A joint Hindu family business is an organisation in which only the members of a family (male and female both) can manage and own the business. This is governed by Hindu law. The joint Hindu family is also known as the Hindu undivided family (HUF). In this family, Karta is the head of the family. He is an authorised person to run the business on behalf of the other members of the Hindu undivided family (HUF). Joint Hindu family business is only practised in India.
There are two schools of Hindu law which are called Mitakshara and Dayabhaga schools. These schools deal with the Hindu undivided family and their business.
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Meaning of joint Hindu Family Business
The joint Hindu family business refers to a business organisation that is managed and run by members of HUF only. This business is also known as the Hindu undivided family business or HUF business.
Who can be a member of a joint Hindu family business?
The membership of the joint family business can only be taken by the birth in the family only. The three consecutive generations can be the members of the Hindu undivided family company.
Formation of joint Hindu family business
There are different conditions for the formation of a joint Hindu family business which are:
- There should be at least two male members in the business.
- The members of of joint family should have inherited the ancestral property
- The members of the business should have equal share in the property
- A child is taking birth in the the joint Hindu family become the member of the HUF business
- There will be no requirement for an agreement to become a member of the business. Only birth in the family is enough.
Liabilities under joint Hindu family business
As the general partner in a partnership has unlimited liabilities in the partnership firm, similarly the Karta of the Hindu undivided family is the general partner of the HUF business. Rest members or coparceners in the business have limited liabilities. But the Karta of the family has unlimited liability towards the business of HUF. However, all the members of the family have equal rights and shares in the property of the HUF business.
Karta as a general partner in HUF business
The Karta of a family will have full control over the business of the family. He has all the rights to take necessary decisions in the business. However, the Karta of HUF can take the advice from all the members, but he will not be bound by law to accept their decisions or opinions related to the business.
Advantages of joint Hindu family business
The advantages of joint Hindu family businesses are as follow:
Easy to start
It is very easy to start The Hindu undivided family business. There are no legal formalities required for the registration of family businesses. There is no need for a written contract between the members of the family to run the business.
Effective management control
The Karta of the family has full control over the business and he is the head of the family. So there is less chance that there will be any conflict in the business. He is not bound to accept the decision taken by the family members in the business. It provides him with the power to take quick and effective decisions for the business.
The business of the Hindu undivided family continues even after the death of the Karta of the family. The eldest member of the family takes his position after the death and starts taking the decision for the family business. It helps to run the business activities smoothly and continuously without any restrictions.
Secrecy of business
It is the Karta of the family who takes all the decisions by himself. He is the best person to maintain the secrecy of the business.
Only the Karta of the Hindu undivided family has unlimited liabilities against the business of the family. The rest of the coparceners for members of the family business are limited partners and they have limited liability to the extent of their shares in the family business. So if the business takes any loss, only Karta’s personal assets will be liable to pay debts of the business.
Loyalty in the business
The partners in the joint family business are the real members of the Hindu undivided family. It creates the best and quality in the business. Any business done with loyal partners will grow fast as compared to other businesses. And, in my opinion, it is the best part of the joint family business.
Property on the name of the business
The HUF is allowed to purchase assets in its name without any restriction. The property purchased by the HUF contains equal rights and shares of all the members of the family.
Disadvantages of joint Hindu family business
There are some disadvantages of the family business which are as follow:
No outside members
A joint family business does not allow any other person to become a member of the HUF business. Due to this reason, the family business is totally dependent upon the ancestral property. It makes it very difficult to get additional capital from the market which results in limited growth of the family business.
Unlimited liability of Karta
The Karta of the family works for the family business as a general partner who has unlimited liabilities. If any loss is incurred to the family business his personal property shall be liable to pay the debts of the company.
Karta is in dominant position
It is the Karta who takes all the necessary decisions in the family business. He is not bound by any law to accept the diseases of other members of the family and it can create deconfliction between Karta and other members of the family. These conflicts between kurta and members can also affect their relationship also.
Misuse of power
As we read above, the Karta of the family has the power to take any decision related to the business. No other member of the family can interfere in his decisions and it may lead to the misuse of power by the Karta for his personal benefit.
Limited skills of Karta
In the business of the Hindu undivided family, the Karta is the only person who manages the family business. Sometimes it happens that Karta is not the most qualified person who can lead the business. According to the law, the senior-most family member will control the business of the family whether he is the most qualified member of the family or not. Due to this advantage, Karta can make the wrong decision due to his less knowledge in management skills which may lead the family business to loss.
FAQ Related to Joint Family Business
Can a woman become the Karta in the undivided family?
The Delhi High court held the landmark ruling in 2017 in which the Delhi High court held that the female members of the Hindu undivided family can also assume every role of Karta of the family.
Can a minor become a member of the Hindu undivided family business?
Yes, the minor who took birth in the Hindu undivided family, is eligible to become a member of his family business. However, he will not be liable for any loss but he can enjoy the benefit from the business.
Who will continue the joint family business after the death of Karta?
Karta is the head of the HUF who has control of the business of the family. After the death of the Karta, the next eldest member of the HUF will become the Karta and he will continue the family business.
Can a joint family business be dissolved?
Yes, if all the members of the Hindu undivided family mutually agree to dissolve the business of the joint family, the business can be dissolved. Also, the business of the HUF can also be divided equally among the members of the HUF.
A joint family business is a form of business in which the members of a Hindu undivided family, whether male or female, become the partners to run the business. The Karta is the eldest member of the family who runs the business as the general partner in a partnership firm. Nowadays, the business of joint Hindu families is decreasing due to a decrease in the number of joint Hindu families in India.