JOINT
HINDU FAMILY BUSINESS
Features
The following points highlight theessential characteristics of the jointHindu family business.
(i)
Formation:
For a joint Hindu family business, there should be at least two members in the
family and ancestral property to be inherited by them. The business does not
require any agreement as membership is by birth. It is governed by the Hindu
Succession Act, 1956.
(ii)
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.
(iii)
Control: The control of the family business lies with the karta. He
takes all the decisions and is authorised to manage the business. His decisions
are binding on the other members.
(iv)
Continuity: The business continues even after the death of the karta as
the next eldest member takes up the position of karta, leaving the business
stable. The business can, however, be terminated with the mutual consent of the
members.
(v)
Minor Members: The inclusion of an individual into the business occurs due
to birth in a Hindu Undivided Family. Hence, minors can also be members of the
business.
Merits
The
advantages of the joint Hindu family business are as follows:
(i)
Effective control: The karta has absolute decision making power. This avoids conflicts
among members as no one can interfere with his right to decide. This also leads
to prompt and flexible decision making.
(ii)
Continued business existence: The death of the karta will not affect the business as the
next eldest member will then take up the position. Hence,operations are not
terminated and continuity of business is not threatened.
(iii)
Limited liability of members: The liability of all the co-parceners except the karta is
limited to their share in the business, and consequently their risk is
well-defined and precise.
(iv)
Increased loyalty and cooperation: Since 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 linked to the achievements of the family. This helps in
securing better cooperation from all the members.
Limitation
The following are some of the limitations of a joint Hindu
family business.
(i)
Limited resources: The joint Hindu family business faces the problem of limited capital as
it depends mainly on ancestral property. This limits the scope for expansion of
business.
(ii)
Unlimited liability of karta: The karta is burdened not only with the responsibility of
decision making and management of business, but also suffers from the
disadvantage of having unlimited liability. His personal property can be used
to repay business debts.
(iii)
Dominance of karta: The karta individually manages the
business which may at times not be acceptable to other members. This may cause
conflict amongst them and may even lead to break down of the family unit.
(iv)
Limited managerial skills: Since the karta cannot be an expert in all areas of
management, the business may suffer as a result of his unwise decisions. His
inability to decide effectively may result into poor profits or even losses for
the organisation. The joint Hindu family business is on the decline because of
the diminishing number of joint Hindu families in the country.
