Que: Explain joint Hindu Undivided Family with its features, advantages, and disadvantages.
Joint Hindu Undivided Family:
The Joint Hindu Family Business or the Hindu Undivided Family (HUF) is a unique form of business organization found only in India. It is governed and dictated by Hindu law. The head of such a joint family business is the eldest member of the family, the “Karta”. He is the main person responsible for the business and the finances.
Any person born into the family (boy or girl) up to the next coming three generations is a part of the HUF. These members are the co-parceners.
Features of a HUF:
Formation: To begin a Hindu Undivided Family there must be a minimum of two related family members. There must be some assets, business, or ancestral property that they have inherited or will eventually inherit. The formation of a HUF does not require any documentation and admission of new members is by birth.
Liability: The liability of all the various c0-parceners is only up to their share of the property or business. But the Karta being the head of the HUF has unlimited liability.
Control: The entire control of the entity lies with the Karta.
Continuity: The HUF can be continued perpetually. At the death of the Karta, the next eldest member will become the Karta.
Minority: Even minor members will be a part of the HUF. But they will enjoy only the benefits of the organization.
Advantages of the HUF:
Easy to Start: It is very easy to start the Joint Hindu Family Business. No legal formalities are required to be faced, such as registration. It requires no agreement.
Secrecy: In Joint Hindu Family Business, all the decisions are taken by the Karta himself. He is in a position to keep all the affairs to himself and maintains perfect secrecy in all matters.
Prompt Decision: Karta being the sole master, takes Prompt decisions and takes advantage of the opportunity.
Credit Facilities: In Joint Hindu Family Business the credit facility. One reason for this is that the liability of the Karta is having personal relations with others, which also helps to raise credit.
Freedom regarding Selection of Business: Karta is free to select any business of his choice. He has not to depend on others
Disadvantages of the HUF:
Limited Membership: The membership of the business is limited to the members of the family only. No outsider can become a member of the Joint Hindu Family Business.
Limited Sources of Capital: Capital is limited only up to the resources of one family.
Limited Managerial Skill: The Karta may not be able to perform all managerial functions because of limitations of time, energy, and skills.
Unlimited Liability: The liability of the Karta is unlimited. Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and the amount of debt can be recovered from his separate property. This factor puts a ceiling on the growth and expansion of the business.
Misuse of Power: The management of Joint Hindu Family Business is centralized in the hands of Karta of the family. No other member can interfere in his management. This may lead to the misuse of power and Karta may use the power for his personal interest.
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