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Principal activities and organization | 12 Months Ended
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Dec. 31, 2014
Principal activities and organization |
Principal activities and organization | 1. Principal activities and organization JD.com, Inc. (the “Company”, formerly known as 360buy Jingdong Inc. and Starwave Investments Holdings Limited), through its wholly-owned subsidiaries, variable interest entities (“VIEs”) and VIEs’ subsidiaries (collectively, the “Group”) serves consumers through its retail website jd.com and focuses on selection, price and convenience. The Group also offers programs that enable third party sellers to sell their products on its website and to fulfill the orders either by the sellers or through the Group (known as “online marketplace”). The Group’s principal operations and geographic markets are in the People’s Republic of China (“PRC”). The accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and VIEs’ subsidiaries. As of December 31, 2014, the Company’s major subsidiaries, VIEs and VIEs’ subsidiaries are as follows:
Subsidiaries |  | Equity interest held |  | Place and Date of incorporation or date of acquisition |
Beijing Jingdong Century Trade Co., Ltd. (“Jingdong Century”) |  | 100 | % | Beijing, China, April 2007 |
Guangzhou Jingdong Trading Co., Ltd. |  | 100 | % | Guangzhou, China, July 2007 |
Shanghai Yuanmai Trading Co., Ltd. |  | 100 | % | Shanghai, China, August 2007 |
Jiangsu Jingdong Information Technology Co., Ltd. |  | 100 | % | Jiangsu, China, June 2009 |
Chengdu Jingdong Century Trading Co., Ltd. |  | 100 | % | Chengdu, China, December 2009 |
Beijing Jingdong Century Information Technology Co., Ltd. |  | 100 | % | Beijing, China, September 2010 |
Wuhan Jingdong Century Trading Co., Ltd. |  | 100 | % | Wuhan, China, February 2011 |
Shanghai Shengdayuan Information Technology Co., Ltd. (“Shanghai Shengdayuan”) |  | 100 | % | Shanghai, China, April 2011 |
Jingdong E-Commerce (Express) Hong Kong Co., Ltd. |  | 100 | % | Hong Kong, China, August 2011 |
Jingdong Technology Group Corporation |  | 100 | % | Cayman Islands, November 2011 |
Shenyang Jingdong Century Trading Co., Ltd. |  | 100 | % | Shenyang, China, January 2012 |
Jingdong Logistics Group Corporation |  | 100 | % | Cayman Islands, January 2012 |
Jingdong E-Commerce (Logistics) Hong Kong Co., Ltd. |  | 100 | % | Hong Kong, China, February 2012 |
Jingdong E-Commerce (Trade) Hong Kong Co., Ltd. |  | 100 | % | Hong Kong, China, February 2012 |
Beijing Jingdong Shangke Information Technology Co., Ltd (“Beijing Shangke”). |  | 100 | % | Beijing, China, March 2012 |
Tianjin Star East Co., Ltd. |  | 100 | % | Tianjin, China, April 2012 |
Beijing Jingbangda Trade Co., Ltd. |  | 100 | % | Beijing, China, August 2012 |
VIEs |  | Economic interest held |  | Place and Date of incorporation or date of acquisition |
Beijing Jingdong 360 Degree E-commerce Co., Ltd. (“Jingdong 360”) |  | 100 | % | Beijing, China, April 2007 |
Fortune Rising Holdings Ltd. (“Fortune Rising”) |  | 100 | % | British Virgin Islands, May 2008 |
Jiangsu Yuanzhou E-commerce Co., Ltd. (“Jiangsu Yuanzhou”) |  | 100 | % | Jiangsu, China, September 2010 |
VIEs’ Subsidiaries |  |  |  |  |
Chinabank Payment Business Services Co., Ltd. (“Chinabank Payment”) |  | 100 | % | Beijing, China, Acquired in October 2012 |
Chinabank Payment Technology Co., Ltd. (“Chinabank Payment Technology”) |  | 100 | % | Beijing, China, Acquired in October 2012 |
Organization The Company was incorporated in the British Virgin Islands (“BVI”) in November 2006 and was re-domiciled in the Cayman Islands in January 2014 as an exempted company registered under the laws of the Cayman Islands, and was renamed as JD.com, Inc. In April 2007, the Company established Jingdong Century as wholly foreign-owned enterprise in the PRC. In April 2007 and September 2010, Jingdong 360 and Jiangsu Yuanzhou were incorporated in the PRC, respectively. The paid-in capital of these entities were funded by the Company, and they were established to facilitate the Group’s operation and business expansion plans and to comply with the PRC laws and regulations which prohibit or restrict foreign ownership of the companies where the PRC operating licenses are required. By entering into a series of agreements, Jingdong 360 and Jiangsu Yuanzhou became VIEs of Jingdong Century. Consequently, Jingdong Century became the primary beneficiary of Jingdong 360 and Jiangsu Yuanzhou. In May 2008, Fortune Rising, a BVI incorporated company and a consolidated variable interest entity of the Group, was established by the Group to facilitate the adoption of the Company’s stock incentive plans. Variable interest entities In order to comply with the PRC laws and regulations which prohibit or restrict foreign control of companies involved in provision of internet content and other restricted businesses, the Group operates its website and other restricted businesses in the PRC through certain PRC domestic companies, whose equity interests are held by certain management members of the Company (“Nominee Shareholders”). The Company obtained control over these PRC domestic companies by entering into a series of contractual arrangements with these PRC domestic companies and their respective Nominee Shareholders. These contractual agreements include loan agreements, exclusive purchase option agreements, exclusive technology consulting and services agreements, intellectual property rights license agreement, equity pledge agreements, powers of attorney and business cooperation agreements. These contractual agreements can be extended at Jingdong Century’s option prior to the expiration date. As a result, the Company maintains the ability to control these PRC domestic companies, is entitled to substantially all of the economic benefits from these PRC domestic companies and is obligated to absorb expected losses of these PRC domestic companies. Management concluded that these PRC domestic companies are VIEs of the Company, of which the Company is the ultimate primary beneficiary. As such, the Group consolidated the financial results of these PRC domestic companies and their subsidiaries in the Group’s consolidated financial statements. Refer to Note 2(b) to the consolidated financial statements for the principles of consolidation. The following is a summary of the contractual agreements (collectively, “Contractual Agreements”) that the Company, through Jingdong Century and Shanghai Shengdayuan, entered into with the VIEs and their Nominee Shareholders:  Loan agreements Pursuant to the relevant loan agreements, Jingdong Century has granted interest-free loans to the relevant Nominee Shareholders of the VIEs with the sole purpose of providing funds necessary for the capital injection to the relevant VIEs. The loans for initial and subsequent capital injections are eliminated with the capital of the relevant VIEs during consolidation. Jingdong Century can require the Nominee Shareholders to settle the loan amount through the equity interests of relevant VIEs, subject to any applicable PRC laws, rules and regulations. The loan agreements are renewable upon expiration.  Exclusive purchase option agreements The Nominee Shareholders of the VIEs have granted Jingdong Century the exclusive and irrevocable right to purchase from the Nominee Shareholders, to the extent permitted under PRC laws and regulations, part or all of the equity interests in these entities for a purchase price equal to the lowest price permitted by PRC laws and regulations. Jingdong Century may exercise such option at any time. In addition, the VIEs and their Nominee Shareholders agree that without prior written consent of Jingdong Century, they will not transfer or otherwise dispose the equity interests or declare any dividend.  Exclusive technology consulting and services agreements Jingdong Century and relevant VIEs entered into exclusive technology consulting and services agreements under which relevant VIEs engage Jingdong Century as their exclusive provider of technical platform and technical support, maintenance and other services. The VIEs shall pay to Jingdong Century service fees determined based on the volume and market price of the service provided. Jingdong Century shall exclusively own any intellectual property arising from the performance of the agreements. During the term of the agreement, relevant VIEs may not enter into any agreement with third parties for the provision of identical or similar services without prior consent of Jingdong Century.  Intellectual property rights license agreement Pursuant to the intellectual property rights license agreement, Jingdong Century grants Jingdong 360 non-exclusive rights to use certain software products, trademarks, website, copyrights, and domain names developed or owned by Jingdong Century within the scope of internet information service operation of Jingdong 360 and in the territory of PRC. Jingdong 360 agrees to pay license fees to Jingdong Century and the amount of the license fee is at least RMB10 per year, subject to annual evaluation and adjustment.  Equity pledge agreements Pursuant to the relevant equity pledge agreements, the Nominee Shareholders of the VIEs have pledged all of their equity interests in relevant VIEs to Jingdong Century as collateral for all of their payments due to Jingdong Century and to secure their obligations under the above agreements. The Nominee Shareholders may not transfer or assign the equity interests, the rights and obligations in the share pledge agreements or create or permit to create any pledges which may have an adverse effect on the rights or benefits of Jingdong Century without Jingdong Century’ preapproval. Jingdong Century is entitled to transfer or assign in full or in part the equity interests pledged. In the event of default, Jingdong Century as the pledgee, will be entitled to request immediate repayment of the loans or to dispose of the pledged equity interests through transfer or assignment. The equity pledge agreements will expire on the second anniversary of the date when the Nominee Shareholders have completed all their obligations under the above agreements unless otherwise terminated earlier by Jingdong Century.  Power of attorney Pursuant to the irrevocable power of attorney, each of the Nominee Shareholders appointed any person designated by Jingdong Century as their attorney-in-fact to exercise all shareholder rights under PRC law and the relevant articles of association, including but not limited to, voting on their behalf on all matters requiring shareholder approval, disposing of all or part of the Nominee Shareholders’ equity interests, and electing, appointing or removing directors and the general manager. Each power of attorney will remain in force during the period when the Nominee Shareholders continue to be shareholders of the VIEs. Each Nominee Shareholders has waived all the rights which have been authorized to the person designated by Jingdong Century under each power of attorney.  Business cooperation agreement Pursuant to the business cooperation agreement, Jingdong 360 agrees to provide to Jingdong Century and Shanghai Shengdayuan services, including operating our website, posting Jingdong Century’s and Shanghai Shengdayuan’s product and service information on the website, transmitting the users’ order and transaction information to Jingdong Century and Shanghai Shengdayuan, processing user data and transactions in collaboration with banks and payment agents and other services reasonably requested by Jingdong Century and Shanghai Shengdayuan. Jingdong Century and Shanghai Shengdayuan agree to pay service fees to Jingdong 360 on a quarterly basis. The service fee should be 105% of Jingdong 360’s operating costs incurred in the previous quarter, but in no event more than RMB20 per quarter.  Risks in relations to the VIE structure In the opinion of management, Jingdong Century’s Contractual Arrangements with the VIEs and the Nominee Shareholders are in compliance with PRC laws and regulations and are legally binding and enforceable. The Nominee Shareholders are also shareholders or nominees of shareholders of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements. However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including those that govern the Group’s contractual arrangements, which could limit the Group’s ability to enforce these contractual arrangements and if the Nominee Shareholders of the VIEs were to reduce their interests in the Company, their interest may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual arrangements. The Company’s ability to control the VIEs also depends on the power of attorney Jingdong Century has to vote on all matters requiring shareholder approval in the VIEs. As noted above, the Company believes these power of attorney are legally enforceable but may not be as effective as direct equity ownership. In addition, if the Group’s corporate structure and contractual arrangements with the VIEs through which the Group conducts its business in PRC were found to be in violation of any existing or future PRC laws and regulations, the relevant PRC regulatory authorities could:  revoke or refuse to grant or renew the Group’s business and operating licenses;  restrict or prohibit related party transactions between Jingdong Century and its subsidiaries, the VIEs;  impose fines, confiscate income or other requirements which the Group may find difficult or impossible to comply with;  require the Group to alter the corporate structure operations; and  restrict or prohibit the Group’s ability to finance its operations. The imposition of any of these government actions could result in a material adverse effect on the Group’s ability to conduct its operations. In such case, the Group may not be able to operate or control the VIEs, which may result in deconsolidation of the VIEs in the Group’s consolidated financial statements. In the opinion of management, the likelihood for the Company to lose such ability is remote based on current facts and circumstances. The Company’s operations depend on the VIEs to honor their contractual agreements with the Company. Almost all of these agreements are governed by PRC law and disputes arising out of these agreements are expected to be decided by arbitration in China. The management believes that each of the contractual agreements constitutes valid and legally binding obligations of each party to such contractual agreements under PRC Laws. However, the interpretation and implementation of the laws and regulations in the PRC and their application to an effect on the legality, binding effect and enforceability of contracts are subject to the discretion of competent PRC authorities, and therefore there is no assurance that relevant PRC authorities will take the same position as the Group herein in respect of the legality, binding effect and enforceability of each of the contractual agreements. Meanwhile, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to the Company to enforce the contractual arrangements should the VIEs or the Nominee Shareholders of the VIEs fail to perform their obligations under those arrangements. The following table sets forth the assets, liabilities, results of operations and changes in cash and cash equivalents of the VIEs and their subsidiaries taken as a whole, which were included in the Company’s consolidated financial statements with intercompany transactions eliminated:
|  | As of December 31, |
|  | 2013 |  | 2014 |
|  | RMB |  | RMB |
Total assets |  | 1,285,176 |  | 3,784,170 |
Total liabilities |  | 1,642,412 |  | 4,180,518 |
|  | For the year ended December 31, |
|  | 2012 |  | 2013 |  | 2014 |
|  | RMB |  | RMB |  | RMB |
Total net revenues |  | 1,310,602 |  | 2,023,143 |  | 3,431,134 |
Net loss |  | (159,177 | ) | (206,144 | ) | (41,228 | )
|  | For the year ended December 31, |
|  | 2012 |  | 2013 |  | 2014 |
|  | RMB |  | RMB |  | RMB |
Net cash provided by /(used in) operating activities |  | 173,830 |  | (144,315 | ) | 1,450,744 |
Net cash used in investing activities |  | (183,542 | ) | (22,659 | ) | (494,633 | )
Net cash provided by financing activities |  | 240,490 |  | 262,270 |  | 438,891 |
Net increase in cash and cash equivalents |  | 230,778 |  | 95,296 |  | 1,395,002 |
Cash and cash equivalents at beginning of year |  | 7,304 |  | 238,082 |  | 333,378 |
Cash and cash equivalents at end of year |  | 238,082 |  | 333,378 |  | 1,728,380 |
As of December 31, 2013 and 2014, the total assets of the Group’s VIEs and VIEs’ subsidiaries were mainly consisting of cash and cash equivalents, accounts receivable, inventories, prepayments and other current assets and intangible assets. As of December 31, 2013 and 2014, the total liabilities of the VIEs and VIEs’ subsidiaries were mainly consisting of accounts payable and liabilities to the Group’s other subsidiaries. These balances have been reflected in the Group’s consolidated financial statements with intercompany transactions eliminated. In accordance with the Contractual Agreements, Jingdong Century has the power to direct activities of the Group’s VIEs and VIEs’ subsidiaries, and can have assets transferred out of the Group’s VIEs and VIEs’ subsidiaries. Therefore, Jingdong Century considers that there is no asset in the Group’s VIEs and VIEs’ subsidiaries that can be used only to settle their obligations except for registered capitals of the Group’s VIEs amounting to RMB44,000 as of December 31, 2014. As the Group’s VIEs and VIEs’ subsidiaries are incorporated as limited liability companies under the PRC Company Law, the creditors do not have recourse to the general credit of Jingdong Century for all the liabilities of the Group’s VIEs and VIEs’ subsidiaries. The total shareholders’ deficit of the Group’s VIEs and VIEs’ subsidiaries was RMB357,236 and RMB396,348 as of December 31, 2013 and 2014, respectively. Currently there is no contractual arrangement that could require Jingdong Century or the Group to provide additional financial support to the Group’s VIEs and VIEs’ subsidiaries. As the Group is conducting certain businesses in the PRC through the VIEs and VIEs’ subsidiaries, the Group may provide additional financial support on a discretionary basis in the future, which could expose the Group to a loss. There is no VIE where the Company or any subsidiary has a variable interest but is not the primary beneficiary.

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