Define Joint Hindu Family firm? Explain its merits and Demerits?
Meaning: -: -A business, which continues from one generation tom another generation is known as joint Hindu family business or firm. This is special form of business organization, which now exists only in India
Advantages of Joint Hindu Family Business are:
- Easy formation
- Quick decisions and prompt action
- Flexibility in operation
- Business Secrecy
- Continuity of business
- Minimum Government regulations
- Limited liability of co-parceners
1. Easy formation: -Formation of Joint Hindu family is very easy. Because it does not require any legal formalities to form. It comes into existence under the Hindu succession Act 1956.
2. Quick decisions and prompt action: -The Karta is the sole manager of the business and head of the family. He need not consult any one before taking any decisions. Therefore he can take quick decisions and prompt actions
3. Flexibility in operation: -The management is in the hands of the Karta. He takes the decisions according to the changing circumstances. He can expand or contracts his business at his convenience. He enjoys maximum flexibility in operation.
4. Business Secrecy: -A joint Hindu family business can maintain business secrecy. Because they need not have to publish there’s any account to any outsider of the family.
5. Continuity of business: -Joint Hindu family business does not dissolve due to death of Karta. Because a minor members that is a co-parceners can become a karta after the death of the Head of the family
6. Minimum Government regulations: - Though the Hindu undivided Family is the result of Hindu Law, there is least Government control over Hindu undivided Family because the business are conducted by the family members itself so they no need to publish any accounts and reports to any outsiders.
7. Limited liability of co-parceners: - The Co-parceners enjoy limited liability. The liability of the co-parceners is limited to the extent of the shares in the family business. However, the liability of the Karta is unlimited.
Disadvantages of Joint Hindu Family Business are as follows:
- Limited Capital
- Unlimited liability of Karta
- Lack of stability
- Less motivation
- Limited Growth and Expansion
- No entry for non family members
- No Legal Status
1. Limited Capital: -This type of business does suffer from the limitation of capital. This is because the business has to depend upon the savings of the family. Again, limited amount of borrowings is possible from friends, banks and others.
2. Unlimited liability of Karta: -The liability of the karta is unlimited but the liability of co-parceners is limited. The karta is liable to pay the dues even from his personnel property. Unlimited liability makes him more cautions and he may not take any risk.
3. Lack of stability: -The continuity and stability of the firm depends upon good relations among the family member’s but in practice it is not possible. Therefore there may be results in the discontinuation of the firm. However in many case there is continuity of business.
4. Less motivation: -All the members of the family are entitled to equal share whether they put in work or not. There is no relation between efforts and rewards. Hence, there is less motivation to put in more effort.
5. Limited Growth and Expansion: -The investment of the joint Hindu family business is limited. Growth and expands is possible only when there is large investment. But the liability of the Karta is unlimited. Hence, there is less scope for Growth and expansion.
6. No entry for non family members: -Only family members can get entry into the business. Outsiders are not allowed to interfere in the family business. So there is less scope for increasing the capital of family members.
7. No Legal Status: -Like Sole trading concern, the Joint Hindu family business lacks legal status. The registration of this type of business is not compulsory. The members and the firm do not have separate entity.