Liability Clause of Memorandum of Association

Liability Clause of Memorandum of Association

Liability Clause of Memorandum of Association

A company’s memorandum of association, often simply called the “Memorandum”, is the document that governs relations between the company and the outside world. It serves as the constitution of the company. It is a public document and may be inspected by anyone, usually at the public office where it is lodged. The structure and formulation of Joint Stock Company are made on the basis of the memorandum of association.

Memorandum of Association is the most important document as it treated as the constitution of the company. No company can legally undertake activities that are not contained in its Memorandum of Association.

Liability clause: Liability clause states that the liability of the member is limited to the extent of amount unpaid on shares. This clause states that the liability of the shareholders of the respective company is limited to the face value of their bought shares. The shareholders are liable only for the unpaid amount of the shares and after paying the full amount, the shareholders get relieved of that liability according to the section-2I of the Company Act-1994.

A limitation of liability clause is a provision in a contract that limits the amount of exposure a company faces in the event a lawsuit is filed or another claim is made. However, courts have refused to enforce such provisions where the court found that:

  • The provision was ambiguous or unconscionable;
  • The parties’ intentions were not clearly expressed;
  • One party had unequal bargaining powers or a higher level of sophistication;
  • There was a public policy or statute prohibiting the enforcement of the provision.

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