Comment on the following: Articles of Association of a company limited by guarantee provides that entire income of the company shall be applied towards promotion of the objects of the company.

A company limited by guarantee is primarily used for non-profit purposes and the profits are reinvested and used for promoting its non-profit activities. Although the Companies Act, 2013, does not specifically prohibit distribution of dividend in such companies; however, the Articles of Association of such companies usually provides that all the income of the company shall be applied solely towards the promotion of the objects of the company and that no portion shall be paid or transferred directly or indirectly by way of dividend or bonus or by way of profit to its members. Therefore, the statement is correct. Articles of Association of the company limited by guarantee may provide that all the income of company shall be applied towards promotion of the objects of company.