Law and You > Corporate Laws > Companies Act, 2013 > Liability, Capital, and Subscription Clauses
In last three article we studied the name clause, situation clause, and object clause. In thi article, we shall study remaining three clauses, namely: liability clause, capital clause, and sunscription clause.
Liability Clause [S. 4(1)(d)]:
The fourth clause of the memorandum is liability clause. This clause states the liability of the members of the company. In this clause the company must disclose whether the liability of the members is limited or unlimited. The liability may be limited by shares or by guarantee. This clause may be omitted in case of unlimited liability.
In the case of a company limited by shares or by guarantee the memorandum must disclose that the liability of the members is limited. It implies that a shareholder cannot be called upon to pay anything more than the unpaid -portion of the shares held by him. In the case of a company with limited liability, this clause reads as follows:
“IV. The liability of a member of the company shall be limited to the amount unpaid, if any on the shares held by him.“
Thus if the shares fully paid up then the liability of member in limited liability company is nil.
In the case of company with unlimited liability, the liability clause reads as follows:
“IV. the liability of members is unlimited.“
In case of a company limited by guarantee must further state that each member undertakes to contribute to the assets of the company if wound up while he is a member or within one year after he ceases to be so, towards the debts and liabilities of the company as well as the cost and expenses of winding up and for the adjustment of the rights of the contributories among themselves not exceeding a specified’ amount.
Alteration in Liability Clause:
The liability clause cannot be altered so as to make the liability of the members unlimited, But if all the members agree, and if the Articles permit, the liability of all the directors or any of the directors can be altered. A special resolution must be passed for this purpose. The resolution’s copy must be filed with the registrar within 30 days of the change. In such case, however, the liability of the person holding office as Director or Manager before such alteration shall not be made unlimited until the expiry of his present term. His liability for the unexpired period of the present term can be made unlimited only if he gives his consent to his liability becoming unlimited. Therefore, alterations resulting in additional liability on a member cannot be made except with the written consent of the member concerned.
Capital Clause [S. 4(1)(e)]:
The fourth clause of the memorandum is the capital clause. This clause mentions the maximum amount of capital that can be raised by the company. As per the provisions of the Act, the memorandum of a company limited by shares must disclose the amount of share capital with which the company is to be registered and its division into shares of a fixed amount. This capital is usually called authorized capital. It sets the limit of capital available for the issue and the issued capital can never exceed that limit. If some special rights and privileges are conferred on any type of shareholders mention may also be made in this clause. A typical example of a capital clause in a memorandum would be as follows:
“V. The authorized capital of the company shall be Rs. 5,00,000 (Rupees five lakhs) divided into 40, 000 equity shares of Rs. 10 each and 10, 000 preference shares of Rs. 10 each.“
By 2015 amendment, the companies must have minimum paid up share capital of such sum as may b prescribed from time to time.
Alteration in Capital Clause:
Under Section 61 of the Act, a company can alter the capital clause of its memorandum passing an ordinary resolution in a general meeting, provided it is authorised to do so by its articles. Thus a company can alter capital clause
(a) to increase its authorised share capital by such amount as it thinks expedient;
(b) to consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares: *Provided that no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner;
(c) to convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination;
(d) to sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;
(e) to cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
Procedure:
- Issue a Board notice with the agenda of the meeting at least 7 days before the date of the meeting.
- Hold a Board Meeting
- Pass the Resolution for the Alteration of Share Capital in the Board meeting.
- The Resolution passed is subject to the approval of Shareholders Meeting.
- For holding a Shareholders Meeting, fix the date, time and venue for the meeting.
- Director is authorized to send notice of the Shareholders meeting to the Shareholders.
- The notice for a Shareholders meeting should be issued at least before 21 days of the meeting
- Hold a Shareholders meeting
- Pass the Resolution with the consent of the majority shareholders.
- After passing of the Resolution, the Registrar of the Companies (RoC) should be notified about the Alteration in Capital within 30 days of the passing of Resolution. If the Registrar is not notified about the Alteration within 30 days, then the company or its officers will be liable to pay a fine up to 1,000 Rupees for each day of default or 5 lakh Rupees, whichever is less.
Share capital can be reduced under provisions given in Section 66 of the Act,
Subscription Clause:
It is the last (sixth) clause in the memorandum. It contains the names and addresses of the first subscribers. The subscribers to the Memorandum must take at least one share. The minimum number of members is two in case of a private company and seven in case of a public company. Usually it is worded as follows:
We, the several persons whose names and addresses are subscribed below, are desirous of being formed into a company in pursuance of this memorandum of association and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.
Each subscriber must put his signature, along with his address, description, and occupation, if any.
Alteration in Subscription Clause: Once subscriber has affixed his signature and other details on memorandum and the documents are filed with the ROC, he cannot withdraw his name for any reason whatsoever.