VIP Class Notes (Jesse) [W]

Vocabulary

suffix
prefix – in / re / dis / uni / anti

innovate
renovate

Grammar

the main business of them – their main business is 

when the project is close to being finished

non-compliant to with the relevant rules and regulations

Pronunciation

make – maeeek 

precedence – preh si denss

Dear Janice，

Please see below our advice on legal issues related to the business model of Mellowness.

Based on what we received in the legal due diligence, we do not consider the business model of Mellowness as illegal. We do not consider Mellowness in violation of the Criminal Law of the PRC. To constitutes “Scalping (倒卖)” of tickets under the Criminal Law, the tickets sold by the “Scalper” needs to be fake, while as confirmed by the founder of Mellowness, Jia Cui, Mellowness makes sure that all the tickets sold in its business are genuine tickets. Besides, the business of Mellowness does not constitutes “scalping (倒卖)” under PRC laws as Mellowness mainly operates as platform instead of the entity who sells (卖) the ticket, and in the prop trade business (which is not the major model and only contributes around 4% of 2017Q4 GMV of the Group), Mellowness confirms that it does not sell the tickets at inflated prices.

With the above said, as stated in the Executive Summary of the legal due diligence, there are some facts of the business model of Mellowness which violate the administrative rules issued by the Ministry of Culture. It is common in practice that departments of State Council (such as Ministry of Culture) who are not law makers issue administrative rules to govern business activities in various areas, and some rules provide strict penalties for activities which is not comply with such rules, such as confiscation of income and revoke of licenses. In practice, such penalties may not be strictly imposed.

In the case of Mellowness, we searched for major companies engaged in the similar business to Mellowness, including Youpiao (有票), Piaoniu (票牛) and Xishiqu (西十区). Through the public search, we found them to have the similar or worse non-compliance issues as Mellowness does, and we found no news suggesting that severe administrative penalties as confiscation of income and revoke of license was imposed on such companies for such non-compliance which Mellowness also has as stated in the Executive Summary. Therefore, we do not consider the business model of the company is at a high legal risk.

Dear Janice，

Please see below for our advice on legal issues related to the business model of Mellowness.

Based on what we received in the legal due diligence, we do not consider the business model of Mellowness as illegal. We do not consider Mellowness in violation of the Criminal Law of the PRC. To constitute “Scalping (倒卖)” of tickets under the Criminal Law, the tickets sold by the “Scalper” must be considered to be fake. However, as confirmed by the founder of Mellowness, Jia Cui, Mellowness ensures that all the tickets sold on its platform are genuine tickets. Besides, the business of Mellowness does not constitute “scalping (倒卖)” under PRC laws as Mellowness mainly operates as platform instead of the entity who sells (卖) the ticket, and in the prop trade business (which is not the major model and only contributes around 4% of 2017Q4 GMV of the Group), Mellowness confirms that it does not sell the tickets at inflated prices.

With the above said, as stated in the Executive Summary of the legal due diligence, there are some facts of the business model of Mellowness which violate the administrative rules issued by the Ministry of Culture. It is common practice that departments of State Council (such as Ministry of Culture), who are not law makers, to issue administrative rules to govern business activities in various areas, and some of these rules impose strict penalties for activities which do not comply with said rules, such as confiscation of income and revocation of licenses. However, it is at the discretion of governmental authorities to enforce said penalties, and based on our experience, these are not commonly enforced strictly. 

In the case of Mellowness, we searched for major companies engaged in similar business to Mellowness, including Youpiao (有票), Piaoniu (票牛) and Xishiqu (西十区). Through the public search, we found them to have non-compliance issues similar to or worse than Mellowness, but we found no indication suggesting that severe administrative penalties such as confiscation of income and revocation of license were imposed on these companies for such non-compliance as stated by Mellowness in the Executive Summary. Therefore, we do not consider the business model of the company to be at a high degree of legal risk.