Joint Hindu Family Business (H.U.F.)
Joint Hindu family is one of the oldest forms of business organisation and found only in India. It is governed by Hindu Law.
Joint hindu family business refers to a form of organisation owned and carried on by the members of the Hindu Undivided Family (HUF). The basis of membership in the business is birth in a particular family. Three successive generations can be members in the business.
It is controlled by the head of the family who is the eldest member and is called karta.
All members have equal ownership right over the property of an ancestor and they are known as co-parceners.
Two systems governing Joint Hindu family business
- Dayabhaga system
It prevails in West Bengal and allows both the male and female members of the family to be co-parceners.
- Mitakashara system:
It prevails all over India except West Bengal and allows only the male members to be co-parceners in the business.
FeaturesÂ
- Formation:
There should be at least two members in the family and ancestral property to be inherited by them. There is no need of agreement as membership is by birth. It is governed by the Hindu Succession Act, 1956.
- Liability:
The liability of all members except the karta is limited to their share of co-parcenery property of the business. The karta, however, has unlimited liability.
- Control:
The control of the family business lies with the karta as he takes all the decisions, and his decisions are binding on the other members.
- Continuity:
The business continues even after the death of the karta as the next eldest member takes up the position of karta. This makes the business stable. The business can, however, be ended with the mutual consent of the members.
- Minor Members:
As an individual becomes member by birth, minors can also be members of the Joint Hindu Family business.
Merits of H.U.F.
- Effective control:
As the karta has absolute decision-making power, this avoids conflicts among members, and no one can interfere in his work. This results in promptness and flexibility in decision making.
- Stable existence:
The death of the karta will not affect the business as the next eldest member can become karta. So, operations are not terminated, and continuity of business is not affected.
- Limited liability of members:
The liability of all the co-parceners except the karta is limited to their share in the business. So, there is no threat to their personal property.
- Increased loyalty and cooperation:
As the business is run by the members of a family, there is a greater sense of loyalty towards one other. Pride in the growth of business is considered as achievements of the family which helps in securing better cooperation from all the members.
LimitationsÂ
- Limited resources:
As ancestral property is the main source of funds in case of Joint Hindu Family business, there is a problem of limited capital which further limits the scope for expansion of business.
- Unlimited liability of karta:
Joint Hindu Family business suffers from the disadvantage of having unlimited liability. Â As Karta has unlimited liability, his personal property can be used to repay business debts.
- Dominance of karta:
The karta individually manages the business. He can ignore others, which may not be acceptable to other members. This may cause conflict amongst them and may even lead to end of the family business.
- Limited managerial skills:
As Karta cannot be an expert in all areas of management, the business may suffer as a result of his unwise decisions that can result into poor profits or even losses.