The Liability Clause

The Liability Clause, required by Section 4(1)(d), states the nature and extent of the liability that members undertake by joining the company. This clause must correspond to the type of company chosen at the time of incorporation, since the Companies Act, 2013 recognises three distinct liability structures. In a company limited by shares — by far the most common form, and the one most Gujarat Std 11 Secretarial Practice examples are built around — the Liability Clause states that the liability of members is limited to the amount, if any, unpaid on the shares respectively held by them; once a member has paid the full face value of the shares held, that member owes the company (and, through it, the company's creditors) nothing further, however large the company's ultimate debts may be.

In a company limited by guarantee, members do not necessarily hold shares purchased for cash contribution in the same sense; instead, the Liability Clause states that each member undertakes to contribute a specified, fixed amount to the assets of the company in the event that it is wound up while that person is a member or within a specified period after ceasing to be one. Section 4(1)(d) specifically requires this guaranteed amount to be stated in the memorandum of a guarantee company, since without a stated figure the promise to contribute would have no defined limit. Companies limited by guarantee are typically formed for objects such as promoting a trade, profession, art, or similar non-trading purpose, rather than for distributing profit. …