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Leaf Leaf

Glossary

Ratchet Clause

A ratchet is an anti-dilution protection mechanism which gives investors the benefit of a reduced effective price per share if the company issues its shares in a later round at a lower price (“Down Round”).

Regional Headquarters

These can be set up to coordinate and provide services to group companies in the region, both inside and outside China. The benefits of regional headquarters depend upon which rules are used to set them up: national, Beijing, Shanghai, and Guangzhou.

Representative Office (RO)

Structure set up in China to represent foreign companies (and their affiliates). A representative office itself is not a company. ROs are not permitted to engage in direct business activities.

Right of First Refusal

The right of first refusal is a privilege granted in articles of association or bylaws under which the owner of shares undertakes to offer and reserve to the beneficiary of the clause the right to enter into a business transaction with him and to await such beneficiary’s response before it enters into agreements with third party competitors of the beneficiary. If the beneficiary refuses the owner’s request, the owner is free to contract with third parties.

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