Cloopen's VIE Structure Poses Significant Cash Flow, Regulatory Risks

TL;DR

**Cloopen's VIE structure is a ticking time bomb for investors, with no cash flow from operations reaching the holding company for three years straight.**

AI Summary

Cloopen Group Holding Ltd (RAASY) operates under a complex Variable Interest Entity (VIE) structure in China, which accounted for substantially all of its total revenues in 2022, 2023, and 2024. The company's ability to pay dividends to shareholders, including ADS investors, is highly dependent on dividends from its Wholly Foreign-Owned Enterprise (WFOE) and service fees from its affiliated entities. Notably, the VIE did not pay any service fees to the WFOE in 2022, 2023, or 2024, indicating a lack of cash flow from the operational entity to the holding company. As of December 31, 2024, Cloopen had 308,053,676 Class A ordinary shares and 25,649,839 Class B ordinary shares outstanding. The company faces significant regulatory risks due to the PRC's restrictions on foreign investment in value-added telecommunications services, which could lead to severe penalties or forced relinquishment of interests if the VIE structure is disallowed. The company has not yet paid any dividends to its shareholders.

Why It Matters

Cloopen's reliance on a Variable Interest Entity (VIE) structure in China creates substantial uncertainty for investors, employees, and the broader market. The lack of service fee payments from the VIE to the WFOE in the past three years (2022-2024) directly impacts the holding company's ability to generate distributable earnings, affecting investor returns. This structure, common among Chinese tech firms, is under constant scrutiny by PRC regulators, introducing a high degree of regulatory risk that could disrupt operations and competitive positioning in the cloud communications market. Employees and customers could face instability if the government intervenes, potentially impacting service continuity and job security.

Risk Assessment

Risk Level: high — The risk level is high due to the inherent uncertainties of Cloopen's VIE structure, which accounted for 'substantially all of our total revenues in 2022, 2023 and 2024.' A critical concern is that 'the VIE did not pay any service fees to our WFOE under the contractual arrangements' in 2022, 2023, and 2024, directly impacting the holding company's cash flow. Furthermore, the PRC regulatory authorities 'could disallow the VIE structure at any time,' leading to severe penalties or forced relinquishment of interests.

Analyst Insight

Investors should exercise extreme caution and consider divesting, given the significant regulatory risks associated with the VIE structure and the complete absence of cash flow from the operational entity to the holding company for three consecutive years. This indicates a fundamental disconnect in the financial flow that directly impacts shareholder value and dividend potential.

Key Numbers

• 308,053,676 — Class A ordinary shares outstanding (as of December 31, 2024, excluding treasury shares)
• 25,649,839 — Class B ordinary shares outstanding (as of December 31, 2024)
• 6 — Class A ordinary shares per ADS (new ADS ratio effective March 15, 2023)
• 1 — vote per Class A ordinary share (voting rights)
• 10 — votes per Class B ordinary share (voting rights)
• 2022 — year (VIE did not pay service fees to WFOE)
• 2023 — year (VIE did not pay service fees to WFOE)
• 2024 — year (VIE did not pay service fees to WFOE)

Key Players & Entities

• Cloopen Group Holding Limited (company) — ultimate Cayman Islands holding company
• Anxun Guantong (Beijing) Technology Co., Ltd. (company) — wholly-owned PRC subsidiary (WFOE)
• Beijing Ronglian Yitong Information Technology Co. Ltd. (company) — Variable Interest Entity (VIE)
• Yipeng Li (person) — Chief Financial Officer
• Ministry of Commerce (MOFCOM) (regulator) — promulgates Negative List (2024 Version)
• National Development and Reform Commission (NDRC) (regulator) — promulgates Negative List (2024 Version)
• US$0.0001 (dollar_amount) — par value per Class A and Class B ordinary share
• RMB7.2993 (dollar_amount) — noon buying rate to US$1.00 on December 31, 2024
• RMB7.1304 (dollar_amount) — noon buying rate to US$1.00 on August 29, 2025

FAQ

Risk Factors

• VIE Structure Illegality Risk [high — regulatory]: Cloopen operates through a Variable Interest Entity (VIE) structure in China, which generates substantially all of its revenue. The PRC's regulations restrict foreign investment in value-added telecommunications services. If this VIE structure is deemed illegal by Chinese authorities, Cloopen could face severe penalties, including forced relinquishment of its interests, significantly impacting its operations and financial stability.
• Lack of Dividend Flow from VIE [high — financial]: The VIE did not pay any service fees to the Wholly Foreign-Owned Enterprise (WFOE) in 2022, 2023, or 2024. This indicates a lack of cash flow from the operational entity to the holding company, raising concerns about the ability to repatriate profits and pay dividends to shareholders.
• No Dividend Payments to Shareholders [medium — financial]: Cloopen has not yet paid any dividends to its shareholders. This, combined with the lack of service fee payments from the VIE, suggests potential financial constraints or a strategic decision to retain all earnings within the operational entities.

Industry Context

Cloopen operates in the cloud communications market, specifically CPaaS and contact center solutions. This sector is characterized by rapid technological advancements, increasing demand for integrated communication services, and intense competition from both global players and local Chinese providers. The industry is also subject to evolving regulatory landscapes, particularly concerning data privacy and cross-border data flows.

Regulatory Implications

The company's reliance on a VIE structure in China exposes it to significant regulatory risk. Any adverse changes in PRC regulations regarding VIEs or foreign investment in telecommunications could lead to operational disruptions, penalties, or even the invalidation of its business model, severely impacting its ability to operate and generate revenue.

What Investors Should Do

1. Monitor PRC regulatory developments closely.
2. Assess the sustainability of the VIE structure.
3. Evaluate the company's ability to generate and repatriate profits.
4. Analyze customer retention and revenue growth drivers.

Glossary

VIE

Variable Interest Entity. A structure used by Chinese companies to bypass foreign ownership restrictions in certain industries by having a domestic entity controlled by a foreign-invested enterprise through contractual arrangements. (Cloopen's primary revenue is generated through its VIE structure, making it central to understanding its operations and risks.)

WFOE

Wholly Foreign-Owned Enterprise. A limited liability company established in China wholly owned by a foreign entity. (The WFOE is the holding entity for Cloopen's foreign investors, and its ability to receive service fees from the VIE is critical for profit repatriation.)

ADSs

American Depositary Shares. Certificates issued by a U.S. depositary bank representing a specified number of ordinary shares of a foreign company. (ADSs are how most foreign investors trade Cloopen's shares on U.S. exchanges, and their value is tied to the underlying ordinary shares.)

CPaaS

Communications Platform as a Service. A cloud-based offering that allows developers to add real-time communication features (like voice and messaging) to applications via APIs. (This is a core service offering of Cloopen, indicating its position in the cloud communications market.)

dollar-based net customer retention rate

A metric measuring revenue growth from existing customers over a period, calculated by dividing current period revenue from a specific customer group by their revenue in the prior period. (This metric indicates Cloopen's ability to retain and grow revenue from its existing customer base, a key indicator of business health.)

Class A ordinary shares

Ordinary shares with one vote per share. (These are the primary class of shares outstanding, representing the bulk of ownership and voting power.)

Class B ordinary shares

Ordinary shares with ten votes per share. (These shares carry super-voting rights, concentrating control with a smaller group of holders, typically founders or early investors.)

Year-Over-Year Comparison

Information comparing key metrics to the previous year, such as revenue growth, margin changes, and new risks, is not available in the provided text excerpt. The excerpt focuses on definitions and risk factors related to the VIE structure and share classes, without providing comparative financial data or updates on new risks.

Key Financial Figures

• $0.0001 — ix Class A ordinary shares, par value US$0.0001 per share RAASY Class A ordinary sh
• $100,000 — B700,000 (equivalent to approximately US$100,000) in annual spending in the preceding 12
• $1 — .S. dollars were made at RMB7.2993 to US$1.00, the noon buying rate on December 31
• $1.00 — the noon buying rate was RMB7.1304 to US$1.00 as set forth in the H.10 statistical re

Filing Documents

• form20-f.htm (20-F) — 4242KB
• ex12-1.htm (EX-12.1) — 17KB
• ex12-2.htm (EX-12.2) — 17KB
• ex13-1.htm (EX-13.1) — 7KB
• ex13-2.htm (EX-13.2) — 7KB
• ex15-1.htm (EX-15.1) — 9KB
• ex15-2.htm (EX-15.2) — 7KB
• ex15-3.htm (EX-15.3) — 5KB
• ex15-1_001.jpg (GRAPHIC) — 15KB
• ex15-1_002.jpg (GRAPHIC) — 14KB
• ex15-1_003.jpg (GRAPHIC) — 87KB
• ex15-2_001.jpg (GRAPHIC) — 17KB
• ex15-3_001.jpg (GRAPHIC) — 127KB
• ex15-3_002.jpg (GRAPHIC) — 18KB
• ex15-3_003.jpg (GRAPHIC) — 104KB
• form20-f_001.jpg (GRAPHIC) — 32KB
• form20-f_002.jpg (GRAPHIC) — 89KB
• 0001493152-25-012590.txt ( ) — 16757KB
• raasy-20241231.xsd (EX-101.SCH) — 99KB
• raasy-20241231_cal.xml (EX-101.CAL) — 149KB
• raasy-20241231_def.xml (EX-101.DEF) — 470KB
• raasy-20241231_lab.xml (EX-101.LAB) — 772KB
• raasy-20241231_pre.xml (EX-101.PRE) — 672KB
• form20-f_htm.xml (XML) — 2626KB

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS iv PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 1 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 1 ITEM 3. KEY INFORMATION 1 ITEM 4. INFORMATION ON THE COMPANY 58 ITEM 4A. UNRESOLVED STAFF COMMENTS 86 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 86 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 114 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 126 ITEM 8. FINANCIAL INFORMATION 129 ITEM 9. THE OFFER AND LISTING 131 ITEM 10. ADDITIONAL INFORMATION 131 ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 139 ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 140 PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 142 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 142 ITEM 15.

CONTROLS AND PROCEDURES

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 145 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 145 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 145 ITEM 16G. CORPORATE GOVERNANCE 146 ITEM 16H. MINE SAFETY DISCLOSURE 146 ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 146 ITEM 16J. INSIDER TRADING POLICIES 146 ITEM 16K. CYBERSECURITY 147 PART III ITEM 17.

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS 148 ITEM 18.

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS 148 ITEM 19. EXHIBITS 148 EXHIBIT INDEX 148 INDEX TO CONSOLIDATED FINANIAL STATEMENTS F-1 i INTRODUCTION Unless we indicate otherwise and for the purpose of this annual report only: "active customers" at the end of any period refers to customers which had over RMB50 in annual spending in the preceding 12 months; "ADRs" refers to the American depositary receipts, which, if issued, evidence the ADSs; "ADSs" refers to our American depositary shares, each of which represents six Class A ordinary shares; "AI" or "artificial intelligence" refers to intelligence demonstrated by machines, in contrast to the natural intelligence displayed by humans and other animals; "API" or "application programming interface" refers to an application-specific computing interface that allows third parties to utilize and extend the features and functions of the application; "A2P SMS" or "application-to-person short message service" refers to a one-way process of sending messages from an application to mobile users; "CC" or "contact center" refers to a business's central point for managing all communications with customers, including customer service and acquisition, through all channels; "CPaaS" or "communications platform as a service" refers to a cloud-based solution that allows enterprises to add real-time communications capabilities such as voice and messaging to their applications and systems by deploying APIs and SDKs; "China" or "PRC" refers to the People's Republic of China, excluding, for the purposes of this annual report only, Taiwan, the Hong Kong Special Administrative Region and the Macau Special Administrative Region; "Class A ordinary shares" refers to our Class A ordinary shares, par value US$0.0001 per share, each of which entitles the holder thereof to one vote; "Class B ordinary shares" refers to our Class B ordinary shares, par value US$0.0001 per share, each of which entitles the holder thereof to ten votes

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