A Hindu Undivided Family Business is a distinct legal entity, an archaic business model, unique to India. Falling under the aegis of law, and controlled by a strict code of rules, a Hindu Undivided Family or HUF in short, does not distinguish between its members.
To put it simply, the members of an HUF have no separate identity when it comes to taxes, profits and losses. There are several joint Hindu Family Business examples in India, which include Reliance Industries Limited and Mahindra and Mahindra Limited.
All business dealings within a joint family business in India are regulated by the Hindu Law, and not the Partnership Act, which controls other business models. The business is usually overseen by the eldest member of the family or the head, called the Karta. All other members have equal rights over their ancestral properties and are called co-parceners.
Find Out: Can families of other religions and faiths form a model similar to the HUF?
What are the Features of a Joint Hindu Family Business?
The business ventures of such a family model are strictly controlled by the Hindu Law, which is made up of two components, the Dayabhaga and the Mitakshara.
The Dayabhaga system is widely followed in West Bengal and Assam, wherein, both male and female members of the family are allowed to be co-parceners. Also, a son can claim right to ancestral property, only after the death of his father.
The Mitakshara model is heeded to by all states in India, excluding West Bengal. It allows proprietorship to only male members of a joint family business meaning that only men in the family are allowed to be co-parceners.
In both the models, the Karta exercises ultimate control over business activities, and his decision is final.
Merits and Demerits of Joint Family Business
A Joint Hindu Family Business is an entity, rooted in permanence since its business operations are hardly affected by the death or passing of any of its members. Lunacy or bankruptcy suffered by any member does not have an impact on the activities of such a business. Despite this, there are some limitations of a joint Hindu family business as well as some advantages, that will be discussed below.
A. Benefits of a Joint Hindu Family Business
A joint Hindu family is made of several members and occasions when members disagree or go into conflicts can rise now and again. The existence of an elder Karta makes sure the management is highly effective and quick, and since he exercises absolute power, there remains no scope for clashes and interference.
The existence of an HUF is permanent, as the death, illness or retirement of any one member does not affect the entire machinery of the business.
Co-parceners in an HUF do not exercise control over the management and everyday decisions, and the entire power rests on the Karta. Thus there is a healthy balance between power and liability.
B. Disadvantages of a Joint Hindu Family Business
The model of an HUF does not allow external members or additional participants, other than the family members, thus leaving no space for additional capital or investments from the market.
The expansion of such a business is limited, as all decisions are internal and solely family-centric.
The Karta may not always be the most qualified person to lead the family business. In such cases, the decisions made by him and his business acumen may be questionable.
Forming a Hindu Undivided Family business allows an individual to save hefty taxes.
Exercise: Mr Sen is an aspiring businessman who decides to start an HUF after the demise of his father. Analyse the following table to understand how his HUF functions and Mr Sen is able to save taxes.
Thus, total tax paid by Mr Sen and HUF is Rs.3,99,125 and taxes saved by forming the HUF is Rs.1,54,500.
For more on these, browse through our articles and sample papers on different forms of business organisations, available on our website. Download the Vedantu app and participate in live classes and demonstrations, practise questions and revise your concepts instantly.
1. Who Is a Karta in An HUF?
The eldest member of an HUF is the Karta, who exercises complete control over all business operations.
2. Can An HUF Karta Be A Woman?
In a landmark ruling in 2017, the Delhi High Court ruled that female members of the family can also assume the role of a Karta.
3. What Is A Joint Family Business?
A joint family business comprises all members of a family, whether male or female. It is a single legal entity, and in India, Hindu joint family businesses are operational under the Hindu Law.