the consolidated VIEs and VIEs’
subsidiaries without recourse to Jupai Holdings Limited of RMB104,835 and nil as of December 31,
2020 and 2021, respectively)
1,284,080
1,179,245
185,049
Operating Lease Liabilities — non-current (including operating lease liabilities of the consolidated
VIEs and VIEs’ subsidiaries without recourse to Jupai Holdings Limited of RMB138,156 and nil as of
December 31, 2020 and 2021, respectively)
12,619,411
10,046,206
1,576,469
Total Liabilities
266,840,367
488,981,455
76,731,860
Commitments and Contingencies (Note 16)
Shareholders’ Equity:
Ordinary Shares (USD0.0005 par value; 1,000,000,000 and 1,000,000,000 shares authorized,
199,051,046 and 194,862,818 shares issued and outstanding, as of December 31, 2020
and 2021, respectively)
623,201
609,833
95,696
Additional paid-in capital
1,148,823,625
1,144,255,610
179,558,675
Retained earnings
(48,935,177)
(316,796,899)
(49,712,346)
Accumulated other comprehensive income
37,929,187
33,167,674
5,204,732
Total Jupai shareholders’ equity
1,138,440,836
861,236,218
135,146,757
Noncontrolling interests
6,121,113
(20,600,537)
(3,232,674)
Total Equity
1,144,561,949
840,635,681
131,914,083
Total Liabilities and Equity
1,411,402,316
1,329,617,136
208,645,943
F-5
Table of Contents
Jupai Holdings Limited
Consolidated Statements of Operations
(In RMB except for share data)
Years Ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Revenues
Third party revenues
387,870,253
212,783,752
234,173,007
36,746,855
Related party revenues
402,889,899
177,025,427
126,399,990
19,834,917
Total revenues
790,760,152
389,809,179
360,572,997
56,581,772
Business taxes and related surcharges
(4,812,940)
(1,637,436)
(1,518,858)
(238,342)
Net revenues
785,947,212
388,171,743
359,054,139
56,343,430
Operating cost and expenses:
Cost of revenues
(481,746,067) (205,634,704) (156,114,484)
(24,497,769)
Selling expenses
(206,777,405)
(84,903,304)
(90,062,565)
(14,132,782)
General and administrative expenses
(265,527,496) (153,650,898) (119,449,923)
(18,744,300)
Government subsidies
31,429,802
21,590,703
5,397,270
846,949
Total operating cost and expenses
(922,621,166) (422,598,203) (360,229,702)
(56,527,902)
Loss from operations
(136,673,954)
(34,426,460)
(1,175,563)
(184,472)
Interest income
6,136,600
5,162,441
7,515,933
1,179,414
Investment income (loss)
12,627,142
(7,333,446)
(12,261,086)
(1,924,032)
Loss on litigation
—
— (282,450,000)
(44,322,568)
Exchange gain (loss)
3,409,000
2,382,302
(32,782)
(5,144)
Loss before taxes and gain from equity in affiliates
(114,501,212)
(34,215,163) (288,403,498)
(45,256,802)
Income tax expense
(52,944,639)
(796,524)
(2,345,334)
(368,034)
Loss from equity in affiliates
(5,015,063)
(1,612,759)
(3,888,959)
(610,263)
Net loss
(172,460,914)
(36,624,446) (294,637,791)
(46,235,099)
Net loss attributable to noncontrolling interests
7,774,839
5,256,798
26,776,069
4,201,750
Net loss attributable to ordinary shareholders
(164,686,075)
(31,367,648) (267,861,722)
(42,033,349)
Net loss per share:
Basic and diluted
(0.82)
(0.16)
(1.35)
(0.21)
Weighted average number of shares used in computation:
Basic and diluted
201,695,899
200,431,277
198,854,216
198,854,216
F-6
Table of Contents
Jupai Holdings Limited
Consolidated Statements of Comprehensive Income (Loss)
(In RMB)
Years Ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Net loss
(172,460,914)
(36,624,446) (294,637,791)
(46,235,099)
Other comprehensive loss, net of tax of nil:
Change in cumulative foreign currency translation adjustment
(3,245,903)
(16,091,629)
(4,707,094)
(738,646)
Other comprehensive loss
(3,245,903)
(16,091,629)
(4,707,094)
(738,646)
Comprehensive loss
(175,706,817)
(52,716,075) (299,344,885)
(46,973,745)
Less: comprehensive loss attributable to noncontrolling interest
(7,748,689)
(5,135,944)
(26,721,650)
(4,193,210)
Comprehensive loss attributable to ordinary shareholders
(167,958,128)
(47,580,131) (272,623,235)
(42,780,535)
F-7
Table of Contents
Jupai Holdings Limited
Consolidated Statements of Changes in Shareholders’ Equity
(In RMB except for share data)
Ordinary shares
Additional
paid-in capital
Retained
earnings
Accumulated
other
comprehensive
income
Total Jupai
shareholders’
equity
Noncontrolling
interests
Total
shareholders’equity
Number of Shares
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Balance at January
1, 2019
201,479,446 631,715 1,138,107,676 147,118,546 53,153,406 1,339,011,343 28,137,492
1,367,148,835
Net loss
—
—
— (164,686,075)
— (164,686,075) (7,774,839)
(172,460,914)
Share-based
compensation
—
—
9,583,596
—
—
9,583,596
—
9,583,596
Option exercised
9,200
32
29,604
—
—
29,636
—
29,636
Restricted shares
vested
248,626
854
(854)
—
—
—
—
—
Deconsolidation of
a subsidiary
—
—
2,632,287
—
4,260,317
6,892,604 (9,131,746)
(2,239,142)
Foreign currency
translation
adjustment
—
—
—
— (3,272,053)
(3,272,053)
26,150
(3,245,903)
Balance at
December 31, 2019
201,737,272 632,601 1,150,352,309 (17,567,529) 54,141,670 1,187,559,051 11,257,057
1,198,816,108
Net loss
—
—
— (31,367,648)
—
(31,367,648) (5,256,798)
(36,624,446)
Share-based
compensation
—
—
3,593,400
—
—
3,593,400
—
3,593,400
Restricted shares
vested
548,626
1,852
(1,852)
—
—
—
—
—
Repurchase of
shares
(3,234,852) (11,252)
(5,120,232)
—
—
(5,131,484)
—
(5,131,484)
Foreign currency
translation
adjustment
—
—
—
— (16,212,483)
(16,212,483)
120,854
(16,091,629)
Balance at
December 31, 2020
199,051,046 623,201 1,148,823,625 (48,935,177) 37,929,187 1,138,440,836
6,121,113
1,144,561,949
Net loss
—
—
— (267,861,722)
— (267,861,722) (26,776,069)
(294,637,791)
Share-based
compensation
—
—
644,654
—
—
644,654
—
644,654
Restricted shares
vested
300,000
968
(968)
—
—
—
—
—
Repurchase of
shares
(4,488,228) (14,336)
(5,211,701)
—
—
(5,226,037)
—
(5,226,037)
Foreign currency
translation
adjustment
—
—
—
— (4,761,513)
(4,761,513)
54,419
(4,707,094)
Balance at
December 31, 2021
194,862,818 609,833 1,144,255,610 (316,796,899) 33,167,674
861,236,218 (20,600,537)
840,635,681
F-8
Table of Contents
Jupai Holdings Limited
Consolidated Statements of Cash Flows
(In RMB)
Years Ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Cash flows from operating activities:
Net loss
(172,460,914)
(36,624,446)
(294,637,791)
(46,235,099)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
26,101,844
16,339,376
11,110,956
1,743,551
Loss from disposal of property and equipment
—
667,217
535,935
84,100
Allowance for doubtful accounts
61,278,914
11,145,117
9,400,000
1,475,065
Loss from equity in affiliates
5,015,063
1,612,759
3,888,959
610,263
Gain from disposal of subsidiaries and investment in affiliates
(12,559,048)
(128,240)
601,384
94,370
Loss on investment in equity securities
4,723,612
10,000,000
11,790,000
1,850,108
Share-based compensation
9,583,596
3,593,400
644,654
101,160
Changes in operating assets and liabilities:
Accounts receivable
32,449,697
(6,539)
(128,982)
(20,240)
Other receivables
(2,975,011)
4,824,357
(6,947,627)
(1,090,234)
Other assets
16,497,858
(6,751,725)
4,195,181
658,315
Trading securities
—
—
(166,465)
(26,122)
Amounts due from related parties
51,449,973
49,828,289
551,569
86,553
Accrued payroll and welfare expenses
(58,269,184)
(391,939)
(21,339,142)
(3,348,577)
Income tax payable
(144,737,787)
2,792,459
(143,707)
(22,551)
Other tax payable
(42,314,442)
1,948,889
(1,893,263)
(297,094)
Deferred revenue
14,892,464
(26,103,365)
285,905
44,865
Other current liabilities
(11,592,885)
(7,323,826)
272,101,301
42,698,632
Deferred revenue from related parties
(86,520,421)
(25,181,897)
(16,107,460)
(2,527,612)
Deferred taxes
96,180,849
295,573
151,473
23,769
Net cash provided by (used in) operating activities
(213,255,822)
535,459
(26,107,120)
(4,096,778)
Cash flows from investing activities:
Purchase of property and equipment and intangible assets
(13,203,815)
(2,143,055)
(5,704,317)
(895,132)
Purchase of long-term investments
(200,000,000)
—
(2,819,390)
(442,424)
Proceeds of long-term investments
34,200,000
—
—
—
Payment for investment in affiliates
(58,759,800)
—
(34,581,400)
(5,426,576)
Proceeds from disposal of investment in affiliates
13,172,739
5,714,573
8,245,615
1,293,917
Origination of short-term loan
—
(50,000,000)
(30,000,000)
(4,707,655)
Collection of short-term loan
4,000,000
—
50,000,000
7,846,091
Acquisition of subsidiaries, net of cash payment
(200,000)
—
—
—
Proceeds from disposal of subsidiary, net of cash disposed
33,999,151
—
—
—
Loan to related parties
(200,000,000)
(10,000,000)
—
—
Collection of loan to related parties
21,128,271
24,000,000
5,000,000
784,609
Net cash used in investing activities
(365,663,454)
(32,428,482)
(9,859,492)
(1,547,170)
Cash flows from financing activities:
Repurchase of shares
—
(7,085,100)
(4,462,990)
(700,341)
Proceeds from option exercise
29,636
—
—
—
Net cash provided by (used in) financing activities
29,636
(7,085,100)
(4,462,990)
(700,341)
Effect of exchange rate changes
(11,369,704)
(16,091,630)
(4,707,092)
(738,643)
Net decrease in cash, cash equivalents and restricted cash
(590,259,344)
(55,069,753)
(45,136,694)
(7,082,932)
Cash, cash equivalents and restricted cash—beginning of the year
1,302,565,042
712,305,698
657,235,945
103,134,662
Cash, cash equivalents and restricted cash—end of the year
712,305,698
657,235,945
612,099,251
96,051,730
Supplemental disclosure of cash flow information:
Cash paid (refund) for income taxes
101,501,575
(2,291,508)
2,337,568
366,815
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets:
Years Ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Cash and cash equivalents
711,205,698
630,416,786
601,769,949
94,430,837
Restricted cash
1,100,000
26,819,159
10,329,302
1,620,893
Cash, cash equivalents and restricted cash
712,305,698
657,235,945
612,099,251
96,051,730
F-9
Table of Contents
Jupai Holdings Limited
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2019, 2020 and 2021
(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, 2021 include the following:
Date of
Incorporation/
Acquisition
Place of
Incorporation
Percentage of
Ownership
Shanghai Juxiang Investment Management Consulting Co., Ltd.
(“Shanghai Juxiang”)
July 16, 2013
PRC
100%
Baoyi Investment Consulting (Shanghai) Co., Ltd. (“Shanghai
Baoyi”)
July 16, 2015
PRC
100%
Jupai HongKong Investment Limited (“Jupai Hong Kong”)
August 21, 2012
Hong Kong
100%
Shanghai Jupai’s significant subsidiaries as of December 31, 2021 include the following:
Date of
Incorporation/
acquisition
Place of
Incorporation
Percentage of
Ownership
Juzhou Asset Management (Shanghai) Co., Ltd. (“Juzhou”)
May 17, 2013
PRC
85%
Shanghai Jupai Yumao Fund Sales Co., Ltd. (“Yumao”)
February 26, 2014
PRC
100%
Shanghai E-Cheng’s significant subsidiaries as of December 31, 2021 include the following:
Date of
Acquisition
Place of
Incorporation
Percentage of
Ownership
Shanghai Yidezhen Investment Management Center (Limited
Partnership) ("Yidezhen")
July 16, 2015
PRC
100%
Shanghai Yedu's significant subsidiaries as of December 31, 2021 include the following:
Date of
Acquisition
Place of
Incorporation
Percentage of
Ownership
Shanghai Yidexin Equity Investment Management Co., Ltd ("Yidexin")
July 16, 2015
PRC
100%
F-10
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”.).
On August 24, 2021, Shanghai Yedu acquired the whole equity interest of Shanghai Yidexin Equity Investment Management Co., Ltd. from Shanghai E-
Cheng, and to exercise effective control over Yidexin Equity Investment Management Co., Ltd. (“Yedu VIE”), Shanghai Baoyi entered into a series of
contractual arrangements with Shanghai Yedu and the shareholders of Shanghai Yedu.
The agreements of Jupai VIE, Scepter VIE and Yedu 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.
F-11
Table of Contents
(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.
(3) Yedu VIE: Each shareholder of Shanghai Yedu 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 their respective equity interests in Shanghai
Yedu, including but not limited to the power to vote on its behalf on all matters of Shanghai Yedu requiring shareholder approval in accordance
with the articles of association of Shanghai Yedu. 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 Baoyi on a yearly basis.
(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.
(3) Yedu VIE: Each of the shareholders of Shanghai Yedu 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 their respective equity interests in Shanghai Yedu. Also,
Shanghai Baoyi or its designee has the right to acquire any and all of the assets of Shanghai Yedu. The acquisition price for the shares or assets
will be the corresponding capital contribution in Shanghai Yedu’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. Without Shanghai Baoyi’s prior written consent, Shanghai Yedu’s shareholders
cannot transfer their equity interests in Shanghai Yedu, and Shanghai Yedu cannot transfer its assets. The agreement will not be terminated until
after all of the equity interest and assets of Shanghai Yedu have been transferred to Shanghai Baoyi or its designee.
F-12
Table of Contents
The agreements that transfer economic benefits to the Company include:
(i) Consulting Services Agreement, Operating Agreement, Exclusive Support Agreement and Exclusive Business Operation 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.
(3) Yedu VIE: Shanghai Baoyi provides Shanghai Yedu with a series of technology and business support and relevant consulting services on an
exclusive basis. Shanghai Baoyi is entitled to receive service fees which shall be approximately equal to Shanghai Yedu’s net revenue. The
term of the exclusive business operation agreement is 20 years and it may be extended with Shanghai Baoyi’s written confirmation. Shanghai
Baoyi is entitled to terminate the agreement early at any time by sending a written notice 30 days in advance, for any reason whereas Shanghai
Yedu cannot early terminate the 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.
(3) Yedu VIE: The shareholders of Shanghai Yedu pledged all of their equity interests in Shanghai Yedu to Shanghai Baoyi to guarantee the
performance of the obligations of Shanghai Yedu. If Shanghai Yedu 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.
(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,
F-13
Table of Contents
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.
Under the above agreements, the shareholders of Shanghai Jupai/Shanghai E-Cheng/Shanghai Yedu 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/Shanghai Yedu, 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/Shanghai Yedu.
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 and Shanghai Yedu 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 and Shanghai Yedu 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 and Shanghai Yedu, the Company is deemed the primary beneficiary of Shanghai Jupai and Shanghai
E-Cheng and Shanghai Yedu. Accordingly, the Company has consolidated the Shanghai Jupai and Shanghai E-Cheng and Shanghai Yedu’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 Shanghai Yedu 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 Shanghai Yedu 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 and Shanghai Yedu 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, 2021, 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 RMB82,279,188 and RMB74,445,037
as of December 31, 2020 and 2021, respectively.
F-14
Table of Contents
The following amounts and balances of Shanghai Jupai and Shanghai E-Cheng and Shanghai Yedu and their subsidiaries were included in the Company’s
consolidated financial statements after the elimination of intercompany balances and transactions:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Cash and cash equivalents
189,666,212
117,485,051
18,435,968
Restricted cash
26,819,159
8,769,250
1,376,087
Short-term Investments
—
166,465
26,122
Accounts receivable, net
6,539
135,521
21,266
Other receivables, net
50,689,035
44,153,861
6,928,704
Amounts due from related parties, net of allowance for doubtful
accounts of RMB60,790,862 and RMB60,790,862 as of
December 31, 2020 and 2021, respectively
8,511,264
3,320,264
521,022
Other current assets
19,692,172
16,074,235
2,522,398
Long-term investments
8,950,000
—
—
Investment in affiliates
85,597,248
79,658,135
12,500,100
Property and equipment, net
519,018
334,344
52,466
Intangible assets, net
20,911,091
19,540,802
3,066,378
Other non-current assets
2,987,240
1,812,439
284,411
Right-of-use assets
912,471
476,235
74,732
Deferred tax assets
4,608,063
4,608,063
723,106
Total assets
419,869,512
296,534,665
46,532,760
Accrued payroll and welfare expenses
30,708,606
29,283,711
4,595,253
Income tax payable
52,409,793
51,926,637
8,148,422
Amounts due to related parties-current
11,011,967
11,131,830
1,746,827
Deferred revenue — current from related parties
10,267,812
5,068,643
795,381
Deferred revenue — current
7,594,166
625,118
98,095
Contingent liabilities
—
282,450,000
44,322,568
Other current liabilities
7,700,862
7,184,238
1,127,364
Deferred revenue — non-current from related parties
1,362,240
278,301
43,671
Deferred revenue — non-current
104,835
—
—
Operating Lease Liabilities — non-current
138,156
—
—
Total liabilities
121,298,437
387,948,478
60,877,581
Years ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Net revenues
489,006,257
237,380,958
211,170,667
33,137,286
Third party
134,686,065
189,452,640
121,437,225
19,056,151
Related party
354,320,192
47,928,318
89,733,442
14,081,135
Operating cost and expenses
(457,450,538)
(200,598,616)
(245,086,293)
(38,459,388)
Net loss
(21,891,865)
(2,034,547)
(318,719,762)
(50,014,086)
Net income (loss) attributable to ordinary shareholders
(13,401,093)
3,598,575
(292,177,990)
(45,849,102)
Cash flows used in operating activities:
(173,478,148)
(141,962,448)
(94,348,770)
(14,805,381)
Cash flows generated from investing activities:
2,481,771
455,829
4,117,700
646,157
The VIEs contributed an aggregate of 62%, 61% and 59% of the consolidated net revenues for the years ended December 31, 2019, 2020 and 2021,
respectively and an aggregate of 8%, (11)% and 109% of the consolidated net income (loss) attributable to ordinary shareholders for the years ended
December 31, 2019, 2020 and 2021, respectively. As of December 31, 2020 and 2021, the VIEs accounted for an aggregate of 29% and 22%, respectively,
of the consolidated total assets.
F-15
Table of Contents
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 13 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 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,
2019, 2020, and 2021.
(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
RMB2.7 million, RMB1.3 million, and RMB2.6 million for the years ended December 31, 2019, 2020, and 2021.
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.
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(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 investment in equity securities without readily determinable fair value and investment in affiliates in
2021. See 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 RMB6.4 million, nil, and
nil for the years ended December 31, 2019, 2020, and 2021.
(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 RMB2.0
million, nil and RMB9.4 million for the years ended December 31, 2019, 2020, and 2021. The Company has not accrued any interest income on loan
receivable as the amount is indeterminable, it will be recognized when cash received.
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(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.
(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:
Estimated Useful Lives in Years
Leasehold improvements
Shorter of the lease term or expected useful life
Furniture, fixtures, and equipment
3-5 years
Motor vehicles
5 years
Gains and losses from the disposal of property and equipment are included in income or loss from operations.
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(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 9 “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.
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.
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The following table shows revenue from contracts with customers disaggregated by service lines for the years ended December 31, 2019, 2020 and 2021:
Years Ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
One-time commissions
320,817,881
162,835,813
142,299,783
22,329,941
Related party
60,723,911
58,396,476
13,477,880
2,114,973
Third party
260,093,970
104,439,337
128,821,903
20,214,968
Recurring management fee
340,732,359
98,405,095
102,896,582
16,146,720
Related party
340,732,359
98,405,095
102,896,582
16,146,720
Recurring service fees
115,247,648
128,568,271
115,376,632
18,105,111
Related party
1,433,629
20,223,856
10,025,528
1,573,224
Third party
113,814,019
108,344,415
105,351,104
16,531,887
Other service fees
13,962,264
—
—
—
Third party
13,962,264
—
—
—
Total revenues
790,760,152
389,809,179
360,572,997
56,581,772
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.
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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.
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, 2020 and 2021, total amount of deferred revenue are RMB31,672,695 and RMB15,851,141 respectively, of which RMB18,963,227
and RMB14,393,594 estimated to be recognized within one year, RMB12,709,468 and RMB1,457,547 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.
(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
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expenses in the consolidated statements of operations and totaled RMB9,019,349, RMB3,047,380 and RMB1,889,482 for the years ended December 31,
2019, 2020 and 2021, 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.
Estimated Useful Lives in Years
Customer contracts
3.5 years
Internal-used software
10 years
Licenses amortized
Shorter of the legal rights or expected useful life
(u) Impairment of long-lived assets
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) 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.
(w) 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.
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(x) 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.
(y) Loss on Litigation
On an ongoing basis, the Group assesses the potential liabilities related to any lawsuits or claims brought against it. While it is typically very difficult to
determine the timing and ultimate outcome of these actions, the Group uses best estimate to determine if it is probable that the Group will incur an expense
related to the settlement or final adjudication of these matters and whether a reasonable estimation of the probable loss, if any, can be made. The Group
accrue a liability when a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual
outcome of litigation and potential recovery, it is possible that disputed matters may be resolved for amounts materially different from any provisions or
disclosures that the Group has previously made.
(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.
(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, Jucheng Insurance Broker Limited 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 RMB6.3726 on December 31, 2021,
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.
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(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.
3. Net Income (loss) per Share
Diluted earnings per share do not include the following instruments as their inclusion would have been anti-dilutive:
As of December 31,
2019
2020
2021
Share options
9,145,983
7,936,403
7,816,863
Restricted shares
1,182,370
633,744
898,896
Total
10,328,353
8,570,147
8,715,759
4. Allowance for doubtful accounts
The movement of the allowance for accounts receivable, other receivables and amounts due from related parties was as following:
Years Ended December 31,
2019
2020
2021
RMB
RMB
RMB
Balance as of January 1
63,211,728
124,490,642
135,635,759
Provisions for doubtful accounts
61,278,914
11,145,117
9,400,000
Write-off
—
—
—
Balance as of December 31
124,490,642
135,635,759
145,035,759
As of December 31, 2021, the Group recorded allowance for accounts receivable, other receivables and amounts due from related parties was
RMB26,102,138, RMB11,480,597 and RMB107,453,024, respectively. The provision for doubtful accounts in 2021 was all for all for other receivables.
5. Investments
The following table summarizes the Group’s investment balances:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Short-term investments
Equity securities - trading securities
—
166,465
26,122
Long-term investments
Equity securities without readily determinable fair values
218,950,000
202,819,390
31,826,788
Total investments
218,950,000
202,985,855
31,852,910
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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 nil, nil and RMB131,137 for the years ended December 31, 2019, 2020
and 2021, respectively.
As of December 31, 2020 and 2021, investments in equity securities without readily determinable fair value were RMB218,950,000 and RMB202,819,390.
As of December 31, 2021, the Group's investment consist of investment in limited partnership in private equity funds of RMB202,819,390. There have
been no adjustments for price changes to the equity investments without readily determinable fair values for the year ended December 31, 2021. The Group
recorded impairment loss of RMB4.7 million, RMB10.0 million and RMB10.0 million for the years ended December 31, 2019, 2020 and 2021,
respectively.
6. Investment in affiliates
The following table summarizes the Group’s investment in affiliates by RMB and ownership percentage:
As of December 31
2020
2021
2021
RMB
%
RMB
%
USD
%
Private equity funds that the Company serves as general
partner or fund manager (1)
75,128,668
—
70,477,177
— 11,059,407
—
Shanghai Jiakun Real Estate Development Co., Ltd
("Jiakun") (2)
—
—
29,983,575
44.4%
4,705,077
44.4%
Changjiang Jupai (Shanghai) Finance Consulting Co.,
Ltd. (“Changjiang Jupai”)
11,625,259
25.0%
12,155,030
25.0%
1,907,389
25.0%
Shanghai Wuling Investment Center (“Wuling Center”)
7,150,520
1.2%
3,967,860
1.2%
622,644
1.2%
Shanghai Guochen Equity Management Co., Ltd.
(“Guochen”)
3,228,549
8.3%
3,077,549
8.3%
482,935
8.3%
Shanghai Juzhi Investment Management Co., Ltd.
(“Juzhi”)
1,630,592
50.0%
1,265,531
50.0%
198,589
50.0%
Others (3)
1,578,321
—
1,260,629
—
197,821
—
Total investments
100,341,909
122,187,351
19,173,862
The investments above are accounted for using equity method of accounting.
(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 RMB30,000,000 for 44% equity interest in Shanghai Jiakun Real Estate Development Co., Ltd in January and accounted for the
investment with equity method accounting. The main operating business is real estate development and management.
(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:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Leasehold improvements
58,932,840
63,818,864
10,014,572
Furniture, fixtures and equipment
29,236,780
25,752,267
4,041,093
Motor vehicles
3,701,461
3,701,461
580,840
Total
91,871,081
93,272,592
14,636,505
Accumulated depreciation
(74,777,244)
(78,656,883)
(12,342,981)
Property and equipment, net
17,093,837
14,615,709
2,293,524
Depreciation expense was RMB20,659,686, RMB12,172,802 and RMB7,342,946 for the years ended December 31, 2019, 2020 and 2021, respectively.
8. Intangible Assets, Net
Intangible assets are comprised of the following:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Customer contracts
63,308,495
61,860,867
9,707,320
Software
37,763,932
38,161,854
5,988,428
License
942,481
500,000
78,461
Less: Accumulated amortization - customer contracts
(64,656,059)
(64,656,059)
(10,145,947)
Less: Accumulated amortization - software
(15,320,452)
(19,088,463)
(2,995,396)
Less: Accumulated amortization - license
(942,481)
(500,000)
(78,461)
Intangible assets subject to amortization
21,095,916
16,278,199
2,554,405
License with indefinite life
11,733,541
11,733,541
1,841,249
Foreign currency translation adjustment
1,347,564
2,795,192
438,626
Intangible assets, net
34,177,021
30,806,932
4,834,280
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 RMB5,442,158, RMB4,166,574 and RMB3,768,010 for the years ended December 31, 2019, 2020 and 2021,
respectively.
The amortization expense for the next five years and thereafter as of December 31, 2020 and 2021, are as follows:
As of December 31
2020
2021
RMB
RMB
Within 1 year
3,711,963
3,798,835
Between 1 and 2 years
3,711,963
3,798,835
Between 2 and 3 years
3,711,963
3,742,788
Between 3 and 4 years
3,711,963
3,731,578
Between 4 and 5 years
3,711,963
3,341,851
Total
18,559,815
18,413,887
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9. 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, 2021, the operating lease cost was RMB30.6 million.
The Group’s operating leases have remaining lease terms that range from approximately one year to five years. As of December 31, 2021, the weighted
average remaining lease term and weighted average discount rate were 1.03 years and 5.7%, respectively.
10. 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.
The Group uses the current share price as the fair value of underlying ordinary shares.
No compensation expense related to previously issued stock options was recorded for years ended December 31, 2019, 2020 and 2021.
A summary of option activity under the 2014 Plan during the year ended December 31, 2021.
Number of
Options
Weighted
Average
Exercise
Price
Remaining
Contractual
Term
Aggregate
Intrinsic
Value of
Options
RMB
RMB
Outstanding, as of January 1, 2021
7,936,403
3.81
3.62
Forfeited
(119,540)
3.30
Outstanding, as of December 31, 2021
7,816,863
3.73
2.62
—
Exercisable as of December 31, 2021
7,816,863
3.73
2.62
—
No options were granted for years ended December 31, 2019, 2020 and 2021.
The total intrinsic value of options exercised were RMB42,592, nil and nil for the years ended December 31, 2019, 2020 and 2021.
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Table of Contents
As of December 31, 2021, 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.
On January 29, 2021, the Company granted 1,008,552 restricted shares to top sells personnel and backstage staff. The fair value of the restricted shares on
grant date is USD0.32. The half of restricted shares vest ratably on the fourth anniversary of the grant date, and the rest vest on the fifth anniversary of the
grant date.
A summary of restricted share activity under the 2014 Plan during the year ended December 31, 2021.
Number of
Shares
Weighted
Average
Grant-date
Fair Value
RMB
Unvested, as of January 1, 2021
633,744
5.03
Granted
1,008,552
2.01
Forfeited
(443,400)
3.80
Vested
(300,000)
4.66
Unvested, as of December 31, 2021
898,896
2.28
The total fair value of non-vested restricted shares as of December 31, 2021 was RMB2,049,483. 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, 2019, 2020 and 2021, was RMB2,742,345, RMB4,004,970 and RMB1,398,000, respectively.
The Company recorded compensation expense of RMB9,583,596, RMB3,593,400 and RMB644,654 for the years ended December 31, 2019, 2020 and
2021. As of December 31, 2021, there was RMB1,396,058 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 3.60 years.
11. 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.
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Table of Contents
The tax expense comprises:
Years Ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Current Tax
15,018,507
500,952
2,193,861
344,265
Deferred Tax
37,926,132
295,572
151,473
23,769
Total
52,944,639
796,524
2,345,334
368,034
Reconciliation between the statutory tax rate to income before income taxes and the actual provision for income taxes is as follows:
Years Ended December 31,
2019
2020
2021
PRC income tax rate
25.00%
25.00%
25.00%
Expenses not deductible for income tax purposes
(25.47)%
(23.75)%
(26.45)%
Losses not deductible for income tax purposes
(12.81)%
(8.14)%
(0.81)%
Valuation allowance of deferred tax assets
(33.12)%
8.29%
2.16%
Different tax rate of subsidiary operation in other jurisdiction
0.16%
(3.73)%
(0.71)%
Effective income tax rate
(46.24)%
(2.33)%
(0.81)%
The principal components of the deferred income tax asset and liabilities are as follows:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Deferred tax assets:
Accrued expenses
4,312,491
4,161,017
652,954
Tax loss carry forward
63,563,642
56,542,077
8,872,686
Gross deferred tax assets
67,876,133
60,703,094
9,525,640
Valuation allowance
(63,563,642)
(56,542,077)
(8,872,686)
Net deferred tax assets
4,312,491
4,161,017
652,954
Movement of the valuation allowance is as follows:
As of December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Balance as of January 1
84,146,463
67,843,392
63,563,642
9,974,522
Additions (utilization)
37,227,678
(2,837,821)
(6,223,503)
(976,603)
Write-offs
(53,530,749)
(1,441,929)
(798,062)
(125,233)
Balance as of December 31
67,843,392
63,563,642
56,542,077
8,872,686
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, 2021, operating loss carried forward amounted to RMB229.6 million for the PRC and HK income tax purposes. The loss carrying forward
expired from 2020. Valuation allowance of RMB63,563,642 and RMB56,542,077 was recorded as of December 31, 2020 and 2021 for the entities that are
not more likely than not to realize the net operating loss carry forward.
Undistributed earnings of the Company’s PRC subsidiaries of approximately RMB554.1 million at December 31, 2021 are considered to be indefinitely
reinvested and, accordingly, no provision for PRC dividend withholding tax has been provided
F-29
Table of Contents
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 RMB27.7 million to RMB55.4 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 RMB117.7 million as of December 31, 2021. 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.
12. 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 RMB89.0 million, RMB26.9 million and RMB39.9 million for the years
ended December 31, 2019, 2020 and 2021 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.
13. 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
RMB83,040,502 and RMB83,040,503 as of December 31, 2020 and 2021, 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 RMB402,718,537 and RMB407,718,537 as of
December 31, 2020 and 2021, 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 RMB485,759,039 and RMB490,759,040 as of December 31, 2020 and 2021, respectively.
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Table of Contents
14. Repurchase of shares
The Company announced up to USD10 million share repurchase program in February 2020. As of December 31, 2021, the Company had repurchased
1,287,180 ADSs as part of the program, at a total cost of USD1,559,301, approximately RMB9.9 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.
15. 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, 2019, 2020 and 2021, significant related party transactions and balances were as follows:
a.
Revenue from Related Parties
Years Ended December 31
2019
2020
2021
2021
RMB
RMB
RMB
USD
One-time commissions
Funds managed by Jupai Group
58,676,277
58,159,887
13,477,880
2,114,973
Investees of shareholder of the Company
2,047,634
236,589
—
Total one-time commissions
60,723,911
58,396,476
13,477,880
2,114,973
Recurring management fee
Funds managed by Jupai Group
340,732,359
98,405,095
102,896,582
16,146,720
Total recurring management fee
340,732,359
98,405,095
102,896,582
16,146,720
Recurring service fee
Funds managed by Jupai Group
1,433,629
20,223,856
10,025,528
1,573,224
Total recurring service fee
1,433,629
20,223,856
10,025,528
1,573,224
Total revenue from related parties
402,889,899
177,025,427
126,399,990
19,834,917
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, 2020 and 2021, amounts due from related parties were comprised of the following:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Service fee receivable
26,149,345
20,597,776
3,232,241
Loan to related parties
200,000,000
200,000,000
31,384,364
Loan to noncontrolling interest shareholder
23,187,995
23,187,995
3,638,702
Total amounts due from related parties
249,337,340
243,785,771
38,255,307
F-31
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The amounts represent net of allowance for doubtful accounts of RMB107,453,024 and RMB107,453,024 as of December 31, 2020 and 2021, 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, 2020 and 2021.
d.
Deferred Revenue from Related Parties
As of December 31, 2020 and 2021, deferred revenue from related parties was comprised of the following:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Funds managed by Jupai Group
21,789,907
5,682,447
891,700
Total deferred revenue
21,789,907
5,682,447
891,700
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, 2020 and 2021, amounts due to related parties were as following:
As of December 31,
2020
2021
2021
RMB
RMB
USD
Funds managed by Jupai Group
14,625,680
14,617,178
2,293,754
Investees of shareholder of the Company
2,000,000
2,000,000
313,844
Total amounts due to related parties
16,625,680
16,617,178
2,607,598
The amounts as of December 31, 2020 and 2021 mainly represent capital investments collected on behalf of investees.
16. Commitments and Contingencies
Operating Leases
The Company 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, 2021 were as follows:
Years Ended December 31,
RMB
2022
18,409,478
2023
7,920,190
2024
3,130,170
Total
29,459,838
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Table of Contents
Rental expenses were RMB82,161,925, RMB37,786,840 and RMB30,636,589 during the years ended December 31, 2019, 2020 and 2021, respectively.
Contingencies
In June 2016, Juzhou Assets Management (Shanghai) Co., Ltd., or Juzhou Assets, one of the subsidiaries of Shanghai Jupai, established Juzhou Intelligent
Manufacturing 2018 Private Equity Investment Fund, or Juzhou Fund. A substantial portion of Juzhou Fund was misappropriated by the controlling person
of an enterprise invested by the Juzhou Fund. The controlling person, who is not a director, officer or employee of the Company, has been suspected of
contract fraud and has been investigated from December 2019. The investors of the Juzhou Fund filed a series of lawsuits against Juzhou Assets and
Shanghai Jupai for their losses from early 2020, which have been suspended due to COVID-19 outbreak. As to the date of this annual report, 73 investors
have filed lawsuits and the total principal amount of their investments involved is RMB90,650,000. The courts have entered the final judgement in certain
cases, pursuant to which Juzhou Assets shall assume liability for the actual losses suffered by investors, including their principals and the interest losses,
due to its failure in performing obligations in selling fund products and/or as a fund manager. Shanghai Jupai shall also assume the compensation liability
for the actual losses suffered by investors jointly and severally according to the judgement. We have made a provision of RMB282.5 million due to these
lawsuits.
Other than the above lawsuit, the Company does not have any pending legal or administrative proceedings to which the Company is a party that will have a
material effect on its business or financial condition.
Investment commitments
The Company was obligated to provide capital injection of RMB38,546,000 as of December 31, 2021.
F-33
Table of Contents
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)
As of December 31,
2020
2021
2021
RMB
RMB
USD
ASSETS
Cash and cash equivalents
19,582,251
17,664,031
2,771,872
Other current assets
2,667,707
1,550,933
243,375
Total current assets
22,249,958
19,214,964
3,015,247
Investment in subsidiaries and VIE
942,821,008
681,955,145
107,013,645
Loan to subsidiaries
187,633,095
183,262,933
28,757,953
Total Assets
1,152,704,061
884,433,042
138,786,845
LIABILITIES
Other current liabilities
2,050,517
11,263,375
1,767,469
Amounts due to related parties — non-current
12,212,708
11,933,449
1,872,619
Total Liabilities
14,263,225
23,196,824
3,640,088
Ordinary Shares (USD0.0005 par value; 1,000,000,000 and 1,000,000,000
shares authorized, 199,051,046 and 194,862,818 shares issued and
outstanding, as of December 31, 2020 and 2021, respectively)
623,201
609,833
95,696
Additional paid-in capital
1,148,823,625
1,144,255,610
179,558,675
Retained earnings
(48,935,177)
(316,796,899)
(49,712,346)
Accumulated other comprehensive income
37,929,187
33,167,674
5,204,732
Total shareholders’ equity
1,138,440,836
861,236,218
135,146,757
TOTAL LIABILITIES AND SHAREHOLERS’ EQUITY
1,152,704,061
884,433,042
138,786,845
F-34
Table of Contents
Additional Information —Financial Statement Schedule I
Jupai Holdings Limited
Financial Information of Parent Company
Condensed Statements of Operations and Comprehensive Income
(In RMB)
Years Ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Revenues
2,051,459
2,058,504
—
—
Cost of revenues
—
—
(261,642)
(41,057)
Selling expenses
(7,225,289)
(243,758)
(166,959)
(26,200)
General and administrative expenses
(14,615,621)
(15,979,061)
(8,232,681)
(1,291,887)
Other income (loss)
(2,938,226)
1,321,148
1,286,845
201,934
Loss before taxes and loss from equity in subsidiaries and
VIEs
(22,727,677)
(12,843,167)
(7,374,437)
(1,157,210)
Loss from equity in subsidiaries and VIEs
(141,958,398)
(18,524,481)
(260,487,285)
(40,876,139)
Net loss
(164,686,075)
(31,367,648)
(267,861,722)
(42,033,349)
Other comprehensive loss
(3,272,053)
(16,212,483)
(4,761,513)
(747,186)
Comprehensive loss attributable to ordinary shareholders
(167,958,128)
(47,580,131)
(272,623,235)
(42,780,535)
F-35
Table of Contents
Additional Information —Financial Statement Schedule I
Jupai Holdings Limited
Financial Information of Parent Company
Condensed Statements of Cash Flows
(In RMB)
Years ended December 31,
2019
2020
2021
2021
RMB
RMB
RMB
USD
Cash flows from operating activities:
Net loss
(164,686,075)
(31,367,648)
(267,861,722)
(42,033,349)
Adjustment to reconcile net income to net cash provided by
operating activities:
Share-based compensation
9,583,596
3,593,400
644,654
101,160
Depreciation
32,409
—
—
—
Income from equity in subsidiaries and VIEs
141,958,398
18,524,481
260,487,285
40,876,139
Changes in operating assets and liabilities:
Other current assets
(88,859)
(178,496)
353,726
55,507
Other non-current assets
418,307
—
—
—
Other current liabilities
1,826,388
(2,200,024)
9,212,858
1,445,698
Net cash provided by (used in) operating activities
(10,955,836)
(11,628,287)
2,836,801
445,155
Cash flows from investing activities:
Collection of loan to subsidiaries
647,137
—
79,696
12,506
Proceeds from disposal of Up Capital
33,999,151
—
—
—
Net cash provided by investing activities
34,646,288
—
79,696
12,506
Cash flows from financing activities:
Exercise of options
29,636
—
—
—
Repurchase of shares
—
(7,085,100)
(4,462,990)
(700,341)
Net cash provided by (used in) financing activities
29,636
(7,085,100)
(4,462,990)
(700,341)
Effect of exchange rate changes
5,898,988
(1,747,974)
(371,727)
(58,330)
Net increase (decrease) in cash and cash equivalents
29,619,076
(20,461,361)
(1,918,220)
(301,010)
Cash and cash equivalents — beginning of year
10,424,536
40,043,612
19,582,251
3,072,882
Cash and cash equivalents — end of year
40,043,612
19,582,251
17,664,031
2,771,872
F-36
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, 2021, 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 RMB6.3726
on December 31, 2021, representing the certificated exchange rate published by the Federal Reserve Board.
F-37
Exhibit 2.5
Description of Rights of Securities
Registered under Section 12 of the Securities Exchange Act of 1934
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, 2021 is provided on the cover of the annual report on Form 20-F filed on April 25, 2022 (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
2
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
3
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)
4
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
5
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:
6
•
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
7
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
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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.
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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;
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•
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, NY10179.
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
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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.
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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?
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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.
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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
15
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
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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.
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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
18
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
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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
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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 cancellation 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
21
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
22
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
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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
24
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
25
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.
26
Exhibit4_28
Exclusive Business Cooperation Agreement
This Exclusive Business Cooperation Agreement (this “Agreement”) is made and entered into by and between the following parties on August 24, 2021, in
Shanghai, the People’s Republic of China (“China” or the “PRC”).
Party A: Baoyi Investment Consulting (Shanghai) Co., Ltd.
Address: Room 104, Block 94, 149 Yan Chang Road, Jing’an District, Shanghai
Party B: Shanghai Yedu Enterprise Management Co., Ltd.
Address: Block 2, 3, 4, 5, 6, 7, 112-118 Gaoyi Road, Baoshan District, Shanghai
Each of Party A and Party B shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.
Whereas,
1. Party A is a wholly-foreign-owned enterprise established in China, and has the necessary resources to provide technical and consulting services;
2. Party B is a company with exclusively domestic capital registered in China and may engage in business management, information technology consulting
services, financial consulting (excluding bookkeeping) and tax services (except for items subject to approval in accordance with the law, carry out business
activities independently with the business license in accordance with the law) (collectively, the “Principal Business”);
3. Party A is willing to provide Party B with technical support, consulting services and management services on exclusive basis in relation to the Principal
Business during the term of this Agreement, utilizing its advantages in technology, human resources, and information, and Party B is willing to accept such
services provided by Party A or Party A's designee(s), each on the terms set forth herein.
Now, therefore, through mutual discussion, the Parties have reached the following agreements:
1. Services Provided by Party A
1.1 Party B hereby appoints Party A as Party B's exclusive services provider to provide Party B with complete technical support, business support and
related consulting services during the term of this Agreement, in accordance with the terms and conditions of this Agreement, which may include all
necessary services within the scope of the Principal Business as may be determined from time to time by Party A, such as but not limited to Provides
information technology consulting services, management software development, sales computer hardware and software research, development and sales.
1.2 Party B agrees to accept all the consultations and services provided by Party A. Party B further agrees that unless with Party A's prior written consent,
during the term of this Agreement, Party B shall not directly or indirectly accept the same or any similar consultations and/or services provided by any third
party and shall not establish similar corporation relationship with any third party regarding the matters contemplated by this Agreement. Party A may
appoint other parties, who may enter into certain agreements described in Section 1.3 with Party B, to provide Party B with the consultations and/or
services under this Agreement.
1.3 Service Providing Methodology
1.3.1 Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into further technical service agreements or
consulting service agreements with Party A or any other party designated by Party A, which shall provide the specific contents, manner, personnel, and fees
for the specific technical services and consulting services.
1.3.2 Party B hereby grants to Party A an irrevocable and exclusive option to purchase from Party B, at Party A’s
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sole discretion, any or all of the assets of Party B, to the extent permitted under the PRC laws, at the lowest purchase price permitted by the PRC laws. In
this case, the Parties shall enter into a separate assets transfer agreement, specifying the terms and conditions of the transfer of the assets.
2. The Calculation and Payment of the Service Fees
2.1 The Parties agree that in respect to the services provided by Party A to Party B contemplated in this Agreement, Party B shall pay Party A the service
fees (the “Service Fees”). During the term of this Agreement, the Service Fees to be paid to Party A by Party B shall be calculated quarterly based on the
following formula: the time of services rendered to Party B by the employees of Party A multiplies the corresponding rate, plus amount of the services fees
or ratio decided by the board of directors of Party A based on the value of services rendered by Party A and the actual income of Party B from time to
time. In the event the board of directors of Party A does not adjust the aforesaid amount of service fees or ratio, the Service Fees shall be exercised in
accordance with the amount of ratio decided by the latest board of directors of Party A. In any event, the service fees shall be substantially equal to all of
the net income of Party B, subject to any requirement by PRC law and Article of Association. The following elements shall be taken into consideration in
adjusting or deciding the Service Fees:
2.1.1 The complexity and difficulty of the services;
2.1.2 The required time of such services rendered by the employees of Party A;
2.1.3 The exact content and commercial value of the services;
2.1.4 The market price of the services of the same kind.
2.2 As unanimously agreed upon by the Parties, the exact calculation and payment methods of the Service Fees may be amended by entering into a separate
written agreement.
2.3 Unless otherwise unanimously agreed upon by the Parties, the Service Fees to be paid by Party B to Party A pursuant to this Agreement shall not
include any deduction or offset.
3. Confidentiality Clauses
3.1 The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in
connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all
such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any
third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is
under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government
authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction
contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations
similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed
disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the
termination of this Agreement for any reason.
3.2 The Parties agree that this Section shall survive changes to, and rescission or termination of, this Agreement.
4. Representations and Warranties
4.1 Party A hereby represents and warrants as follows:
4.1.1 Party A is a wholly owned foreign enterprise legally registered and validly existing in accordance with the laws of China.
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4.1.2 Party A has taken all necessary corporate actions, obtained all necessary authorization and the consent and approval from third parties and
government agencies (if any) for the execution, delivery and performance of this Agreement. Party A’s execution, delivery and performance of this
Agreement do not violate any explicit requirements under any law or regulation binding on Party A.
4.1.3 This Agreement constitutes Party A's legal, valid and binding obligations, enforceable in accordance with its terms.
4.2 Party B hereby represents and warrants as follows:
4.2.1 Party B is a company legally registered and validly existing in accordance with the laws of China and has obtained the relevant permit and license for
engaging in the Principal Business in a timely manner;
4.2.2 Party B has taken all necessary corporate actions, obtained all necessary authorization and the consent and approval from third parties and
government agencies (if any) for the execution, delivery and performance of this Agreement. Party B’s execution, delivery and performance of this
Agreement do not violate any explicit requirements under any law or regulation binding on Party A.
4.2.3 This Agreement constitutes Party B's legal, valid and binding obligations, and shall be enforceable against it.
5. Effectiveness and Term
5.1 This Agreement is executed on the date first above written and shall take effect as of such date. Unless earlier terminated in accordance with the
provisions of this Agreement or relevant agreements separately executed between the Parties, the term of this Agreement shall be 20 years.
5.2 The term of this Agreement may be extended if confirmed in writing by Party A prior to the expiration thereof. The extended term shall be determined
by Party A, and Party B shall accept such extended term unconditionally.
6. Termination
6.1 Unless renewed in accordance with the relevant terms of this Agreement, this Agreement shall be terminated upon the date of expiration hereof.
6.2 During the term of this Agreement, Party B shall not terminate this Agreement prior to its expiration date. Nevertheless, Party A shall have the right to
terminate this Agreement upon giving 30 days' prior written notice to Party B at any time.
6.3 The rights and obligations of the Parties under Articles 3, 7 and 8 shall survive the termination of this Agreement.
7. Governing Law and Resolution of Disputes
7.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall
be governed by the laws of China.
7.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party's request to the other Parties for
resolution of the dispute through negotiations, either Party may submit the relevant dispute to the Shanghai Branch of the China International Economic
and Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Shanghai, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
7.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or
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during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective
rights under this Agreement and perform their respective obligations under this Agreement.
8. Indemnification
8.1 Party B shall indemnify and hold harmless Party A from any losses, injuries, obligations or expenses caused by any lawsuit, claims or other demands
against Party A arising from or caused by the consultations and services provided by Party A to Party B pursuant this Agreement, except where such losses,
injuries, obligations or expenses arise from the gross negligence or willful misconduct of Party A.
9. NOTICES
9.1 All notices and other communications required or issued under this agreement shall be delivered to the party below by means of personal delivery,
registered mail, postage prepaid or commercial courier service or fax. Each notice should also be delivered by e-mail. The date on which such notices are
deemed to have been effectively served is determined as follows:
9.1.1 If the notice is delivered by personal delivery, courier service or registered mail, or prepaid postage, the effective delivery date shall be the date of
receipt or rejection at the address set as the notice.
9.1.2 If the notification is sent by fax, the date of successful transmission shall be the effective date of delivery (it shall be evidenced by the automatically
generated transmission confirmation message).
9.2 For the purpose of notification, the addresses of both parties are as follows:
Party A: Baoyi Investment Consulting (Shanghai) Co., Ltd.
Address: Room 104, Block 94, 149 Yan Chang Road, Shanghai
Attention: Xuebin ZHUANG
Tel.:
Fax:
Party B: Shanghai Yedu Enterprise Management Co., Ltd.
Address: Block 2、3、4、5、6、7, 112-118 Gaoyi Road, Baoshan district, Shanghai
Attention: Qimin WU
Tel.:
Fax:
9.3 Either party may send a notice to the other party at any time in accordance with the provisions of this Article to change the address at which it receives
notices.
10. Assignment
10.1 Without Party A's prior written consent, Party B shall not assign its rights and obligations under this Agreement to any third party.
10.2 Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party upon a prior written notice to Party B but
without the consent of Party B.
11. Severability
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any
laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any
aspect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the
greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the
economic effect of those invalid, illegal or
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unenforceable provisions.
12. Amendments and Supplements
Any amendments and supplements to this Agreement shall be in writing. The amendment agreements and supplementary agreements that have been signed
by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
13. Language and Counterparts
This Agreement is written in Chinese language in two copies, each Party having one copy with equal legal validity.
(The remainder is intentionally left blank.)
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(Signature page of Exclusive Business Cooperation Agreement)
Party A: Baoyi Investment Consulting (Shanghai) Co., Ltd.
Seal:
/s/ Seal of Baoyi Investment Consulting (Shanghai) Co., Ltd.
Legal representative
(Signature):
/s/ Xuebin ZHUANG
Date:
Party B: Shanghai Yedu Enterprise Management Co., Ltd.
Seal:
/s/ Seal of Shanghai Yedu Enterprise Management Co., Ltd.
Legal representative
(Signature):
/s/ Qimin WU
Date:
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Exhibit4.29
Exclusive Call Option Agreement
This Exclusive Call Option Agreement (this “Agreement”) is entered into as of August 24, 2021, by and among:
1.
Qimin WU
Identity Card No.: ***
2.
Guowen ZHANG
Identity Card No.: ***
(Qimin WU and Guowen ZHANG are hereinafter referred to individually as an “Existing Shareholder” and collectively as the “Existing
Shareholders”.)
3.
Baoyi Investment Consulting (Shanghai) Co., Ltd. (the “WFOE”)
Registered address: Room 104, Block 94, 149 Yan Chang Road, Shanghai
4.
Shanghai Yedu Enterprise Management Co., Ltd. (the “Company”)
Registered address: Block 2, 3, 4, 5, 6, 7, 112-118 Gaoyi Road, Baoshan district, Shanghai
(In this Agreement, all the above parties are hereafter referred to individually as a “Party” and collectively as the “Parties”.)
WHEREAS
1.
The Existing Shareholders are the registered shareholders of the Company, legally holding all the equity interest in the Company. Appendix 1 sets
forth the capital contribution amount and the shareholding percentage of each Existing Shareholder in the registered capital of the Company as of the
date when this Agreement is signed.
2.
To the extent not in violation of the PRC Law, the Existing Shareholders intend to transfer all their respective equity interest in the Company to the
WFOE and/or any other entity or individual designated by the WFOE, and the WFOE intends to accept such transfer.
3.
To the extent not in violation of the PRC Law, the Company intends to transfer its assets to the WFOE and/or any other entity or individual
designated by the WFOE, and the WFOE intends to accept such transfer.
4.
For the purpose of the foregoing equity interest and asset transfer, the Existing Shareholders and the Company agree to grant to the WFOE the
exclusive and irrevocable Equity Transfer Option (as defined below) and Asset Purchase Option (as defined below) respectively. Pursuant to such
Equity Transfer Option and Asset Purchase Option, at the WFOE’s request, the Existing Shareholders or
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the Company shall, to the extent permitted by the PRC Law, transfer the Option Equity (as defined below) or the Company Assets (as defined
below) to the WFOE and/or any other entity or individual designated by the WFOE pursuant to the provisions of this Agreement.
5.
The Company agrees that the Existing Shareholders grant the Equity Transfer Option to the WFOE pursuant to the provisions of this Agreement.
6.
The Existing Shareholders agree that the Company grants the Asset Purchase Option to the WFOE pursuant to the provisions of this Agreement.
NOW, THEREFORE, the Parties, after consultations, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1
As used in this Agreement, the following terms shall be interpreted to have the following meanings, unless otherwise interpreted pursuant to the
context:
“Equity Transfer Option” shall mean the option to purchase the equity interest in the Company as granted to the WFOE by the Existing
Shareholders pursuant to the terms and conditions of this Agreement.
“Asset Purchase Option” shall mean the option to purchase any Company Assets as granted to the WFOE by the Company pursuant to the terms and
conditions of this Agreement.
“Option Equity” shall mean, in respect of each of the Existing Shareholders, all the equity interest held by him in the Company Registered Capital
respectively; in respect of both Existing Shareholders, the equity interest covering 100% of the Company Registered Capital.
“Company Registered Capital” shall mean the registered capital of the Company as of the signing date of this Agreement, i.e. RMB5,000,000, which
shall include any expanded registered capital as a result of any capital increase in any form within the term of this Agreement.
“Transferred Equity” shall mean the equity interest in the Company which the WFOE has the right to request either of the Existing Shareholders to
transfer to it or its designated entity or individual in accordance with Article 3 hereof when the WFOE exercises its Equity Transfer Option, the
quantity of which may be all or part of the Option Equity and the specific amount of which shall be determined by the WFOE at its sole discretion in
accordance with the then-effective PRC Law and based on its own commercial consideration.
“Transferred Assets” shall mean the Company Assets which the WFOE has the right to require the Company to transfer to it or its designated entity
or individual in accordance with Article 3 hereof when the WFOE exercises its Asset Purchase Option, the quantity of which may be all or part of
the
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Company Assets and the details of which shall be determined by the WFOE at its sole discretion in accordance with the then-effective PRC Law and
based on its commercial consideration.
“Exercise of Option” shall mean the exercising of the Equity Transfer Option or the Asset Purchase Option by the WFOE.
“Transfer Price” shall mean all the consideration that the WFOE or its designated entity or individual is required to pay to the Existing Shareholders
or the Company in order to obtain the Transferred Equity or the Transferred Assets upon each Exercise of Option.
“Business Permits” shall mean any approvals, permits, filings, registrations, etc. which the Company is required to have for legally and validly
operating all its businesses, including without limitation, Business License of Corporate Legal Person, Operation Permit of Value-added
Telecommunication Service and such other relevant permits and licenses as required by the then-effective PRC Law.
“Company Assets” shall mean all the tangible and intangible assets which the Company owns or has the right to dispose of during the valid term of
this Agreement, including without limitation, any immoveable and moveable assets, intellectual property rights such as trademarks, copyrights,
patents, know-how, domain names and software use rights, and any investment interest.
“Material Asset” shall mean any asset which has a book value of RMB100,000 or more or has a material effect on the business operations of any
Party.
“Material Agreement” shall mean, in respect of the Company, any agreement to which the Company is a party and which has a material effect on the
business or assets of the Company; in respect of a Subsidiary, any agreement to which such Subsidiary is a party and which has a material effect on
the business or assets of such Subsidiary.
“PRC” shall mean the People’s Republic of China, which, for purpose of this Agreement only, excludes Hong Kong Special Administrative Region,
Macao Special Administrative Region and Taiwan.
“PRC Law” shall mean the then-effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other
binding regulatory documents of the PRC.
“Exercise Notice” shall have the meaning prescribed to such term in Article 3.7 hereof.
“Subsidiary” shall have the meaning prescribed to such term in Article 6.1.10 hereof.
“Confidential Information” shall have the meaning prescribed to such term in Article 8.1 hereof.
“Disclosing Party” shall have the meaning prescribed to such term in Article 8.1 hereof.
“Receiving Party” shall have the meaning prescribed to such term in Article 8.1 hereof.
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“Defaulting Party” shall have the meaning prescribed to such term in Article 11.1 hereof.
“Default” shall have the meaning prescribed to such term in Article 11.1 hereof.
“Available Rights” shall have the meaning prescribed to such term in Article 12.5 hereof.
1.2
The references to any PRC Law herein shall be deemed:
(1)
to simultaneously include the references to the amendments, changes, supplements and restatement of such PRC Law, irrespective of whether
they take effect before or after the execution of this Agreement; and
(2)
to simultaneously include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result
thereof.
1.3
Except as otherwise stated in the context herein, all references to an Article, clause, item or paragraph shall refer to the corresponding part of this
Agreement.
ARTICLE II
GRANT OF EQUITY TRANSFER OPTION AND ASSET PURCHASE OPTION
2.1
The Existing Shareholders hereby severally and jointly agree to grant the WFOE an irrevocable, unconditional and exclusive Equity Transfer
Option. Pursuant to such Equity Transfer Option, the WFOE is entitled to, to the extent permitted by the PRC Law, request the Existing Shareholders
to transfer the Option Equity to the WFOE or its designated entity or individual according to the terms and conditions hereunder. The WFOE also
agrees to accept such Equity Transfer Option.
2.2
The Company hereby agrees that the Existing Shareholders grant such Equity Transfer Option to the WFOE according to Article 2.1 above and other
provisions of this Agreement.
2.3
The Company hereby agrees to grant the WFOE an irrevocable, unconditional and exclusive Asset Purchase Option. Pursuant to such Asset
Purchase Option, the WFOE is entitled to, to the extent permitted by the PRC Law, request the Company to transfer all or part of the Company
Assets to the WFOE or its designated entity or individual according to the terms and conditions hereunder. The WFOE also agrees to accept such
Asset Purchase Option.
2.4
The Existing Shareholders hereby severally and jointly agree that the Company grants such Asset Purchase Option to the WFOE according to
Article 2.3 above and other provisions of this Agreement.
ARTICLE III
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METHOD OF EXERCISE OF OPTION
3.1
Subject to the terms and conditions of this Agreement, the WFOE shall have the absolute sole discretion to determine the specific time, method and
times of its Exercise of Option to the extent permitted by the PRC Law.
3.2
Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the
right to, at any time, request to acquire the Transferred Equity from the Existing Shareholders by itself or through any other entity or individual
designated by it.
3.3
Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the
right to, at any time, request to acquire the Transferred Assets from the Company by itself or through any other entity or individual designated by it.
3.4
With regard to the Equity Transfer Option, at each Exercise of Option, the WFOE shall have the right to arbitrarily determine the amount of the
Transferred Equity to be transferred by the Existing Shareholders to the WFOE and/or any other entity or individual designated by it. The Existing
Shareholders shall respectively transfer the Transferred Equity to the WFOE and/or any other entity or individual designated by it in the amount
requested by the WFOE. The WFOE and/or any other entity or individual designated by it shall pay the Transfer Price with respect to the
Transferred Equity acquired at each Exercise of Option to the Existing Shareholder transferring such Transferred Equity.
3.5
With regard to the Asset Purchase Option, at each Exercise of Option, the WFOE shall have the right to determine the specific Company Assets to
be transferred by the Company to the WFOE and/or any other entity or individual designated by it. The Company shall transfer the Transferred
Assets to the WFOE and/or any other entity or individual designated by it in accordance with the WFOE’s requirement. The WFOE and/or any other
entity or individual designated by it shall pay the Transfer Price to the Company with respect to the Transferred Assets acquired at each Exercise of
Option.
3.6
At each Exercise of Option, the WFOE may acquire the Transferred Equity or Transferred Assets by itself or designate any third party to acquire all
or part of the Transferred Equity or Transferred Assets.
3.7
Having decided each Exercise of Option, the WFOE shall issue to the Existing Shareholders or the Company a notice for exercising the Equity
Transfer Option or a notice for exercising the Asset Purchase Option (the “Exercise Notice”, the form of which are set out in Annex 2 and Annex 3
hereto). The Existing Shareholders or the Company shall, upon receipt of the Exercise Notice, forthwith transfer all the Transferred Equity or
Transferred Assets in one go in accordance with the Exercise Notice to the WFOE and/or any other entity or individual designated by the WFOE in
such method as described in Article 3.4 or Article 3.5 hereof.
ARTICLE IV
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TRANSFER PRICE
4.1
With regard to the Equity Transfer Option, the total Transfer Price to be paid by the WFOE or any other entity or individual designated by the
WFOE to each Existing Shareholder at each Exercise of Option by the WFOE shall be the actual investment mirrored by the corresponding
Transferred Equity in the Company Registered Capital. But if the lowest price permitted by the then-effective PRC Law is higher than the above
actual investment, the Transfer Price shall be the lowest price permitted by the PRC Law.
4.2
With regard to the Asset Purchase Option, the Transfer Price to be paid by the WFOE or any other entity or individual designated by the WFOE to
the Company at each Exercise of Option by the WFOE shall be the net book value of the relevant Transferred Assets. But if the lowest price
permitted by the then-effective PRC Law is higher than the net book value of the Transferred Assets, the Transfer Price shall be the lowest price
permitted by the PRC Law.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1
The Existing Shareholders hereby severally and jointly represent and warrant that:
5.1.1
each of the Existing Shareholders is a Chinese citizen with full capacity. Each of them has the full and independent legal status and
legal capacity to execute, deliver and perform this Agreement and may act independently as a party to lawsuit.
5.1.2
the Company is a limited liability company duly registered and legitimately existing under the PRC Law with an independent legal
personality. It has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act
independently as a party to lawsuit.
5.1.3
each of them has the full power and authority to execute, deliver and perform this Agreement and all other documents relating to the
transaction contemplated hereby and to be executed by him. Each of them has the full power and authority to consummate the
transaction contemplated hereby.
5.1.4
this Agreement is legally and duly executed and delivered by the Existing Shareholders. This Agreement shall constitute their legal and
binding obligations and shall be enforceable against them in accordance with the terms of this Agreement.
5.1.5
the Existing Shareholders are the legitimate owners of the Option Equity as of the effective date of this Agreement, and except for the
rights created under the Equity Pledge Agreement and Shareholder Voting Rights Proxy Agreement executed by the Company, the
WFOE and the Existing Shareholders on the date hereof, the Option Equity is free from
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and clear of any lien, pledge, claim and other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any
other entity or individual designated by it may, after the Exercise of Option, acquire a good title to the Transferred Equity, free from
and clear of any lien, pledge, claim and other encumbrances or third party rights.
5.1.6
to the knowledge of the Existing Shareholders, the Company Assets are free from and clear of any lien, mortgage, claim and other
encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may,
after the Exercise of Option, acquire a good title to the Company Assets, free from and clear of any lien, mortgage, claim and other
encumbrances or third party rights.
5.1.7
the execution, delivery and performance by the Existing Shareholders of this Agreement and the consummation by the Existing
Shareholders of the transaction contemplated hereby do not violate any PRC Law or any agreement, contract or other arrangement with
any third party by which they are bound.
5.2
The Company hereby represents and warrants that:
5.2.1
the Company is a limited liability company duly registered and legitimately existing under the PRC Law with an independent legal
personality. It has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act
independently as a party to lawsuit.
5.2.2
the Company has the full internal corporate power and authority to execute, deliver and perform this Agreement and all other
documents relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate
the transaction contemplated hereby.
5.2.3
this Agreement is legally and duly executed and delivered by the Company, and shall constitute its legal and binding obligation.
5.2.4
the Company Assets are free from and clear of any lien, mortgage, claim and other encumbrances and third party rights. Pursuant to
this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire a good title
to the Company Assets, free from and clear of any lien, mortgage, claim and other encumbrances or third party rights.
5.2.5
the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transaction
contemplated hereby do not violate any PRC Law or any agreement, contract or other arrangement with any third party by which it is
bound.
5.3
The WFOE hereby represents and warrants that:
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5.3.1
the WFOE is a wholly foreign-owned enterprise duly registered and legitimately existing under the PRC Law with an independent
legal personality. The WFOE has the full and independent legal status and legal capacity to execute, deliver and perform this
Agreement and may act independently as a party to lawsuit.
5.3.2
the WFOE has the full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents
relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate the
transaction contemplated hereby.
5.3.3
this Agreement is legally and duly executed and delivered by the WFOE and shall constitute its legal and binding obligation.
ARTICLE VI
UNDERTAKINGS BY THE EXISTING SHAREHOLDERS
Each of the Existing Shareholders hereby severally undertakes that:
6.1
Within the valid term of this Agreement, without the WFOE’s prior written consent:
6.1.1
None of the Existing Shareholder shall transfer or otherwise dispose of any Option Equity or create any encumbrance or other third
party rights on any Option Equity;
6.1.2
he shall not increase or decrease the Company Registered Capital or cause or permit the Company to be divided or merged with any
other entity;
6.1.3
he shall not dispose of or cause the management of the Company to dispose of any Material Asset (other than in the ordinary course of
business), or create any encumbrance or other third party rights on any Material Asset;
6.1.4
he shall not terminate or cause the management of the Company to terminate any Material Agreement entered into by the Company, or
enter into any other agreement in conflict with the existing Material Agreements;
6.1.5
he shall not appoint, dismiss or replace any director or supervisor of the Company or any other management personnel of the Company
who shall be appointed or dismissed by the Existing Shareholders;
6.1.6
he shall not cause the Company to declare the distribution of or in practice release any distributable profit, dividend, share profit or
share interest;
6.1.7
he shall ensure that the Company validly exists and is not terminated, liquidated or dissolved;
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6.1.8
he shall not amend the articles of association of the Company;
6.1.9
he shall ensure that the Company will not lend or borrow any money, or provide any guaranty or other form of security, or bear any
substantial obligations other than in the ordinary course of business; and
6.1.10
it shall not cause the Company or the management of the Company to approve any of the following acts of any of the Company’s
subsidiaries or affiliates (collectively, the “Subsidiaries”):
(a)
increase or decrease any Subsidiary’s registered capital or cause or permit any Subsidiary to be divided or merged with any other
entity;
(b)
dispose of or cause the management of the Subsidiaries to dispose of any Material Asset of any Subsidiary (other than in the
ordinary course of business), or create any encumbrance or other third party rights on such assets;
(c)
terminate or cause the management of the Subsidiaries to terminate any Material Agreement entered into by any Subsidiary, or
enter into any other agreement in conflict with the existing Material Agreements;
(c)
appoint, dismiss, or replace any director or supervisor of any Subsidiary or any other management personnel of such Subsidiary
who shall be appointed or dismissed by the Company;
(d)
terminate, liquidate or dissolve any Subsidiary or act in any way that damages or is likely to damage the valid existence of any
Subsidiary;
(f)
amend the articles of association of any Subsidiary; and
(g)
lend or borrow any money, or provide any guaranty or other form of security, or bear any substantial obligations other than in
the ordinary course of business.
6.2
Within the valid term of this Agreement, he shall use his best endeavor to develop the business of the Company and ensure that the Company’s
operations are legal and in compliance with the regulations, and he will not engage in any act or omission which may damage the Company’s
(including the Subsidiaries’) assets and goodwill or affect the validity of the Business Permits of the Company.
6.3
Within the valid term of this Agreement, he shall timely notify the WFOE of any circumstances that may have a material adverse effect on the
existence, business operations, financial conditions, assets or goodwill of the Company (including the Subsidiaries) and timely take all the measures
approved by the WFOE to remove such adverse circumstances or take effective remedial measures with respect thereto.
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6.4
Once the WFOE gives the Exercise Notice,
6.4.1
he shall promptly convene a shareholders’ meeting, pass shareholders’ resolutions and take all other necessary actions to approve any
Existing Shareholder or the Company to transfer all the Transferred Equity or the Transferred Assets at the Transfer Price to the WFOE
and/or any other entity or individual designated by the WFOE, and waive any preemptive right to purchase enjoyed by him (if any);
6.4.2
he shall promptly enter into an equity transfer agreement with the WFOE and/or any other entity or individual designated by the
WFOE to transfer all the Transferred Equity at the Transfer Price to the WFOE and/or any other entity or individual designated by the
WFOE and provide necessary support to the WFOE (including provision and execution of all relevant legal documents, performing all
government approval and registration procedures and assuming all relevant obligations) in accordance with the WFOE’s requirements
and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may acquire all the Transferred
Equity, free from and clear of any legal defect or any encumbrance, third party restriction or any other restrictions on the Transferred
Equity.
6.5
If the total Transfer Price obtained by any Existing Shareholder with respect to the Transferred Equity held by him is higher than the actual
investment corresponded with such Transferred Equity in the Company Registered Capital, or he receives any form of profit distribution, share
profit, share interest or dividend from the Company, then such Existing Shareholder agrees to, to the extent not in violation of the PRC Law, waive
the premium earnings and any profit distribution, share profit, share interest or dividend (after the deduction of relevant taxes) and the WFOE is
entitled thereto. Otherwise, such Existing Shareholder shall compensate the WFOE and/or any other entity or individual designated by the WFOE
for any loss incurred as a result thereof.
ARTICLE VII
UNDERTAKINGS BY THE COMPANY
7.1
The Company hereby undertakes that:
7.1.1
if any consent, permit, waiver or authorization by any third party, or any approval, permit or exemption by any government authority,
or any registration or filing formalities (if required by law) with any government authority needs to be obtained or handled with respect
to the execution and performance of this Agreement and the grant of the Equity Transfer Option or Asset Purchase Option hereunder,
the Company shall endeavor to assist in satisfying the above conditions.
7.1.2
without the WFOE’s prior written consent, the Company shall not assist or permit the Existing Shareholders to transfer or otherwise
dispose of any Option Equity or create any encumbrance or other third party rights on any Option Equity.
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7.1.3
without the WFOE’s prior written consent, the Company shall not transfer or otherwise dispose of any Material Asset (other than in the
ordinary course of business) or create any encumbrance or other third party rights on any Company Assets.
7.1.4
the Company shall not do or permit to be done any behavior or action that may adversely affect the interests of the WFOE under this
Agreement, including without limitation, any behavior and action that is subject to the restrictions contained in Article 6.1.
7.2
With the valid term of this Agreement, once the WFOE gives the Exercise Notice,
7.2.1
it shall promptly cause the Existing Shareholders to convene a shareholders’ meeting, pass shareholders’ resolutions and take all other
necessary actions to approve the Company to transfer all the Transferred Assets at the Transfer Price to the WFOE and/or any other
entity or individual designated by the WFOE;
7.2.2
it shall promptly enter into an asset transfer agreement with the WFOE and/or any other entity or individual designated by the WFOE
to transfer all the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE,
and cause the Existing Shareholders to provide necessary support to the WFOE (including provision and execution of all relevant legal
documents, performing all government approval and registration procedures and assuming all relevant obligations) in accordance with
the WFOE’s requirements and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may
acquire all the Transferred Assets, free from and clear of any legal defect or any encumbrance, third party restriction or any other
restrictions on the Transferred Assets.
ARTICLE VIII
CONFIDENTIALITY OBLIGATIONS
8.1
Regardless of whether this Agreement is terminated or not, each Party shall keep strictly confidential all the business secrets, proprietary
information, customer information and all other information of a confidential nature about the other Parties known by it during the execution and
performance of this Agreement (collectively, the “Confidential Information”). Unless a prior written consent is obtained from the Party disclosing
the Confidential Information (the “Disclosing Party”) or unless it is required to be disclosed to third parties according to the stipulation of relevant
laws and regulations or the requirement of the place where its affiliate is listed on a stock exchange, the Party receiving the Confidential Information
(the “Receiving Party”) shall not disclose to any third party any Confidential Information. The Receiving Party shall not use any Confidential
Information other than for the purpose of performing this Agreement.
8.2
The following information shall not be deemed part of the Confidential Information:
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(a)
any information that has been lawfully acquired by the receiving Party before as evidenced by written documents;
(b)
any information entering the public domain not attributable to the fault of the Party receiving the information; or
(c)
any information lawfully acquired by the Party receiving the information through other sources after its receipt of such information.
8.3
For purpose of performing this Agreement, the Receiving Party may disclose the Confidential Information to its relevant employees, agents or
professionals retained by it. However, the Receiving Party shall ensure that the aforesaid persons shall comply with the relevant terms and conditions
of this Article 8. In addition, the Receiving Party shall be responsible for any liability incurred as a result of such persons’ breach of the relevant
terms and conditions of this Article 8.
8.4
Notwithstanding any other provision herein, the effect of this Article 8 shall not be affected by the termination of this Agreement.
ARTICLE IX
TERM OF AGREEMENT
This Agreement shall become effective immediately upon the signing of this agreement by all parties. This Agreement shall terminate after all the Option
Equity and the Company Assets are lawfully transferred to the WFOE and/or any other entity or individual designated by the WFOE pursuant to the
provisions of this Agreement.
ARTICLE X
NOTICES
10.1
Any notice, request, demand and other correspondences required by this Agreement or made in accordance with this Agreement shall be delivered in
writing to the relevant Party.
10.2
If any of such notice or other correspondences is transmitted by facsimile or telex, it shall be treated as delivered immediately upon transmission; if
delivered in person, it shall be treated as delivered at the time of delivery; if posted by mail, it shall be treated as delivered five (5) days after posting.
ARTICLE XI
DEFAULTING LIABILITY
11.1
The Parties agree and confirm that, if any of the Parties (the “Defaulting Party”) substantially violates any agreement herein or substantially fails to
perform or delays performance of any of the
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obligations hereunder, such violation, failure or delay shall constitute a default under this Agreement (a “Default”). The non-defaulting Party shall
have the right to request the Defaulting Party to rectify or take remedial actions within a reasonable period. If the Defaulting Party fails to rectify
such Default or take remedial actions within such reasonable period or within ten (10) days after the non-defaulting Party notifies the Defaulting
Party in writing requiring the Default to be rectified, then the non-defaulting Party is entitled to decide at its own discretion that:
11.1.1
if any Existing Shareholder or the Company is the Defaulting Party, the WFOE shall be entitled to terminate this Agreement and
require the Defaulting Party to indemnify the damages;
11.1.2
if the WFOE is the Defaulting Party, the non-defaulting Party shall be entitled to require the Defaulting Party to indemnify the
damages, but unless otherwise provided for by the PRC Law, the non-defaulting Party has no right to terminate or cancel this
Agreement in any circumstances.
11.2
Notwithstanding any other provision herein, the effect of this Article 11 shall not be affected by the termination of this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1
This Agreement is written in Chinese and executed in four (4) originals, with one (1) original to be retained by each Party hereto.
12.2
The execution, effectiveness, performance, revision, interpretation and termination of this Agreement shall be governed by the PRC Law.
12.3
Any dispute arising out of and in connection with this Agreement shall be resolved through consultations among the Parties. In case the Parties fail
to reach agreement within thirty (30) days after the dispute arises, such dispute shall be submitted to China International Economic and Trade
Arbitration Commission Shanghai Commission for arbitration in Shanghai in accordance with such Commission’s arbitration rules in effect at the
time of applying for arbitration, and the arbitration award shall be final and binding on the Parties.
12.4
None of the rights, powers or remedies granted to any Party by any provision herein shall preclude any other rights, powers or remedies available to
such Party at law and under the other provisions of this Agreement. In addition, the exercising by one Party of any of its rights, powers and remedies
shall not exclude such Party from exercising any of its other rights, powers and remedies.
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12.5
No failure or delay by a Party in exercising any rights, powers and remedies available to it hereunder or at law (the “Available Rights”) shall result
in a waiver thereof, nor shall the waiver of any single or partial exercise of the Available Rights shall exclude such Party from exercising such rights
in any other way or exercising the other Available Rights.
12.6
The headings of the provisions herein are for reference only, and in no event shall such headings be used for or affect the interpretation of the
provisions hereof.
12.7
Each provision contained herein shall be severable and independent from each of the other provisions. If any one or more provisions herein
become(s) invalid, illegal or unenforceable at any time, the validity, legality and enforceability of the remaining provisions herein shall not be
affected as a result thereof.
12.8
This Agreement, upon signed, shall supersede any other prior legal documents executed by and among the Parties with respect to the subject matter
hereof. Any amendment or supplement hereto shall be made in writing and shall become effective only upon due execution by the Parties hereto.
12.9
Without the WFOE’s prior written consent, neither Existing Shareholder nor the Company shall transfer any of its rights and/or obligations
hereunder to any third party. The Existing Shareholders and the Company hereby agree that the WFOE is entitled to transfer any of its rights and/or
obligations hereunder to any third party upon written notice thereof to the Existing Shareholders and the Company.
12.10 This Agreement shall be binding on the legal assigns or successors of the Parties.
[The remainder of this page intentionally left blank]
14 / 18
[SIGNATURE PAGE]
IN WITNESS WHEREOF, the following Parties have executed this Exclusive Call Option Agreement as of the date first above written.
Qimin WU
By:
/s/ Qimin WU
Guowen ZHANG
By:
/s/ Guowen ZHANG
Baoyi Investment Consulting (Shanghai) Co., Ltd.
(Seal)
By:
/s/ Seal of Baoyi Investment Consulting (Shanghai) Co., Ltd.
/s/ Xuebin ZHUANG
Name:
Title:
Shanghai Yedu Enterprise Management Co., Ltd.
(Seal)
By:
/s/ Seal of Shanghai Yedu Enterprise Management Co., Ltd.
/s/ Qimin WU
Name:
Title:
15 / 18
Annex 1:
Company’s General Information
Company name:
Shanghai Yedu Enterprise Management Co., Ltd.
Registered address:
Block 2, 3, 4, 5, 6, 7, 112-118 Gaoyi Road, Baoshan district, Shanghai
Registered capital:
RMB5,000,000
Legal representative:
Qimin WU
Shareholder’s name
Contribution in
registered capital
Percentage of
contribution
Method of
contribution
Qimin WU
RMB
3,500,000
70%
Cash
Guowen ZHANG
RMB
1,500,000
30%
Cash
Total
RMB
5,000,000
100%
/
16 / 18
Annex 2:
Form of Exercise Notice
To: [Name of the Existing Shareholder]
WHEREAS, we, Shanghai Yedu Enterprise Management Co., Ltd. (the “Company”), [Name of the other Existing Shareholder] and you entered into an
Exclusive Call Option Agreement (the “Option Agreement”) on [•] and reached an agreement that you shall transfer the equity interest you hold in the
Company to us or any third party designated by us at our request to the extent permitted by the PRC laws and regulations.
Therefore, we hereby give this notice to you as follows:
We hereby request to exercise the Equity Transfer Option under the Option Agreement and we/[name of company/individual] designated by us will acquire
the [•]% of the equity interest you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately
transfer all the Proposed Acquired Equity to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.
Regards,
Baoyi Investment Consulting
(Shanghai) Co., Ltd. (Seal)
Authorized representative:
Date:
17 / 18
Annex 3:
Form of Exercise Notice
To: [●]
WHEREAS, we, Qimin WU, Guowen ZHANG and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on [●] and reached
an agreement that you shall transfer your assets to us or any third party designated by us at our request to the extent permitted by the PRC laws and
regulations.
Therefore, we hereby give this notice to you as follows:
We hereby require to exercise the Asset Purchase Option under the Option Agreement and we/[name of company/individual] designated by us will acquire
the assets owned by you as stated in a separate list (the “Proposed Acquired Assets”). Upon your receipt of this notice, you shall immediately transfer all
the Proposed Acquired Assets to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.
Regards,
Baoyi Investment Consulting (Shanghai)
Co., Ltd. (Seal)
Authorized representative:
Date:
18 / 18
Exhibit4.30
EQUITY PLEDGE AGREEMENT
This EQUITY PLEDGE AGREEMENT (this “Agreement”) is entered into in Shanghai, the PRC, on August 24, 2021, by and among:
1.
Qimin WU
Identity Card No.:***
2.
Guowen ZHANG
Identity Card No.:***
(Qimin WU and Guowen ZHANG are hereinafter referred to individually as a “Pledgor” and collectively as the “Pledgors”.)
3.
Baoyi Investment Consulting (Shanghai) Co., Ltd. (the “Pledgee”)
Registered address: Room 104, Block 94, 149 Yan Chang Road, Shanghai
4.
Shanghai Yedu Enterprise Management Co., Ltd. (the “Company”)
Registered address: Block 2, 3, 4, 5, 6, 7, 112-118 Gaoyi Road, Baoshan district, Shanghai
(In this Agreement, the above parties are referred to individually as a “Party” and collectively as the “Parties”.)
WHEREAS
(1)
The Pledgors are the registered shareholders of the Company, legally holding all the equity interest in the Company (the “Company Equity
Interest”). Appendix 1 sets forth the capital contribution amount and the shareholding percentage of each Pledgor in the registered capital of the
Company on the signing date of this agreement.
(2)
The Parties to this Agreement entered into the Exclusive Call Option Agreement (the “Call Option Agreement”) on [ ]. Under the Call Option
Agreement, the Pledgors shall, to the extent permitted by the PRC Law, transfer all or part of the equity interest they hold in the Company to the
Pledgee and/or any other entity or individual designated by the Pledgee based on the Pledgee’s request.
(3)
The Parties to this Agreement entered into the Shareholder Voting Rights Proxy Agreement (the “Proxy Agreement”) on [ ]. Under the Proxy
Agreement, the Pledgors irrevocably delegated the individual then designated by the Pledgee with the full power to exercise on behalf of the
Pledgors all their shareholder voting rights in the Company.
(4)
The Company and Pledgee entered into an “Exclusive Business Cooperation Agreement” (the “Cooperation Agreement”) on [ ]. According to the
agreement, the Company exclusively hired
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Pledgee to provide such assistance as related technical services, consulting and administration services, and agree to pay Pledgee the corresponding
fees for such technical assistance.
(5)
As the Pledgors’ security for the performance of the Contractual Obligations (as defined below) and the discharge of the Secured Liabilities (as
defined below), the Pledgors are willing to pledge all the Company Equity Interest they hold in favor of the Pledgee and grant the Pledgee the first
pledge, and the Company agrees to such equity interest pledge arrangement.
THEREFORE, the Parties, after consultations, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1
Unless otherwise indicated in the context in this Agreement, the following terms shall be interpreted as follows.
“Contractual Obligations” means all the contractual obligations of the Pledgors under the Call Option Agreement, the Proxy Agreement and
the Cooperation Agreement, all the contractual obligations of the Company under the Call Option Agreement and the Proxy Agreement,
Cooperation Agreement and all the contractual obligations of the Pledgors and the Company under this Agreement.
“Secured Liabilities” means all the direct, indirect and derivative losses and loss of foreseeable interest incurred by the Pledgee due to any
Event of Default (as defined below) on the part of the Pledgors and/or the Company; the basis for determining the amount of such losses
includes but not limited to the reasonable commercial plan and profit forecast of the Pledgee; and all the expenses incurred by the Pledgee to
enforce the performance by the Pledgors and/or the Company of their Contractual Obligations.
“Transaction Documents” means the Call Option Agreement, the Proxy Agreement and the Cooperation Agreement.
“Event of Default” means any breach by any Pledgor of any of its Contractual Obligations under the Call Option Agreement, the Proxy
Agreement, the Cooperation Agreement and/or this Agreement, and any breach by the Company of any of its Contractual Obligations under
the Call Option Agreement, the Proxy Agreement, Cooperation Agreement and/or this Agreement.
“Pledged Equity Interest” means all the Company Equity Interest lawfully owned by the Pledgors as of the date hereof and to be pledged to
the Pledgee in accordance with this Agreement as the security for the performance of the Contractual Obligations by the Pledgors and the
Company (see Appendix 1 for the specific Pledged Equity Interest of each Pledgor), together with the increased capital contribution amount
and the dividend as provided in Article 2.6 and Article 2.7 of this Agreement.
2 / 16
“PRC” means the People’s Republic of China, for the purpose of this Agreement, excluding Hong Kong Special Administrative Region,
Macao Special Administrative Region and Taiwan.
“PRC Law” means the then-effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations, and
other binding regulatory documents of the PRC.
1.2
Any reference to any PRC Law in this Agreement shall be deemed (1) to include references to the amendments, changes, supplements and
restatement of such PRC Law, irrespective of whether they take effect before or after the execution of this Agreement, and (2) to include the
references to other decisions, notices and regulations enacted in accordance therewith or effective as a result thereof.
1.3
Unless otherwise specified in the context herein, any reference to an Article, clause, item or paragraph in this Agreement shall refer to the
corresponding part of this Agreement.
ARTICLE II
PLEDGE OF EQUITY INTEREST
2.1
The Pledgors hereby agree to pledge the Pledged Equity Interest, which they lawfully own and are entitled to dispose of, to the Pledgee in
accordance with the provisions of this Agreement as the security for the performance of the Contractual Obligations and the discharge of the Secured
Liabilities. The Company hereby agrees to the Pledgors’ pledge of the Pledged Equity Interest to the Pledgee in accordance with the provisions of
this Agreement.
2.2
The Pledgors undertake to be responsible for registering the equity interest pledge arrangement (the “Equity Pledge”) under this Agreement on the
Company’s register of shareholders on the signing date of this agreement.
The Parties shall use their best efforts to apply to the registration authority in charge of the Company for registration of the Equity Pledge
under this Agreement immediately after the signing of this Agreement.
2.3
During the valid term of this Agreement, unless attributable to the Pledgee’s willful conduct or the Pledgee’s gross negligence with direct causation
to the consequence, the Pledgee shall in no way be held liable to any reduction of the value of the Pledged Equity Interest, and the Pledgors have no
right to claim any compensation or other request in any way against the Pledgee.
2.4
Without breaching the provisions of Article 2.3 above, if there is any probability that the value of the Pledged Equity Interest will notably reduce
which is sufficient to jeopardize the rights of the Pledgee, the Pledgee may at any time auction or sell the Pledged Equity Interest on behalf of the
Pledgors, and may reach agreement with the Pledgors to use the proceeds from such auction or sales to prepay the Secured Liabilities or to deposit
such proceeds with the notary office in the place where
3 / 16
the Pledgee is domiciled (all expenses so incurred shall be assumed by the Pledgee). Further, if requested by the Pledgee, the Pledgors shall offer
additional property as security.
2.5
Upon the occurrence of any Event of Default, the Pledgee has the right to dispose of the Pledged Equity Interest in accordance with Article 4 of this
Agreement.
2.6
The Pledgors shall not increase the registered capital of the Company without the Pledgee’s prior consent. The increased capital contribution amount
of the Pledgors in the registered capital of the Company as a result of such capital increase of the Company shall be a part of the Pledged Equity
Interest.
2.7
No dividend or capital bonus on the Pledged Equity Interest shall be distributed to the Pledgors without the Pledgee’s prior consent. The Pledgors
agree that during the term of pledge, the Pledgee has the right to collect any dividend or capital bonus out of the Pledged Equity Interest. The
Company shall pay such amount to the bank account designated by the Pledgee.
2.8
The Pledgee has the right to dispose of any of the Pledged Equity Interest of any Pledgor in accordance with this Agreement after the occurrence of
any Event of Default.
ARTICLE III
RELEASE OF PLEDGE
3.1
After the Pledgors and the Company fully and completely perform all of the Contractual Obligations and discharge all of the Secured Liabilities, the
Pledgee shall, upon the Pledgors’ request, release the Equity Pledge under this Agreement and cooperate with the Pledgors to deregister the Equity
Pledge on the Company’s register of shareholders and with the administration of industry and commerce in charge of the Company. The Pledgee
shall assume the reasonable expenses arising out of the release of the Equity Pledge.
ARTICLE IV
DISPOSAL OF PLEDGED EQUITY INTEREST
4.1
The Parties agree that if any Event of Default occurs, the Pledgee has the right to, by notifying the Pledgors in writing, exercise all the remedial
rights and powers that it is entitled to under the PRC Law, the Transaction Documents and the provisions of this Agreement, including but not
limited to being compensated in first priority with proceeds from auctions or sales of the Pledged Equity Interest. The Pledgee shall not be liable to
any loss caused by its reasonable exercise of such rights and powers.
4.2
The Pledgee has the right to delegate in writing its lawyers or other agents to exercise all or any part of its rights and powers above, and neither the
Pledgors nor the Company may oppose thereto.
4 / 16
4.3
The Pledgee has the right to deduct the reasonable expenses actually incurred from its exercise of all or any part of its rights and powers above from
the proceeds gained from its exercise of such rights and powers.
4.4
The proceeds gained from the Pledgee’s exercise of its rights and powers shall be settled in accordance with the following order:
(1)
firstly, pay all expenses arising out of the disposal of the Pledged Equity Interest and the Pledgee’s exercise of its rights and powers
(including the remuneration paid to its lawyers and agents);
(2)
secondly, pay the taxes and charges payable for the disposal of the Pledged Equity Interest; and
(3)
thirdly, repay the Secured Liabilities to the Pledgee.
If there is any balance after the payment of the above amounts, the Pledgee shall return the balance to the Pledgors or any other person
entitled to such amount pursuant to relevant laws and regulations, or deposit such amount with the notary office in the place where the
Pledgee is domiciled (all expenses so incurred to be assumed by the Pledgee).
4.5
The Pledgee has the discretion to, simultaneously or in certain sequence, exercise any remedies for defaults it is entitled to. The Pledgee may
exercise its rights to auction or sell the Pledged Equity Interest under this Agreement without first exercising any other remedies for defaults.
ARTICLE V
COSTS AND EXPENSES
5.1
All actual expenses related to the creation of the Equity Pledge under this Agreement, including but not limited to the stamp duty, any other taxes
and all legal fees and etc., shall be assumed by the Parties respectively.
ARTICLE VI
CONTINUITY AND NO WAIVER
6.1
The Equity Pledge created under this Agreement is a continuing assurance, which shall be valid until the Contractual Obligations are fully performed
or the Secured Liabilities are fully discharged. No waiver or grace period of any default of the Pledgors given by the Pledgee, nor the Pledgee’s
delayed exercise of any of its rights under the Transaction Documents and this Agreement, shall affect the
5 / 16
rights of the Pledgee under this Agreement, the Transaction Documents and the relevant PRC Law to require at any time thereafter the Pledgors to
strictly implement the Transaction Documents and this Agreement, or the rights the Pledgee is entitled to with respect to the Pledgors’ subsequent
breach of the Transaction Documents and/or this Agreement.
ARTICLE VII
UNDERTAKINGS BY THE COMPANY
Each of the Pledgors respectively represents and warrants to the Pledgee as follows:
7.1
The Pledgors are PRC citizens with full legal capacity, having full rights and powers to execute this Agreement and assume the legal obligations in
accordance with this Agreement.
7.2
All the reports, documents and information related to the Pledgors and all the matters required under this Agreement that the Pledgors provided to
the Pledgee prior to the effectiveness of this Agreement are true and accurate in all material respects as of the effectiveness of this Agreement.
7.3
All the reports, documents and information related to the Pledgors and all the matters required under this Agreement to be provided by the Pledgors
to the Pledgee after the effectiveness of this Agreement will be true and valid in all material respects at the time of provision.
7.4
As of the effectiveness of this Agreement, the Pledgors are the sole legal owners of the Pledged Equity Interest. There is no then pending disputes on
the ownership of the Pledged Equity Interest. The Pledgors are entitled to dispose of the Pledged Equity Interest or any part thereof.
7.5
Except the security interest created over the Pledged Equity Interest under this Agreement and the rights created under the Transaction Documents,
there are no other security interest or third party rights or any other encumbrance over the Pledged Equity Interest.
7.6
The Pledged Equity Interest can be legally pledged and transferred, and the Pledgors have full rights and powers to pledge the Pledged Equity
Interest to the Pledgee in accordance with the provisions of this Agreement.
7.7
This Agreement, upon due execution by the Pledgors, constitutes the lawful, valid and binding obligations of the Pledgors.
7.8
Any third party approvals, permits, waivers and authorizations, any approvals, permits and waivers of any governmental authorities, or any
registration or filing formalities with any government authorities (if legally required), which is required with respect to the execution and
performance of this Agreement and the Equity Pledge under this Agreement, have been obtained or completed (subject to clause 2 of Article 2.2),
and will be fully effective during the valid term of this Agreement.
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7.9
Each Pledgor’s execution and performance of this Agreement does not violate or conflict with any laws applicable thereto, any agreement to which it
is a party or by which its assets are bound, any court adjudication, any arbitration award or any decision of administrative authorities.
7.10
The pledge under this Agreement constitutes the security interest over the Pledged Equity Interest with the first priority.
7.11
All taxes and expenses payable for obtainment of the Pledged Equity Interest have been paid by the Pledgors in full.
7.12
There is no pending or, to the knowledge of the Pledgors, threatened lawsuit, legal proceeding or claim at any court or arbitration tribunal against the
Pledgors or their property or the Pledged Equity Interest, nor is there any pending or, to the knowledge of the Pledgors, threatened lawsuit, legal
proceeding or claim at any government agency or administrative authority against the Pledgors or their property or the Pledged Equity Interest,
which will have material or adverse effect on the financial conditions of the Pledgors or their abilities to perform their obligations and security
liabilities under this Agreement.
7.13
The Pledgors hereby undertake to the Pledgee that the above representations and warranties will all be true and accurate and be fully complied with
under any circumstances and at any time before the Contractual Obligations are performed in full or the Secured Liabilities are discharged in full.
ARTICLE VIII
COMPANY’S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Pledgee as follows:
8.1
The Company is a limited liability company duly registered and lawfully existing under the PRC Law with independent legal person status, having
independent and full legal status and capacity to execute, deliver and perform this Agreement, and can be an independent party to a lawsuit.
8.2
All the reports, documents and information related to the Pledged Equity Interest and all the matters required under this Agreement which the
Company provided to the Pledgee prior to the effectiveness of this Agreement are true and accurate in all material respects as of the effectiveness of
this Agreement.
8.3
All the reports, documents and information related to the Pledged Equity Interest and all the matters required under this Agreement to be provided
by the Company to the Pledgee after the effectiveness of this Agreement will be true and valid in all material respects at the time of provision.
8.4
This Agreement, upon due execution by the Company, constitutes the lawful, valid and binding obligations of the Company.
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8.5
It has full internal corporate power and authorization to execute and deliver this Agreement and all other documents related to the transaction
contemplated in this Agreement and to be executed by it. It has full power and authorization to consummate the transaction contemplated in this
Agreement.
8.6
There is no pending or, to the knowledge of the Company, threatened lawsuit, legal proceeding or claim at any court or arbitration tribunal against
the Pledged Equity Interest, the Company or its assets, nor is there any pending or, to the knowledge of the Company, threatened lawsuit, legal
proceeding or claim at any government agency or administrative authority against the Pledged Equity Interest, the Company or its assets, which will
have material or adverse effect on the financial conditions of the Company or the Pledgors’ abilities to perform their obligations and security
liabilities under this Agreement.
8.7
The Company hereby agrees to assume the joint and several liabilities to the Pledgee with respect to the representations and warranties made by each
of the Pledgors under Article 7.4, Article 7.5, Article 7.6, Article 7.8 and Article 7.10 of this Agreement.
8.8
The Company hereby undertakes to the Pledgee that the above representations and warranties will all be true and accurate and be fully complied
with under any circumstance and at any time before the Contractual Obligations are performed in full and the Secured Liabilities are discharged in
full.
ARTICLE IX
PLEDGORS’ UNDERTAKINGS
Each Pledgor hereby respectively undertakes to the Pledgee as follows:
9.1
Without the prior written consent of the Pledgee, the Pledgors shall not create, or allow to be created, any new pledge or any other security interest
over the Pledged Equity Interest. Any pledge or other security interest created over all or any part of the Pledged Equity Interest without the prior
written consent of the Pledgee shall be invalid.
9.2
Without the prior written notice to and the prior written consent of the Pledgee, the Pledgors shall not transfer the Pledged Equity Interest and no
proposed transfer of the Pledged Equity Interest by the Pledgors shall be invalid. The proceeds obtained from the Pledgors’ transfer of the Pledged
Equity Interest shall be used first to prepay the Secured Liabilities to the Pledgee or to be deposited with a third party as agreed with the Pledgee.
9.3
In the event of occurrence of any lawsuit, arbitration or other claim which may have adverse effect on the interests of the Pledgors or the Pledgee
under the Transaction Documents and this Agreement or on the Pledged Equity Interest, the Pledgors undertake to notify the Pledgee in writing as
soon as possible and in a timely manner, and, as reasonably required by the Pledgee, to take all necessary measures to ensure the pledge interest of
the Pledgee over the Pledged Equity Interest.
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9.4
The Pledgors undertake to complete the registration formalities to extend the business term of the Company within three months prior to the
expiration of the business term of the Company so as to continue the effect of this Agreement.
9.5
The Pledgors shall not take, or allow to be taken, any act or action which may have adverse effect on the Pledgee’s interests under the Transaction
Documents and this Agreement or on the Pledged Equity Interest. The Pledgors waive the right of first refusal to purchase the Pledged Equity
Interest when the Pledgee realizes its pledge rights.
9.6
The Pledgors shall, after the signing of this Agreement, use their best efforts and take all necessary measures to register the Equity Pledge under this
Agreement with the relevant administration of industry and commerce as soon as possible, and the Pledgors undertake to, as reasonably required by
the Pledgee, take all necessary measures and execute all necessary documents (including but not limited to any agreement supplemental to this
Agreement) to ensure the pledge interest of the Pledgee over the Pledged Equity Interest and the exercise and realization thereof.
9.7
If the exercise of the right of pledge under this Agreement results in the transfer of any Pledged Equity Interest, the Pledgors undertake to take all
measures to effect such transfer.
9.8
The Pledgors shall ensure that the convening process, voting methods and content of the shareholders meetings and board meetings of the Company
convened for the purpose of the execution of this Agreement, creation and exercise of the right of pledge under this Agreement be not in conflict
with the laws, administrative regulations or the articles of association of the Company.
ARTICLE X
COMPANY’S UNDERTAKINGS
10.1
If any third party approval, permit, waiver or authorization, or any approval, permit or waiver of any governmental authorities, or any registration or
filing formalities with any government authorities (if legally required) is required to be obtained or completed for the execution and performance of
this Agreement and for the Equity Pledge under this Agreement, the Company shall endeavor to assist in obtaining it and keeping it fully effective
throughout the valid term of this Agreement.
10.2
Without the prior written consent of the Pledgee, the Company shall not assist in or allow the Pledgors’ creation of any new pledge or other security
interest over the Pledged Equity interest.
10.3
Without the prior written consent of the Pledgee, the Company shall not assist in or allow the Pledgors’ transfer of the Pledged Equity Interest.
10.4
In the event of occurrence of any lawsuit, arbitration or other claim which may have adverse effect on the Company, the Pledged Equity Interest or
the Pledgee’s interests under the Transaction Documents and this Agreement, the Company undertakes to notify the Pledgee in writing as soon as
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possible and in a timely manner, and, as reasonably required by the Pledgee, to take all necessary measures to ensure the pledge interest of the
Pledgee over the Pledged Equity Interest.
10.5
The Company undertakes to complete the registration formalities to extend its business term within three months prior to the expiration of its
business term so as to continue the effect of this Agreement.
10.6
The Company shall not take, or allow to be taken, any act or action which may have adverse effect on the Pledgee’s interests under the Transaction
Documents and this Agreement or on the Pledged Equity Interest, including but not limited to any act or action subject to the restrictions under
Article 9.
10.7
The Company shall, in the first month of each calendar quarter, provide the Pledgee with the financial statements of the Company for the
immediately preceding calendar quarter, including but not limited to the balance sheet, the profit and loss statements and the cash flow statements.
10.8
The Company undertakes to, as reasonably required by the Pledgee, take all necessary measures and execute all necessary documents (including but
not limited to any agreement supplemental to this Agreement) to ensure the pledge interest of the Pledgee over the Pledged Equity Interest and the
exercise and realization thereof.
10.9
If the exercise of the right of pledge under this Agreement results in the transfer of any Pledged Equity Interest, the Company undertakes to take all
measures to effect such transfer.
ARTICLE XI
CHANGE OF CIRCUMSTANCES
11.1
As a supplement to, and not in conflict with, the Transaction Documents and the other provisions of this Agreement, if at any time, due to the
promulgation or change of any PRC Law, regulations or rules, or the change of interpretation or application of such laws, regulations or rules, or the
change of relevant registration procedures, the Pledgee believes that it is illegal or in conflict with such laws, regulations and rules to keep this
Agreement effective, to keep the right of pledge under this Agreement effective and/or to dispose of the Pledged Equity Interest in accordance with
this Agreement, the Pledgors and the Company shall promptly take any action and/or execute any agreement or other document upon written
instruction by the Pledgee and as reasonably required by the Pledgee, so as to:
(1) keep this Agreement and the right of pledge under this Agreement effective;
(2) facilitate the disposal of the Pledged Equity Interest in accordance with this Agreement; and/or
(3) keep or realize the security created or intended to be created by this Agreement.
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ARTICLE XII
EFFECTIVENESS AND TERM OF THIS AGREEMENT
12.1
This Agreement shall come into effect upon the satisfaction of all of the following conditions:
(1) this Agreement has been duly executed by the Parties;
(2) the Equity Pledge under this Agreement has been duly registered on the register of shareholders of the Company.
The Pledgors shall provide the Pledgee with the evidence of the registration of the Equity Pledge on the register of shareholders in a form to
the satisfaction of the Pledgee, and shall, after the registration of the Equity Pledge is completed and as required by the Pledgee, provide the
Pledgee with the pledge certificate issued by the administration of industry and commerce in a form to the satisfaction of the Pledgee.
12.2
The term of this Agreement shall end upon the full performance of the Contractual Obligations or the full discharge of the Secured Liabilities.
ARTICLE XIII
NOTICES
13.1
Any notice, request, demand and other correspondences required by this Agreement or made in accordance with this Agreement shall be delivered in
writing to the relevant Party.
13.2
If any of such notice or other correspondences is transmitted by facsimile or telex, it shall be treated as delivered immediately upon transmission; if
delivered in person, it shall be treated as delivered at the time of delivery; if posted by mail, it shall be treated as delivered five (5) days after posting.
ARTICLE XIV
MISCELLANEOUS
14.1
he Pledgors and the Company agree that the Pledgee may, upon notice to the Pledgors and the Company, assign the Pledgee’s rights and/or
obligations hereunder to any third party. However, neither Pledgors nor the Company shall, without the Pledgee’s prior written consent, assign their
rights, obligations or liabilities hereunder to any third party. The respective successors or permitted assigns (if any) of the Pledgors and the Company
shall continue to perform the respective obligations of the Pledgors and the Company under this Agreement.
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14.2
The amount of the Secured Liabilities determined by the Pledgee at its own discretion when the Pledgee exercises its right of pledge to the Pledged
Equity Interest pursuant to the provisions hereof hall be regarded as the conclusive evidence of the Secured Liabilities hereunder.
14.3
This Agreement is written in Chinese and executed in five (5) originals, with one (1) original to be retained by each Party hereto. One (1) original is
to be used for the application to the administration of industry and commerce in charge of the Company for registration of the Equity Pledge under
this Agreement.
14.4
The execution, effectiveness, performance, revision, interpretation and termination of this Agreement shall be governed by the PRC Law.
14.5
Any dispute arising out of and in connection with this Agreement shall be resolved through consultations among the Parties. In case the Parties fail
to reach agreement within thirty (30) days after the dispute arises, such dispute shall be submitted to China International Economic and Trade
Arbitration Commission Shanghai Commission for arbitration in Shanghai in accordance with such Commission’s arbitration rules in effect at the
time of applying for arbitration, and the arbitration award shall be final and binding on the Parties.
14.6
None of the rights, powers or remedies granted to any Party by any provision herein shall preclude any other rights, powers or remedies available to
such Party at law and under the other provisions of this Agreement. In addition, the exercising by one Party of any of its rights, powers and remedies
shall not exclude such Party from exercising any of its other rights, powers and remedies.
14.7
No failure or delay by a Party in exercising any rights, powers and remedies available to it hereunder or at law (the “Available Rights”) shall result
in a waiver thereof, nor shall the waiver of any single or partial exercise of the Available Rights shall exclude such Party from exercising such rights
in any other way and exercising the other Available Rights.
14.8
The headings of the provisions herein are for reference only, and in no event shall such headings be used for or affect the interpretation of the
provisions hereof.
14.9
Each provision contained herein shall be severable and independent from each of the other provisions. If any one or more provisions herein
become(s) invalid, illegal or unenforceable at any time, the validity, legality and enforceability of the remaining provisions herein shall not be
affected as a result thereof.
14.10 Any amendments or supplements to this Agreement shall be made in writing. Except for assignment by the Pledgee of its rights hereunder according
to Article 14.1, the amendments or supplements to this Agreement shall take effect only upon the due execution by the Parties to this Agreement. If
any amendments or supplements to this Agreement legally require any approval of and/or any registration or filing with any government authority,
the Parties shall obtain such approval and/or complete such registration or filing in accordance with law.
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14.11 This Agreement shall be binding on the legal successors of the Parties.
14.12 Simultaneously with the execution of this Agreement, each Pledgor shall respectively sign a power of attorney (the “Power of Attorney”) to
authorize any person designated by the Pledgee to sign on the Pledgor’s behalf according to this Agreement any and all legal documents necessary
for the exercise of the Pledgee’s rights hereunder. Such Power of Attorney shall be delivered to the Pledgee to keep in custody and, when necessary,
the Pledgee may at any time submit the Power of Attorney to the relevant government authority.
[The remainder of this page intentionally left blank]
[EXECUTION PAGE]
IN WITNESS WHEREOF, this EQUITY PLEDGE AGREEMENT is executed by the following Parties on the date first written above.
Qimin WU
By:
/s/ Qimin WU
Guowen ZHANG
By:
/s/ Guowen ZHANG
Baoyi Investment Consulting (Shanghai) Co., Ltd.
(Seal)
By:
/s/ Seal of Baoyi Investment Consulting (Shanghai) Co., Ltd.
/s/ Xuebin ZHUANG
Name:
Title:
Shanghai Yedu Enterprise Management Co., Ltd.
(Seal)
By:
/s/ Seal of Shanghai Yedu Enterprise Management Co., Ltd.
/s/ Qimin WU
Name:
Title:
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Annex 1:
Company’s General Information
Company name:
Shanghai Yedu Enterprise Management Co., Ltd.
Registered address:
Block 2, 3, 4, 5, 6, 7, 112-118 Gaoyi Road, Baoshan district, Shanghai
Registered capital:
RMB5,000,000
Legal representative:
Qimin WU
Shareholder’s name
Contribution in
registered capital
Percentage of
contribution
Method of
contribution
Qimin WU
RMB
3,500,000
70%
Cash
Guowen ZHANG
RMB
1,500,000
30%
Cash
Total
RMB
5,000,000
100%
/
14 / 16
Annex 2:
FORM OF POWER OF ATTORNEY
I, [●], hereby irrevocably delegate [●] (identity card number: [●]) to act as my authorized representative to execute all legal documents necessary or useful
for Baoyi Investment Consulting (Shanghai) Co., Ltd. to exercise its rights under the “Equity Pledge Agreement regarding Shanghai Yedu Enterprise
Management Co., Ltd.” entered into by Shanghai Yedu Enterprise Management Co., Ltd., it and me.
Signature:
Date:
15 / 16
Exhibit 4.31
Shareholder Voting Right Proxy Agreement
This Shareholder Voting Right Proxy Agreement (“this Agreement”) is entered into as of August 24, 2021, by and among the following Parties:
1.
Qimin WU
Identity Card No.: ***
2.
Guowen ZHANG
Identity Card No.: ***
(Qimin WU and Guowen ZHANG are hereinafter referred to individually as an “Existing Shareholder” and collectively as the “Existing Shareholders”.)
3
Baoyi Investment Consulting (Shanghai) Co., Ltd. (hereinafter, the “WFOE”)
Registered address: Room 104, Block 94, 149 Yan Chang Road, Shanghai
4.
Shanghai Yedu Enterprise Management Co., Ltd. (the “Company”)
Registered address: Block 2, 3, 4, 5, 6, 7, 112-118 Gaoyi Road, Baoshan district, Shanghai
(In this Agreement, the above parties are hereinafter referred to individually as a “Party” and collectively as the “Parties”)
WHEREAS
(1)
The Existing Shareholders are the current Existing Shareholders of the Company, holding 100% equity interest of the Company.
(2)
The Existing Shareholders intend to severally entrust their voting rights in the Company to the individuals designated by the WFOE, and the WFOE
intends to designate the individuals to accept such entrust.
THEREFORE, the Parties, after friendly consultations, hereby mutually agree below:
ARTICLE I
VOTING RIGHT DELEGATION
1.1
The Existing Shareholders hereby irrevocably undertake to respectively sign a power of attorney in substance and form as set forth in Annex 1
hereof after the signing of this Agreement, to respectively entrust the individuals then designated by the WFOE (hereinafter, the “Entrusted
Persons”) to
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exercise, on behalf of each of the Existing Shareholders, the following rights that the Existing Shareholders are entitled to in the capacity of Existing
Shareholders of the Company under the then effective articles of association of the Company (collectively, the “Entrusted Rights”):
(1) To propose to convene and attend Existing Shareholders’ meetings of the Company as the representative of each of the Existing
Shareholders according to the articles of association of the Company;
(2) To exercise, on behalf of each of the Existing Shareholders, their voting rights on all matters requiring discussion or resolutions of
the Existing Shareholders’ meetings of the Company, including without limitation, the appointment and election of the
Company’s directors and other senior management to be appointed and removed by the Existing Shareholders;
(3) To exercise other voting rights of the Existing Shareholder as specified in the articles of association of the Company (including
any other Existing Shareholder voting rights as specified in the amended articles of association).
The above authorization and entrustment are granted on the condition that the Entrusted Persons are PRC citizens and that the WFOE
approves such authorization and entrustment. Upon and only upon written notice of dismissing and replacing the Entrusted Person(s) given by
the WFOE to each of the Existing Shareholders shall the Existing Shareholder promptly entrust another PRC citizen then designated by the
WFOE to exercise the above Entrusted Rights, and the new authorization and entrustment shall, upon the grant supersede the previous
authorization and entrustment. The Existing Shareholders shall not revoke the authorization and entrustment to the Entrusted Person(s) unless
as provided in this Article.
1.2
The Entrusted Persons shall perform their obligations in respect of the entrustment hereunder to the extent authorized hereunder with due care and
diligence and in compliance with laws. The Existing Shareholders acknowledge and shall assume liabilities for any legal consequences arising as a
result of the Entrusted Persons’ exercise of the foregoing Entrusted Rights.
1.3
The Existing Shareholders hereby confirm that the Entrusted Persons are not required to seek opinions from the relevant Existing Shareholder prior
to their exercise of the foregoing Entrusted Rights. However, the Entrusted Persons shall inform the Existing Shareholders in a timely manner of any
resolution or proposal on convening an interim Existing Shareholders’ meeting after such resolution or proposal is made.
ARTICLE II
RIGHT TO INFORMATION
2.1
For the purpose of exercising the Entrusted Rights hereunder, the Entrusted Persons are entitled to know various relevant information of the
Company such as those in respect of its operation, business,
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customers, finance and employees, and shall have access to the relevant documentations and materials of the Company. The Company shall fully
cooperate with the Entrusted Persons in this regard.
ARTICLE III
EXERCISE OF THE ENTRUSTED RIGHTS
3.1
The Existing Shareholders will provide sufficient assistances to the Entrusted Persons with regard to their exercise of the Entrusted Rights, including
timely execution where necessary of resolutions of Existing Shareholders’ meetings adopted by the Entrusted Persons or other pertinent legal
documents (e.g., where the same is required in order to submit documents for purpose of governmental approvals, registrations or filings.).
3.2
If at any time within the term of this Agreement, the grant or exercise of the Entrusted Rights hereunder is unrealizable for whatever cause (except
for default of any Existing Shareholder or the Company), the Parties shall immediately seek the most similar alternative solution and, if necessary,
enter into a supplementary agreement to amend or adjust the provisions herein, in order to ensure the realization of the purpose of this Agreement.
ARTICLE IV
EXEMPTION AND COMPENSATION
4.1
The Parties acknowledge that in no case shall the WFOE be required to be liable to or compensate (monetary or otherwise) the other Parties or any
third party in respect of exercise of the Entrusted Rights hereunder by the individuals designated by it.
4.2
The Existing Shareholders and the Company agree to indemnify and hold the WFOE free from and harmless against all losses incurred or likely to
be incurred due to exercise of the Entrusted Rights by the Entrusted Persons designated by the WFOE, including without limitation, any loss resulted
from any litigation, demand, arbitration or claim by any third party against it or from administrative investigation or penalty, provided, however, that
no indemnification is available for any losses caused by a willful default or gross negligence of the Entrusted Persons.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1
Each Existing Shareholder hereby represents and warrants severally that:
5.1.1. It is a Chinese citizen with full capacity of action. It has the complete and independent legal status and legal capacity to execute,
deliver and perform this Agreement. It may sue or be sued independently.
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5.1.2. It has the full power and authority to execute and deliver this Agreement and all other documents relating to the transaction
contemplated hereby that are to be executed by it; and the full power and authority to consummate the transaction contemplated
hereby. This Agreement is duly executed and delivered by it. This Agreement shall constitute its legal and binding obligation
and may be enforceable against it in accordance with the terms hereof.
5.1.3. It is the registered legal Existing Shareholder of the Company as of the effective date of this Agreement. Except for those rights
created under this Agreement, the Equity Pledge Agreement and the Exclusive Call Option Agreement entered into by and
between the Existing Shareholders, the Company and the WFOE on the date hereof, the Entrusted Rights are free of any third-
party right. Pursuant to this Agreement, the Entrusted Persons may exercise the Entrusted Rights fully and completely in
accordance with the then effective articles of association of the Company.
5.2
Each of the WFOE and the Company hereby represents and warrants severally that:
5.2.1. It is a limited liability company duly registered and validly existing under the laws where it is registered and has the independent
legal person status. It has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement
and may sue or be sued independently.
5.2.2. It has the full corporate power and authority to execute and deliver this Agreement and all other documents relating to the
transaction contemplated hereby that are to be executed by it. It has the full power and authority to consummate the transaction
contemplated hereby.
5.3
The Company further represents and warrants that:
5.3.1. Each Existing Shareholder is the registered legal Existing Shareholder of the Company as of the effective date of this Agreement.
Except for the rights under this Agreement, the Equity Pledge Agreement and the Exclusive Call Option Agreement entered into
by and between the Existing Shareholders, the Company and the WFOE on the date hereof, the Entrusted Rights are free of any
third-party right. Pursuant to this Agreement, the Entrusted Persons may exercise the Entrusted Rights fully and completely in
accordance with the then effective articles of association of the Company.
ARTICLE VI
TERM OF THIS AGREEMENT
6.1
Subject to the provisions of Articles 6.2 and 6.3 hereof, the term of this Agreement shall be twenty (20) years, unless it is early terminated by the
Parties in writing or pursuant to Article 9.1 hereof.
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The term of this Agreement will not be extended upon expiration; provided, however, that the term of this Agreement will be automatically extended
for one (1) year upon the expiration, if the WFOE gives the other Parties thirty(30) days prior notice requiring the extension thereof, and the same
mechanism will apply subsequently upon the expiration of each extended term.
6.2
This Agreement shall terminate, if the Company or the WFOE, upon expiry of its business term, fails to deal with the approval and registration for
the extension thereof.
6.3
If any Existing Shareholder transfers all of the equity interest it holds in the Company to any person with the WFOE’s prior consent, the Existing
Shareholder will no longer be a Party hereto and the obligations and undertakings of any other Parties hereunder will not be adversely affected.
ARTICLE VII
NOTICES
7.1
Any notice, request, demand and other correspondences required by this Agreement or made in accordance with this Agreement shall be delivered in
writing to the relevant Party(ies).
7.2
The above notices or other correspondence shall be deemed delivered (i) upon being sent out if by facsimile or electric transmission, or (ii) upon
handover in person if by hand delivery; or (iii) upon the fifth (5th) day of being posted if by mail.
ARTICLE VIII
CONFIDENTIALITY
8.1
Regardless of the termination of this Agreement, each Party is obligated to keep strictly confidential trade secrets, proprietary information, clients’
information and all other information of confidential nature related to the other Parties that are known to the former Party during the course of its
execution and performance of this Agreement (the “Confidential Information”). Unless as agreed to by the Party who disclosed the Confidential
Information (the “Disclosing Party”) in writing in advance, or as required by the relevant laws, regulations or the requirements applicable where the
publicly listed affiliated company of any Party is located, the receiving party of the Confidential Information (the “Receiving Party”) shall not
disclose to any third party any of such Confidential Information. Except for the purpose of performing this Agreement, the Receiving Party shall not
use any Confidential Information.
8.2
The Confidential Information does not include:
(a) the information that has been lawfully acquired by the Party receiving the information before as evidenced by certain written
evidence;
(b) the information entering the public domain without attribution to any fault of the Party receiving the information; or
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(c) the information lawfully acquired by the Party receiving the information from other sources after being received by the Party.
8.3
The Receiving Party may, for the purpose of performing this Agreement, disclose Confidential Information to its relevant employees, agents or
professionals engaged by it, provided, however, the Receiving Party shall ensure that such persons shall abide by the relevant terms and conditions
of this Article 8, and shall assume any liability incurred as a result of the breach by any of such persons of the relevant terms and conditions of this
Article 8.
8.4
Notwithstanding any other provision of this Agreement, the effect of this Article 8 shall not be affected by the termination of this Agreement.
ARTICLE IX
LIABILITIES FOR BREACH
9.1
The Parties agree and confirm that, if any of the Parties (the “Breaching Party”) is materially in breach of any provision hereof, or materially fails
or delays in performing any of the obligations hereunder, a breach hereof is constituted (a “Breach”), and any of the other Parties which does not
commit any Breach (a “Non-breaching Party”) has the right to require that the Breaching Party rectify it or take a remedial action within a
reasonable period. If the Breaching Party fails to rectify the Breach or take remedial actions within the reasonable period or within ten (10) days of
the other Party’s written rectification notice, then:
9.1.1. if any Existing Shareholder or the Company is the Breaching Party, the WFOE is entitled to terminate this Agreement and require
the Breaching Party to indemnify it against its damage;
9.1.2. if the WFOE is the Breaching Party, each of the Non-defaulting Parties is entitled to require the Breaching Party to indemnify it
against its damage; but unless otherwise provided for by law, in no case does it have the right to terminate or cancel this
Agreement.
9.2
Notwithstanding any other provision herein, the effect of this Article 9 shall not be affected by the suspension or termination of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1
This Agreement is written in Chinese in four (4) originals. Each of the Parties to this Agreement shall hold one (1) original.
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10.2
The execution, effectiveness, performance, revision, interpretation and termination of this Agreement shall be governed by laws of the PRC.
10.3
Any dispute arising out of or in connection with this Agreement shall be resolved by the Parties through consultation. In the event the Parties fail to
agree with each other within thirty (30) days after the dispute arises, the dispute shall be submitted to China International Economic and Trade
Arbitration Commission Shanghai Commission for arbitration in Shanghai in accordance with the arbitration rules thereof effective at the
submission of the application for arbitration. The arbitration award shall be final and binding upon the Parties.
10.4
None of the rights, powers or remedies granted to each of the Parties by any provision of this Agreement shall preclude any other rights, powers or
remedies that such Party is entitled to under the laws and under any other provisions of this Agreement, and any Party’s exercise of any of its rights,
powers or remedies shall not preclude its exercise of any other rights, powers or remedies that it is entitled to.
10.5
A Party’s failure or delay in exercising any of its rights, powers or remedies that it is entitled to under this Agreement or under the laws (the
“Available Rights”) shall not constitute its waiver of such rights, nor shall any single or partial waiver of any Available Rights by a Party preclude
its exercise of those rights in another manner or its exercise of any other Available Rights.
10.6
The headings in this Agreement are written for the ease of reference only, and in no event, shall be used for, or affect, the interpretation to this
Agreement.
10.7
Each provision herein is separable and independent from all other provisions herein. If any one provision or more provisions of this Agreement
become invalid, illegal or unenforceable at any time, the validity, legality and enforceability of other provisions herein shall not be affected.
10.8
This Agreement, after signing, shall supersede any other prior legal documents among the Parties with respect to the subject matter hereof. Any
amendment or supplement hereto shall be made in writing and shall not become effective until its due execution by the Parties hereto.
10.9
Without the WFOE’s prior written consent, none of the other Parties may transfer any of its rights and/or obligations hereunder to any third party.
The Existing Shareholders and the Company hereby agree that the WFOE is entitled to transfer any of its rights and/or obligations hereunder to any
third party upon written notice thereof to the Existing Shareholders and the Company.
10.10 This Agreement shall be binding on the legal successors of the Parties.
[INTENTIONALLY LEFT BLANK BELOW]
7 / 10
[SIGNATURE PAGE]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.
Qimin WU
By:
/s/ Qimin WU
Guowen ZHANG
By:
/s/ Guowen ZHANG
Baoyi Investment Consulting (Shanghai) Co., Ltd.
(Company seal)
By:
/s/ Seal of Baoyi Investment Consulting (Shanghai) Co., Ltd.
/s/ Xuebin ZHUANG
Name:
Title:
Shanghai Yedu Enterprise Management Co., Ltd.
(Company seal)
By:
/s/ Seal of Shanghai Yedu Enterprise Management Co., Ltd.
/s/ Qimin WU
Name:
Title:
8 / 10
Annex 1:
Power of Attorney
THIS POWER OF ATTORNEY (hereinafter, the “Power of Attorney”) is executed by Qimin WU (ID card No.: ***) as of [ ] and issued to Xin
ZHOU (ID card No.: ***) (hereinafter, the “Entrusted Person”).
I, Qimin WU, hereby entrust the Entrusted Person with full representative power to exercise the following rights owned by me in the capacity of a Existing
Shareholder of Shanghai Yedu Enterprise Management Co., Ltd. (hereinafter, the “Company”) on my behalf:
(1)
As my representative, to propose to convene and attend Existing Shareholders’ meetings of the Company according to the articles of association of
the Company;
(2)
As my representative, to exercise, on behalf of each of the Existing Shareholders, their voting rights on all matters requiring discussion or
resolutions of the Existing Shareholders’ meetings of the Company, including without limitation, the appointment and election of the Company’s
directors and other officers to be appointed and removed by the Existing Shareholders;
(3)
As my representative, to exercise other voting rights of a Existing Shareholder as specified in the articles of association of the Company (including
any other Existing Shareholder voting rights as specified in the amended articles of association).
I hereby irrevocably confirm that this Power of Attorney shall continue to be valid unless and until the Existing Shareholder Voting Right Proxy Agreement
executed by and between Baoyi Investment Consulting (Shanghai) Co., Ltd. (hereinafter, the “WFOE”), the Company and the Existing Shareholders of the
Company as of [ ] expires or is early terminated, unless the WFOE gives me a direction to replace the Entrusted Person.
Authorization is hereby made.
Name: Qimin WU
Signature: /s/ Qimin WU
Date:
9 / 10
Power of Attorney
THIS POWER OF ATTORNEY (hereinafter, the “Power of Attorney”) is executed by Guowen ZHANG (ID card No.: ***) as of [ ] and issued to Xin
ZHOU (ID card No.: ***) (hereinafter, the “Entrusted Person”).
I, Guowen ZHANG, hereby entrust the Entrusted Person with full representative power to exercise the following rights owned by me in the capacity of a
Existing Shareholder of Shanghai Yedu Enterprise Management Co., Ltd. (hereinafter, the “Company”) on my behalf:
(1)
As my representative, to propose to convene and attend Existing Shareholders’ meetings of the Company according to the articles of association of
the Company;
(2)
As my representative, to exercise, on behalf of each of the Existing Shareholders, their voting rights on all matters requiring discussion or
resolutions of the Existing Shareholders’ meetings of the Company, including without limitation, the appointment and election of the Company’s
directors and other officers to be appointed and removed by the Existing Shareholders;
(3)
As my representative, to exercise other voting rights of a Existing Shareholder as specified in the articles of association of the Company (including
any other Existing Shareholder voting rights as specified in the amended articles of association).
I hereby irrevocably confirm that this Power of Attorney shall continue to be valid unless and until the Existing Shareholder Voting Right Proxy Agreement
executed by and between Baoyi Investment Consulting (Shanghai) Co., Ltd. (hereinafter, the “WFOE”), the Company and the Existing Shareholders of the
Company as of [ ] expires or is early terminated, unless the WFOE gives me a direction to replace the Entrusted Person.
Authorization is hereby made.
Name: Guowen ZHANG
Signature: /s/ Guowen ZHANG
Date:
10 / 10
Exhibit 8.1
List of Significant Subsidiaries and Consolidated Entities
Subsidiaries
Place of Incorporation
Shanghai Juxiang Investment Management Consulting Co., Ltd.
PRC
Baoyi Investment Consulting (Shanghai) Co., Ltd.
PRC
Jupai HongKong Investment Limited
Hong Kong
Jupai Investment International Limited
BVI
Scepter Holdings Limited
Hong Kong
Scepter Pacific Limited
BVI
Jucheng Insurance Broker Limited
Hong Kong
Non-liner Investment Management Limited
BVI
Jupai Investment Limited
BVI
Consolidated Entities
Place of Incorporation
Juzhou Asset Management (Shanghai) Co., Ltd.
PRC
Shanghai Yidezhen Investment Management Center (Limited Partnership)
PRC
Shanghai Jupai Yumao Fund Sales Co., Ltd.
PRC
Shanghai Yidexin Equity Investment Management Co., Ltd.
PRC
Shanghai Jupai Yongyu Insurance Brokers Co., Ltd.
PRC
Shanghai Jupeng Asset Management Co., Ltd.
PRC
Shanghai Yubo Investment Management Co., Ltd.
PRC
Shanghai Yidezeng Equity Investment Management Center (LP)
PRC
Shanghai Yiju Asset Management Co., Ltd.
PRC
Hangzhou Yideshanzhen Investment Management Partnership (LP)
PRC
Shanghai Jupai Investment Group Co., Ltd.
PRC
Shanghai E-Cheng Asset Management Co., Ltd.
PRC
Shanghai Yedu Enterprise Management Co., Ltd.
PRC
Exhibit 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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 25, 2022
By: /s/ Jianda Ni
Name: Jianda Ni
Title:
Chairman of the Board of Directors
and Chief Executive Officer
Exhibit 12.2
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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 25, 2022
By: /s/ Min Liu
Name: Min Liu
Title:
Chief Financial Officer
Exhibit 13.1
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Jupai Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2021 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 25, 2022
By: /s/ Jianda Ni
Name: Jianda Ni
Title:
Chairman of the Board of Directors and Chief
Executive Officer
Exhibit 13.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Jupai Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2021 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 25, 2022
By: /s/ Min Liu
Name: Min Liu
Title:
Chief Financial Officer
Exhibit 15.1
源泰律师事务所
YUAN TAI LAW OFFICES
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 25, 2022
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, 2021, which will be filed with the Securities and Exchange Commission (hereinafter
the “SEC”) on April 25, 2022, 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, registration statement on Form
S-8 (File No. 333-209924), which was filed on March 4, 2016, and registration statement on Form S-8 (File No. 333-255861), which was filed on
May 7, 2021. 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, 2021.
Yours faithfully,
For and on behalf of
Yuan Tai Law Offices
/s/ Seal of Yuan Tai Law Offices
/s/ Shao Jun
Name:
Shao Jun
Designation:
Partner
Exhibit 15.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements No. 333-209924, No. 333-206553 and No. 333-255861, respectively, on
Form S-8 of our report dated April 25, 2022, 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, 2021.
/s/ B F Borgers CPA PC
Lakewood, Colorado
April 25, 2022