# Liability Clause
The fourth clause of every memorandum must state whether the liability of members is:
- Limited by shares, OR
- Limited by guarantee, OR
- Unlimited.
## Nature of Liability under each type
### Company Limited by Shares
- A member CANNOT be called to pay more than the unpaid amount on his shares.
- If shares are fully paid-up: liability = NIL.
### Company Limited by Guarantee
- The liability clause specifies the guarantee amount each member undertakes to contribute to the company's assets in the event of liquidation.
- A guarantor-member cannot be called upon before liquidation — liability is contingent.
### Unlimited Company
- The clause must specify that the liability of members is unlimited and extends to their personal assets.
## Alteration of Liability Clause
General Rule: Liability clause cannot be altered.
Exception — Section 18 (Conversion of Company): A company of any class registered under the Act may convert itself into another class by altering its memorandum and articles. Where an unlimited company converts to a limited company (or vice versa), the liability of members changes — thus indirectly altering the liability clause.
(Note: Section 65, dealing with reserve capital of unlimited companies converting to limited, is excluded from syllabus per ICAI notification.)