# Liability Clause of the Memorandum
## Mandatory Statement
The fourth clause of every company's memorandum must state whether the liability of its members is:
- Limited by shares, or
- Limited by guarantee, or
- Unlimited
## How Liability Operates in Each Type
### Company Limited by Shares
- A member cannot be called upon to pay more than what remains unpaid on his shares.
- If shares are fully paid-up, the member's liability is NIL.
### Company Limited by Guarantee
- The clause states the amount each member undertakes to contribute to the assets of the company in the event of liquidation.
- The member cannot be called upon to pay anything before liquidation.
### Unlimited Company
- The clause shall specify that members' liability is unlimited.
- Liability can extend to the personal assets of the members.
## Alteration of Liability Clause
### General Rule
The liability clause cannot, in general, be altered.
### Exception — Section 18 (Conversion)
Section 18 permits a company of any class registered under the Act to convert itself into another class by altering its memorandum and articles of association.
When this happens — e.g., an unlimited company converting into a limited company or vice versa — the liability of members changes, thereby effectively altering the liability clause.
> Note: Section 65 (which deals with related conversion-of-liability provisions) is excluded from the ICAI syllabus as per ICAI notification.