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There are multiple forms of business organization worldwide but there is a unique form of business that has been originated in India. It only exists in India. It is known as ‘Hindu Undivided Family Business’ (HUF), ‘Joint Hindu Family Firm’ (JHFF).
Exists only in India
Joint Hindu Family Business exists only in India. It is guided by the Hindu Succession Act of 1956.
The formation of JHF Business is simple. It is formed as per the operation of Hindu law. Every member becomes the member by birth and not by any agreement. The senior-most member is called as ‘Karta’. Remaining members are called as Co-parcener’s.
There is no limit on membership. One becomes a co-parcener by virtue of birth, legal adoption or marriage into the family.
The property of JHF Business is jointly owned by the Karta and the co-parcener. The business is jointly owned by three generations of the family. Karta is the custodian of the joint properly.
Good Credit Standing
Joint Hindu Family Business is conducted for a longer period of time. It enjoys goodwill in the market. It assures the creditor about the repayment of the loan. The liability of Karta is unlimited so banks and other financial institutions are ready to grant the loans.
The JHF Business is managed by Karta. The co-parceners have no right to participate in management go family business. However, Karta may consult a member of the family while taking any business decision.
JHF Business is not formed by any contractual agreement. There is no specific ratio of the profits and losses shared by Karta and coparceners. So the sharing ratio keeps on changing depending upon births and deaths in the family.
JHF Business is easy to start as registration and agreement is not required for its formation. There is no restriction on the minimum and the maximum number of members. It comes into existence as per Hindu Law.
Protection of Co-parceners Interest
Co-parceners have the right to demand partition from the business. Karta has to take care of their interest.
Quick and Prompt Decision
The Karta is the senior-most family member of the family. Karta has experience and knowledge about the family business. Karta takes all business decisions at the right time on the grounds of his knowledge.
On The Job Training
The member of JHF Business inherent business skills from their Karta. They also observe the management of Karta which helps in learning business tactics.
The liability of co-parceners is limited up to the extent of their share in the JHF Business. Hence the personal property of co-parcener is not used for the payment of JHF Business liability.
Unlimited Liability of Karta
Karta always faces the risk of unlimited liability. If the business assets are not sufficient for the payment of business liabilities, then the personal property of Karta is used for the payment of business liabilities.
Limited Financial and Managerial Resources
The funding of JHF Business is limited. Ancestral property is used as the capital of JHF Business. Karta may or may not possess expert managerial skill. So, there is limited scope for expansion.
No Separate Legal Status
In the eyes of law, the JHF Business and the family member are one and the same. The business does not have separate legal status.
Partition of Business
The numbers of members are more in JHF Business. There can be conflicts and disputes. The co-parceners may be dissatisfied with the management of Karta. This can lead to the partition of business.
No direct relation between effort and rewards
Karta is the manager of this business. He uses his knowledge and skill for administering a business successfully. The rewards of the business are distributed among all co-parceners. The hardworking, as well as inefficient co-parceners, share the profit.
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