Hindu Undivided Family (HUF)
Joint Hindu Family Business is a distinct type of organization which is unique in India. Its existence is restricted to only certain parts of the country. All members of a Hindu undivided family do business jointly under the control of the head of the family, called 'Karta'. The members of the family are known as 'Co-parceners'. Thus, the Joint Hindu Family firm is a business owned by co-parceners of a Hindu undivided estate.
Its main features are:
It comes into existence by the operation of Hindu law and not out of contract. The rights and liabilities of co-parceners are determined by the general rules of the Hindu law.
The membership arises from the birth in the family and its legality is not affected by the minority. Originally, only three successive generations in the male line (grandfather, father and son) constituted the membership of this organization. By the Hindu Succession Act, a female relative of a deceased member or a male relative of such a female member was made eligible for a share in the interest of the related member (called co-parcener) at the time of his death. There is no legal limit to the maximum number of members.
Registration of HUF is not necessary, however the rights of its members to sue third parties for claims of debt remain valid.
It is managed generally by the Karta. He has the authority to obtain loans against the family property or in other ways. Other members have neither right of management nor to contract loans binding on the joint-family property.
The manager or the Karta has the last word in the formulation of all policies and in its execution. His authority is not questionable in the conduct of the family business.
The Karta has unlimited liability while the liability of the other members is limited to the value of their individual interests in the joint family.
The firm enjoys continuity of operations as its existence is not subject to the death or insolvency of a co-parcener or even of the Karta himself. Therefore, it has a perpetual life.
- Ease of formation
- Continuity of operations
- Confined to Joint Hindu families
- Relatively limited capital
- Limited managerial talents
- Unlimited liability of the Karta