1. Joint Hindu Family Business
2. Joint Hindu Family Business (HUF)
It refers to a form of organisation were in the business is owned and carried on by the members of a joint Hindu family. It is also known as Hindu Undivided Family Business (H.U.F). It is governed by the Hindu Succession Act, 1956. It is found only in India. The business 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.
Features
1. Formation:
For a Joint Hindu family business, there should be at least two members in the family and some ancestral property to be inherited by them.
2. Membership:
Membership by virtue of birth in the family.
3. Liability:
The Karta has unlimited liability. Every other coparcener has a limited liability up to his share in the HUF property.
4. Control:
The control of the family business lies with the Karta. He takes all the decisions and is authorised to manage the business.
5. Continuity:
The business is not affected by the death of the Karta as in such cases the next senior male member becomes the Karta.
6. Minor Members:
The basis of membership in the business is birth in the family. Hence, minors can also be members of the business.
Merits
1. Effective control:
The Karta has absolute decision making power. This avoids conflicts among members.
2. Continuity of business:
The death of the Karta will not affect the business as the next eldest member will then take up the position.
3. Limited liability of members:
The liability of all the co-parceners except the Karta is limited to their share in the business.
4. Increased loyalty:
Members are likely to work with dedication, loyalty and care because the work involves the family name.
Limitation
1. Limited capital:
The capital of HUF is limited since the ancestral property only can be used for the business. This reduces the scope for business growth.
2. Unlimited liability:
The liability of Karta is unlimited. His personal property can be used to repay business debts.
3. Dominance of Karta:
There is a possibility of differences of opinion among the members of the Joint Family. It may affect the stability of the business.
4. Limited managerial skills:
The Karta may not be an expert in all areas of management. It may affect the profitability of the business.
