Hindu Undivided Family and Family Business/Joint Hindu Family Business: Joint Hindu family business is a specific form of business organisation found in India only. It is one of the oldest forms of business organisation. It refers to a form of organisation, wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). The basis of membership is taking birth in HUF and three successive generations can be members in the business. It is governed by Hindu Law.
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 ancestral property and they are known as ‘COPARCENERS’.
Four Features of HUF: 1. Formation – To form this organisation, at least two members in a family and ancestral property inherited by them is required. The business does not require any agreement, as membership is guaranteed by birth. 2. Liability – The liability of all members except Karta is limited to their share of the co-parcenary property of the business. The Karta, however, has unlimited liability. 3. Control – Karta has full control of the business. He is the one who takes all the decisions. 4. Continuity – In case of death of Karta, the next eldest member becomes Karta of the business. Therefore, the business continues in any case. The closure can be done by any member of the family.
Four Advantages of HUF:
1. Effective Control –
The Karta has an absolute decision – making power, which leads to prompt and flexible decision – making, resulting in effective control.
2. Continued Business Existence –
The business continues to run and death, lunacy, illness of Karta does not threaten the existence of the business. Unless all the members of the family decide to wind it up, it continues.
3. Limited liability –
The liability of all the coparceners except the Karta is limited to their share in the business and risk is well – defined and precise.
4. Increased loyalty and cooperation –
Since the business is run by the family members having an equal share, the business is run smoothly with the cooperation of all.
