Chapter 5

Forms and Formation of Business Enterprises

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5.3 Joint Hindu Family Business

The Joint Hindu Family business refers to a business owned by the members of a Joint Hindu Family. This form of organization is governed by the provisions of the Hindu Law and the Law of Succession. A joint family business is owned by all the male members of a Hindu family. The oldest member of the family has right to mange the business. He is known as Karta.

Features of Joint Family Business

1. Membership by birth

Membership of a joint hindu family business is by birth of male child. It is not created by an agreement between persons.

2. Management by Karta

The management of business is carried out by the oldest member of the family who is known as Karta. He may associate other members of the family to assist him in the management of business.

3. Liability

Only the Karta of a Joint family business has unlimited liability. All other members of the family have limited liability. The liability of members of a Joint Family is limited up to the value of their share in the family business.

4. No maximum limit of membership

There is no maximum limit of members of a Joint Family business. However the membership is restricted to three successive generations.

5. Minor members

A male child in a joint family automatically becomes member by birth. Thus the membership of a joint family business is not restricted on the basis of age.

6. Limited Capital

The availability of capital in a Joint Family business is restricted to the financial status of the family. A joint family business cannot expand beyond a certain limit because of capital restrictions.

7. Unaffected by the death of members

HUF business continues even after the death of a coparcener including the Karta. However the business will come to an end if all the members of the Joint family decide to wind up business.

5.3.2 Merits

1. Economic security and status of members

The joint family business provides a sense of economic security to its members. It also provides a sense of belonging as they work together for the progress of business. A reputed business is a prestige symbol to the family..

2. Continuity of business

A joint family business is not affected by personal misfortunes of members. The business will come to an end only by a joint decision by members of the family to discontinue the business.

3. Family pride

The members are likely to work with dedication and loyalty because the business belongs to the entire family. The business is not only an economic unit, but also a matter of family prestige.

5.3.3 Limitation

1. Unlimited Liability of Karta

The Karta is personally liable for all the business obligations. If the properties of the business are not enough to settle the business liabilities the Kata has to settle them from his personal savings.

2. Limited capital

The availability of capital in a Joint Family business is restricted to the financial status of the family. A joint family business cannot expand beyond a certain limit because of capital restrictions.

3. Karta too powerful

The Karta of a Joint Family has almost unquestionable rights in taking business decisions. An incompetent Karta may ruin the business.

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