Introduction:
This organisation exists only in India. Hindu law governs this organisation. The joint Hindu family business is passed on from one generation to the other.
The senior-most member of the family manages the company; he is called the Karta. His liability is unlimited.
The other members of the family are called as co-parceners. Their liability is limited.
Meaning of joint Hindu family business:
When a Business enterprise is run by the family members and they run the company as a family business is called Joint Hindu family business.
It is said that the joint Hindu family comes into existence by the law of inheritance.
It is important to note that the Joint Hindu Family firm with the joint ownership of the business is created by the operation of Hindu law and not by the contract between the co-parceners.
The rights and liabilities of coparceners are determined by the provision of the Hindu law. It is administered by the Hindu succession law 1956
In Maharashtra, the female members of a joint Hindu family enjoy the coparceners interest since 1994.
School of thoughts under Hindu law:
There are two schools of Hindu law.
1. Mitakshara School of Thought:
According to mitakshara school of thoughts and undivided family is the reasonable condition. The moment a son is born, he gets all the equal right along with this father in the ancestral property.
She has a right to ask for a division of the family property. This community is popular in the country Assam, Bengal, and some part of Odisha.
2. Dayabhaga School of Thought:
Dayabhaga is applicable in Bengal, Assam and some parts of Orissa. Under this, a son does not get any equity in the property with his birth.
Ancestral property remains with the father throughout his lifetime.
The son gets rights in the property only after the death of his father.
Definition:
When a joint Hindu family conducts business inherited by it as per Hindu law, it is called joint Hindu family firm.
Thus, in a joint Hindu family firm, the company is passed on from one generation to another.
Features of joint Hindu family business:
Karta and co-parceners:
The senior-most member of the Hindu joint family become the head of the firm who manages the company on behalf of the members.
He is known as Karta
The other members are known as co-parceners
Good relations:
It is a small scale business which is operated in the local market with a few employees. A joint Hindu family firm can maintain personal contact with its customers and good relations with employees.
Liability:
The liability of coparceners is limited, but that of Karta is unlimited.
Unlimited liability of Karta means, that if the property of the joint Hindu family firm is not sufficient to pay off the third party liabilities, his personal property can be utilised for the said purpose.
Karta is the head of the family
he is the only manager of his business and enjoys all power to make business decisions.
Legal status:
Joint Hindu family firm is not required to be registered as per the law.
Moreover, the form does not enjoy and independent legal status different from its members.
Profit-sharing:
The Hindu law does not specify the ratio of the profit and losses shared by carter in coparceners in a Hindu family firm.
The profit-sharing proportion keeps on shifting depending upon the births and deaths in the house.
Joint ownership:
The three generations jointly own the property of a joint Hindu family (business) firm after the Karta
Quick decisions:
karta, being the sole decision-maker, can take decisions and act upon them immediately.
It is assumed that Karta’s decisions are always correct.
Formation:
The operation of the Hindu law forms a joint Hindu family firm.
Each member of the family becomes the coparceners in the family business by birth and not under an agreement with other coparceners.
Management:
The joint Hindu family business is managed by the senior-most member of the joint family called Karta.
Karta is the only manager, controller, and the coordinator of the business.
He can enter into a contract with third parties, draw bills of exchange, the issue receives, sell, or mortgage the property of joint Hindu family firm in the interest of coparceners while conducting the business.
Membership:
The membership of an undivided Hindu family (HUF) is endless.
In other words, there is no limit for membership in a joint Hindu family business.
Every child (every girl in the Maharashtra state) born in the joint Hindu family become the coparceners in the joint Hindu family firm by his /her birth.
No agreement is required to be entered into by a family member to become the coparceners of the firm
There is no restriction on the number of members and membership kids on changing depending upon the birth and death in the family.
Merits of joint Hindu family firm
Prompt Decision:
The Karta has complete control over his business.
He takes all the business decisions.
Therefore, Karta takes the correct judgments at the appropriate time
Coparcener’s liability:
The liability of coparceners is limited to the extent of their share in the joint Hindu family business.
If the property of a joint Hindu family firm is not sufficient to pay off the third party liability is, his personal property can be utilised for the purpose.
Easy to start:
joint Hindu family business is straightforward to form.
It comes into existence as per Hindu law.
A family member becomes coparceners in the form by virtue of the birth of a family.
Moreover, no registration is required for a joint Hindu family form concerning a minimum or maximum member.
Good relations with employees:
Joint Hindu family firm has few employees with whom good and personal ties are maintained as in the case of a sole trading concern.
This motivated employees extended their complete support for conducting business successfully.
Good credit standing:
Hindu undivided family firm enjoys a great credit standing in the business.
Since the business is being conducted for a more extended period and is being passed on from one generation to another, it enjoys Goodwill in the market.
Moreover, the liability of Karta is unlimited.
As a result, bank and other financial institutes are willing to grant the loans.
Secrecy:
karta of the joint Hindu family business is the manager of the company himself, and all the family members are coparceners of the market, so the secrecy of the market remains with the family.
Flexibility:
due to quick decisions, Karta can bring about the required changes quickly Viz, expansion of the business activities or diversification of business as per the changing business trends
Continuity and stability:
Joint Hindu family business does not come to an end by the takeover of the company.
Thus, the continuity and stability of the business is insured, which is crucial for the success of any business organisation.
Limitations of Joint Hindu family business:
Restricted expansion:
Due to limited financial and managerial resource of the form and over-cautious nature of Karta, the firm can’t expand the business beyond a specific limit. The way is forced to conduct business on a small scale and deal in the local market.
Unlimited liability of Karta:
Karta faces the risk of his private assets being used for paying the third party debts if the firm assets are not enough to pay them off.
He, therefore, becomes overcautious and may not be prepared to take any business risk.
Dismay adversely affect the profitability of the firm.
Unlimited coparceners:
Since the membership in the joint family business is based on birth, and there is no limit on membership.
The number increases per birth in the family.
Thus, the number cannot be predicted, and it is unlimited.
There is no upper limit for several memberships.
Lack of direct efforts:
Though Karta is the only family member who put in all his managerial skills for running the business efficiently and successfully, the profits are shared by all the coparceners.
Therefore, they may not be motivated to give the best to the form.
Limited managerial skills:
Only the administrative abilities of Karta are used for running the business. To be successful in the running competitive business world, it cannot be expected for any coparceners, however intelligent he may be to know all the complications of the business.
Limited resources:
The funds of the joint Hindu family business are insufficient.
Because of limited funds, a business cannot be established on a large scale.
Breaking of joint family:
The form is always exposed to the risk of the breaking of the joint family. In such a case, the family business may also come to an end; to that extent, the stability and continuity of the form are endangered.
Conclusion:- Hope you guys understand the concept of Joint Hindu family firm and If there is still an issue, then please let me know in the comment section so that I can help you out in that.
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