20-F: X Financial's 20-F Filing Reveals Exclusive Business Cooperation Agreement

X Financial's 20-F filing includes an Exclusive Business Cooperation Agreement outlining the relationship between its WFOE and a domestic Chinese company.

Summary

• X Financial's 20-F filing includes an Exclusive Business Cooperation Agreement made on October 15, 2021.
• The agreement is between Xiaoying (Beijing) Information Technology Co., Ltd. (WFOE) and Beijing Yingzhongtong Financial Information Services Co., Ltd. (Domestic Company).
• The WFOE will provide technical consulting and services related to legal information services to the Domestic Company.
• The Domestic Company agrees to accept these services exclusively and not to engage similar services from third parties without the WFOE's consent.
• The Consulting Service Fee will be determined and paid as per Appendix 2 of the agreement.
• The Domestic Company is obligated to operate the Target Business in compliance with plans jointly made with the WFOE and to obtain the WFOE's consent before entering into any material contract.
• The Domestic Company will pay or transfer any bonus, dividend, or other profit or benefit to the WFOE without delay.
• The Domestic Company agrees to accept advice from the WFOE regarding employment, daily operations, management, and financial policies.
• The Domestic Company will elect candidates designated by the WFOE as directors and senior executives.
• The agreement is effective from October 15, 2021, for a term of ten years, with automatic ten-year extensions unless otherwise agreed.
• The WFOE can terminate the agreement with 30 days' notice, while the Domestic Company cannot terminate early.
• Disputes will be resolved through negotiation, and if unresolved, submitted to the Shanghai International Economic and Trade Arbitration Commission.
• The agreement is governed by PRC laws.
• The Domestic Company is obligated to keep Confidential Information secret and return or destroy related documents upon termination.
• The WFOE owns all intellectual property rights generated from the agreement's performance.
• The agreement outlines procedures for handling amendments to PRC laws and force majeure events.

Sentiment

Score: 6

Explanation: The document is a legal agreement, so the sentiment is neutral. It establishes a business relationship but also highlights potential risks and limitations.

Positives

• The WFOE secures exclusive rights to provide technical consulting and services to the Domestic Company.
• The WFOE retains ownership of all intellectual property rights generated from the agreement.
• The WFOE has significant control over the Domestic Company's operations, management, and financial policies.
• The WFOE has the right to designate directors and senior executives of the Domestic Company.
• The WFOE can terminate the agreement with 30 days' notice, providing flexibility.

Negatives

• The Domestic Company is restricted from engaging similar services from third parties without the WFOE's consent.
• The Domestic Company cannot terminate the agreement early.
• The Domestic Company's operational and financial decisions are subject to the WFOE's control.
• The Consulting Service Fee is dependent on the Domestic Company's profitability, which may fluctuate.
• Disputes will be resolved through arbitration in Shanghai, potentially creating logistical challenges.

Risks

• The agreement's enforceability is subject to PRC laws, which can be uncertain and subject to change.
• Changes in PRC laws or regulations could negatively impact the WFOE's economic interests.
• The WFOE's control over the Domestic Company relies on contractual arrangements, which may be challenged by PRC authorities.
• The Domestic Company's profitability, and therefore the Consulting Service Fee, may be affected by market conditions and competition.
• The Domestic Company's ability to operate is subject to compliance with PRC laws and regulations, which can be complex and evolving.

Future Outlook

The agreement outlines a long-term, exclusive relationship between the WFOE and the Domestic Company, with automatic extensions providing stability unless the WFOE chooses to terminate.

Industry Context

This type of agreement is common for foreign companies operating in China, particularly in sectors with foreign investment restrictions, allowing them to exert control through contractual means.

Comparison to Industry Standards

• VIE structures are a common workaround for foreign investment restrictions in China, but their legality and enforceability are subject to regulatory risk.
• Comparable companies using VIE structures include Alibaba, Baidu, and JD.com.
• The specific terms of the agreement, such as the profit-sharing arrangement and control mechanisms, are typical for VIE agreements in the Chinese market.
• However, the enforceability of these agreements has not been fully tested in Chinese courts, creating uncertainty.

Stakeholder Impact

• Shareholders: The agreement clarifies the control structure and potential risks associated with the VIE structure.
• Employees: The Domestic Company's employment decisions are subject to the WFOE's advice.
• Customers: The agreement ensures the provision of technical consulting and services to the Domestic Company, potentially improving service quality.
• Suppliers: The Domestic Company needs to obtain the WFOE's consent before entering into material contracts, potentially affecting supplier relationships.

Next Steps

• The Domestic Company needs to operate in compliance with the business plan and decisions jointly made with the WFOE.
• The WFOE needs to provide technical consulting and services as outlined in Appendix 1.
• The parties need to monitor changes in PRC laws and regulations that may affect the agreement.
• The Pledgor needs to submit an application to the AIC at the domicile of the Domestic Company for registration of the Pledge within thirty (30) days upon execution of this Agreement in accordance with relevant PRC laws and regulations.

Key Dates

Keywords

Exclusive Business Cooperation Agreement, Technical Consulting, WFOE, Domestic Company, Legal Information Services, PRC Laws, Equity Pledge, Power of Attorney, X Financial