Hindu Undivided Family: Meaning, Features, Merits and Limitations [Business Organisation and Management Notes NEP Syllabus]

The Joint Hindu Family (JHF) business is a form of business organisation run by Hindu Undivided Family (HUF), where the family members of three successive generations own the business jointly. The head of the family known as Karta manages the business. The other members are called coparceners and all of them have equal ownership right over the properties of the business.

The membership of the JHF is acquired by virtue of birth in the same family. There is no restriction for minors to become the members of the business.

Features of HUF:

1. Common Ancestral Property: The business is established using the ancestral property of the family. The property is jointly owned by all family members.

2. Managerial Authority: The eldest male member, known as the "Karta," manages the affairs of the business and takes key decisions.

3. Membership by birth: All members, including male and unmarried female members, have a birth right to be a part of the HUF and share in its ownership.

4. Continuity: The HUF has perpetual existence, unaffected by the birth or death of individual members. The business continues through generations.

6. Pooling of Resources: Family members pool their financial resources, skills, and labour for the benefit of the business.

7. Limited Liability: The liability of coparceners is limited to the extent of their share in the business. But the Karta has an unlimited liability. His personal property can also be utilised to meet the business liability.

8. Profit Sharing: All coparceners have equal share in the profits of the business.

Merits of HUF:

1. Continuity: The HUF ensures the continuity of the family's business and wealth over generations, providing financial security.

2. Pooling of Resources: Combining resources from various family members enhances the capital available for business activities.

3. Collective Decision-Making: While the Karta holds managerial authority, major decisions are often made collectively, benefiting from diverse perspectives.

4. Tax Benefits: HUFs enjoy certain tax benefits, including exemptions and deductions available under the Income Tax Act in India.

5. Economies of Scale: Larger resource base and shared expenses can lead to economies of scale, boosting efficiency.

6. Limited Liability of Members: The liability of the coparceners except the Karta is limited to the extent of his share in the business. This enables the members to run the business freely just by following the instructions or direction of the Karta.

7. Unlimited Liability of the Karta: Because of the unlimited liability of the Karta, his personal properties are at stake in case the business fails to pay the creditors. This clause of JHF business makes the Karta has to manage business most carefully and efficiently.

8. Social and Emotional Support: The family unit provides emotional and social support to each member, fostering a cohesive working environment.

Limitations of HUF:

1. Limited Professionalism: Business decisions might be influenced by family dynamics and personal considerations, potentially affecting efficiency. There is possibility of absence of professionalism in decision making.

2. Conflict Potential: Differences among family members regarding business strategies or roles can lead to conflicts, disrupting operations.

3. Gender Bias: The traditional structure often gives managerial authority to the eldest male, limiting opportunities for female family members.

4. Scope for Misuse of Power: Since the Karta has absolute freedom to manage the business, there is scope for him to misuse it for his personal gains. Moreover, he may have his own limitations.

5. Legal Formalities: Complying with legal requirements and tax regulations can be complex due to changing laws and interpretations.

6. Limited Expertise: The skills and expertise available within the family might be limited, hindering the adoption of modern business practices.

7. Succession Challenges: The process of transferring managerial authority from one generation to the next can lead to succession disputes.