Question : Four students decided to draft documents to incorporate a limited liability company in Germany. They want to formalise their relationship such as member of a pop band. Three of them periodically play music in pubs and bars; the fourth one helps the others in looking for the available pubs/bars, in contracting the fees with the owners, in setting up musical instruments and all the technological supports to play. They are known as "The Watchers". So, all of them effectively contributed to the band's success: the three musicians, writing new songs and playing their music; the fourth one, acting as the agent of the others.

The articles of association already drafted contain many clauses: make a synthetic report on pros and cons, make some comments about the clauses and do it in light of the actual relationship between those guys as well as of the (desirably positive) development of their musical activities

Clauses :

1- Shareholders may declare their withdrawal from the company by giving the company 12 months' written notice at the end of a financial year. The withdrawing shareholder shall leave the company at the end of the relevant financial year. If not all shareholders have given notice to the

company, the company shall not be dissolved by a notice of withdrawal.

2- Shares may only be assigned in whole or in part with the consent of the company based on a resolution by the shareholders' meeting. The simple majority of the shareholders will pass the

resolution.

2.2- If a shareholder intends to sell his shares in whole or in part to persons other than his spouse, children or the company (so named third party), he must first offer them to the other shareholders. They shall be entitled to acquire the shares, in whole or in part, in accordance with their original

share in the company's share capital.

If a shareholder fails to make use of his right of acquisition within six weeks of the offer being made, this right shall pass to the other shareholders. If several shareholders exercise their right of acquisition, they shall, among themselves, be entitled to acquire the shares in the percentage of their shareholding if they do not agree another percentage among themselves. The other shareholders may decide to accept or reject the offer within a further six-week period.

If any shares that are available for sale have not been purchased by co-shareholders in whole or in part, the shareholder selling the shares is entitled to sell the shares to third parties under the conditions of the offer or conditions objectively more favourable for the seller. The shareholder is only permitted to sell the shares or partial shares at conditions objectively less favourable for the Seller only after he has offered them to the other shareholders without success under the same

less favourable conditions;

2.3- Without prejudice for the right of first refusal, upon a shareholder receiving an offer for the purchase of up to 51% of the entire issued share capital of the company, if this leads to a new majority shareholding by the purchaser and any company affiliated with it as ruled in sec. 15 German Stock Corporation Act and wishing to accept such offer then the Proposed Seller procure (and it shall be an express pre-condition of any such agreement for the sale and purchase of theProposed Seller's shares) that the Purchaser shall have the option to purchase at the same timeand on conditions no less favourable than those offered to the Proposed Seller all the remaining shares from each remaining shareholder. In case the Purchaser doesn't intend to exercise the

option, the Proposed Seller shall not be entitled to sell.