The Joint Hindu Family Business is a distinct form of organization peculiar to India. Joint Hindu Family Firm is created by the operation of law. It does not have any separate and distinct legal entity from that of its members.
The business of Joint Hindu Family is controlled under the Hindu Law instead of Partnership Act. The membership in this form of business organization can be acquired only by birth or by marriage to a male person who is already a member of Joint Hindu Family.
“When two or more families agree to live and work together, throw their resources and labour with joint stock and share profits and the losses together, then this family is known as composite family.”
There are two schools of Hindu Law-one is Dayabhaga which is prevalent in Bengal and Assam and the other is Mitakshara prevalent in the rest of the-country. According to Mitakshara law, there is a son’s right by birth in the property of joint family. It means, when a son is born in family, he acquires an interest in the property jointly held by the family.
The business of the Joint Hindu Family is controlled and managed by one person who is called ‘Karta’ or ‘Manager’. The Karta or manager works in consultation with other members of the family but ultimately he has a final say. The liability of Karta is unlimited while the liability of other members is limited to their shares in the business.
Characteristics of a Joint Hindu Family Business
- Governed by Hindu Law
The business of the Joint Hindu Family is controlled and managed under the Hindu law.
There are two schools of Hindu law:
All the affairs of a Joint Hindu Family are controlled and managed by one person who is known as ‘Karta’ or ‘Manager’. The Karta is the senior most male member of the family. He works in consultation with other members of the family but ultimately he has a final say.
The members of the family have full faith and confidence in Karta. Only Karta is entitled to deal with outsiders. But other members can deal with outsiders only with the permission of Karta.
- Membership by Birth
The membership of the family can be acquired only by birth. As soon as a male child is born in family, he becomes a member. Membership requires no consent or agreement.
Except the Karta, the liability of all other members is limited to their shares in the business. The Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and amount of debt can be recovered from his separate property.
- Permanent Existence
The death, lunacy or insolvency of any member of the family does not affect the existence of the business of Joint Hindu Family. The family goes on doing its business.
- Implied Authority of Karta
In a joint family firm, only Karta has the implied authority to contract debts and pledge the credit and property of the firm for the ordinary purpose of the businesses of the firm.
- Minor also a Partner
In a partnership, minor cannot become co-partner though he may be admitted to the benefit of partnership. In a Joint Hindu Family firm minor is a partner.
The Joint Hindu Family Business can be dissolved only at the will of all the members of the family. Any single member has no right to get the business dissolved.
Advantages of Joint Hindu Family Business
The chief advantages of Joint Hindu Family Business are given below:
- 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.
- Efficient Management
The management of Joint Hindu Family Business is centralized in the hands of Karta of family. In this business, Karta takes all decisions and gets them implemented with the help of other member. No other member interferes in his management.
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
The Karta is the only person who exercises control and direction over the business. He may not consult anyone in taking decisions. This ensures prompt or quick decisions. Being the sole master, he takes prompt decisions and makes advantage of the opportunity.
For the success of any business, economy is a must. It is well- balanced and maintained in Joint Hindu Family Business. The Karta of family spends money with great caution and economy.
- Credit Facilities
In Joint Hindu Family Business the credit facilities are more. One reason for this is that liability of the ‘Karta’ is unlimited. Karta is having personal relations with others, which are also helpful in raising credit.
- Natural Love between Members
In Joint Hindu Family Business, it is the natural love and affection which the members are having for each other. It helps to run the business more efficiently and smoothly.
- Freedom regarding Selection of Business
The Karta is at freedom to select any business of his choice. He has not to depend on others.
Disadvantages of Joint Hindu Family Business
The disadvantages of Joint Hindu Family Business are given below:
- Limited Membership
The membership of the business is limited to the members of family only. No outsider can become the member of Joint Hindu Family Business.
- Limited Sources of Capital
The capital is limited only upto the resources of one family. This is not sufficient to meet the business requirements for expansion. Thus the size of the business remains small. The Karta cannot take the advantage of economies of large size due to limited finance.
- Limited Managerial Skill
All the managerial functions which are essential for the successful operation of a business are performed by the Karta of the family. The Karta may not be able to perform all managerial functions because of limitation of time, energy and skills. Because of limited scale of operations and financial resources, it may not be feasible to secure the services of experts in different fields like purchasing, production and marketing.
- Unlimited Liability
The liability of the Karta is unlimited. The Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and 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 a 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 the Karta may use the power for his personal interest.