2.

Joint Hindu Family Firm

• Joint Hindu family business is a peculiar form of business found in
India.
• In this form of business ownership, all members of a Hindu
undivided family do business jointly under the control of the head of
the family who is known as the Karta.
• The joint Hindu family firm comes into existence by the operation of
Hindu Law and not out of contract.
• The word coparcener has been used very widely in relation to the
Hindu Law and Hindu Undivided Family.
• In relation to HUF property a coparcener is a person who acquires
a right in the ancestral property by birth and a person who has a
right to demand partition in the HUF property.
• The firm is owned by the members of an undivided Hindu family
who have inherited an ancestral property. 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.
• There are two schools of Hindu Law namely
1.Dayabhaga System of inheritance which prevails in
Bengal and Assam. Technically, joint Hindu family
business is not possible under this system.
2.Mitakshara system which is found in the rest of India.
• Under this system of inheritance, joint Hindu family
consists of all persons including their wives and
unmarried daughters lineally descended from a common
ancestor.
• But only those persons constitute the firm who acquire by
birth a co-parcenary interest in the joint ancestral
property.
• Such interest belongs to three successive generations in
the male line who can inherit an interest in the ancestral
property immediately on their birth in the family.
• Thus the property inherited by a Hindu from his father,
grandfather and great grand father is regarded as ancestral
property.
• A son , grand son, and great grandson become joint owners of
the property by reason of their birth in the family.
• According to the Hindu Succession Act,1956, a female
relative ( and a male relative claiming through such female
relative) of a deceased male co-parcener will have a share in
the co-parcenary interest after the death of the co-parcener in
question.
• The business of a joint Hindu family is managed by the senior-
most male member or father. He is known as the Karta or
manager.
• As the head of the joint family, the karta has full control over
the affairs of the family business and serves as the custodian of
the firms assets.
• Other members of the joint family business cannot
question his judgement, the only remedy available to
them is to demand partition of the ancestral property.
• Family business is considered a part and parcel of the
ancestral property and therefore the family business
is the subject matter of co-parcenery interest.
• According to the Hindu Succession ( Amendment)
Act , 2005 daughters have equal right of inheritance
and enjoy the same rights and liabilities in the co-
parcenary property as a son.
Features of Joint Hindu Family Firm
The main characteristics of joint Hindu family firm are as follows:
1. Status- A person becomes member of the family business by result
of status arising from his birth in the family. Every member has an
equal share in the family firm irrespective of age.
2. Male and Female Members- Both sons and daughters have co-
parcenary interest in the family business. Female relatives of a
deceased co-parcener can also claim a share in the family property
3. Karta- The Karta or the head of the family alone has the right to
manage the business and other members do not take part in the
management of the firm.
The karta has implied authority to raise loans for the family
business. Only Karta has the authority to make contracts on behalf of
the firm. Other members of the family cannot ask for an account of
past profits and losses but they may demand partition of the ancestral
property.
4.Fluctuating Share- The share of each member in the
family property and business keeps on changing.
• A member interest decreases on the birth of a new co-
parcener and it increases by the death of an existing
co-parcener.
• There is no restriction on the number of co-parceners.
5.Liability- The liability of the Karta is unlimited and it
extends to all that he owns as his private or separate
property.
• But the liability of all other members of the joint
Hindu family is limited to the value of their
individual interests in the joint ancestral property.
6.Continued Existence-The death or insolvency of a
co-parcener or even that of the Karta does not effect
the existence of the joint Hindu family firm. The firm
can be dissolved through mutual agreement among all
the co-parceners.
Merits of Joint Hindu Family Firm
1. Equitable Distribution – Every co- parcener is assured of a share in
the profits of the family business irrespective of his contribution to
the success of the firm. Weak members of the family, i.e. Children ,
widows, sick or invalid members are well protected against
contingencies.
2. Sharing of Knowledge and Experience – Younger members of the
family get the benefit of the knowledge and experience of elder
members. Such sharing of knowledge and experience enables the
younger members to acquire necessary expertise easily and quickly.
3. Freedom of Action – The Karta enjoys full freedom of action as he
run the business without interference by other members of the
family. This promotes quick decisions and prompt action.
Centralised management by Karta also results in unity of direction
and business secrecy. There is no need for registration of the firm.
4.Limited Liability- All co-parceners except the Karta enjoy the benefit
of limited liability. Unlimited liability of the Karta inspires him to
make his best effort for the success of the family business.
5. Mutual Co-operation- The benefits of specialisation can
be obtained by dividing the total work among the co-
operation in accordance with their individual knowledge
and capability.
6. Inculcation of Finer Values of Life- Members of a joint
Hindu family work unitedly for the overall welfare of the
family as a whole. Therefore they learn the qualities of
sacrifice, discipline, duty etc. Even minors are equal
members.
7.Secrecy- The secrets of the business remain confined to
the karta.
8. Stability – A joint Hindu family firm enjoys continuity of
operations as its existence is not subject to the death or
insolvency of a co-parcener.
9. Creditworthiness- A joint Hindu family firm enjoys
greater credit worthiness than a sole proprietorship.
Demerits of Joint Hindu Family Firm
1. Limited Resources – The financial and managerial
resources of the firm are limited. The capital and
borrowing capacity of the family is limited and the Karta
alone cannot be equally expert in all areas of business.
There is therefore , little scope for the growth and
diversification of the business.
2. Lack of Motivation – As the profits of the firm are
shared by all co-parceners irrespective of their
contributions, there is no incentive to work hard. There
exists no direct relationship between efforts and reward.
The right to share in the income of business irrespective
of efforts made induces laziness on the part of members.
3. Scope for Misuse- The Karta has unchallenged authority
to manage the business. He may misuse this freedom for
his personal benefit or gains. This is an important cause
of the disintegration of joint Hindu family firm.
4. Unfair to Co-parceners- Since the karta has an
exclusive control over the management of the
business, other co-parceners get no opportunity to
exercise initiative and judgement.
5.Fear of Disintegration- Disputes and quarrels among
the co-parceners on controversial matters may lead to
break up of the family business.
• Joint Hindu family firm is gradually losing way to
other firms of ownership due to decline of the joint
family system under the pressure of industrialisation.