CHAPTER 4
JOINT HINDU FAMILY BUSNISEE
MEANING
OF JOINT HINDU FAMILY FIRM
A Joint Hindu Family Business (JHFB) is a type of
business organization that is based on the concept of the Joint Hindu Family
(HUF). The JHFB is a traditional form of business ownership that is commonly
found in India and is primarily operated and managed by the members of the same
family.
Under a Joint Hindu Family Business, all the members
of the family who are part of the HUF, including male and female members, are
considered as co-owners of the business. The management and control of the
business is typically entrusted to the eldest male member of the family who is
known as the Karta. The Karta has the authority to make all the important
decisions regarding the business and manages the affairs of the business on
behalf of the family.
One of the main advantages of a Joint Hindu Family
Business is that it allows the members of the family to pool their resources
and work together towards a common goal. This can lead to better
decision-making, improved coordination, and a sense of unity within the family
business. Additionally, the JHFB is also a tax-efficient business structure,
which can lead to significant tax savings for the family members.
However, the Joint Hindu Family Business also has some
limitations. For example, the family members are jointly and severally liable
for the debts and obligations of the business, which can expose the family to
financial risks. Also, the decision-making power of the Karta can sometimes
lead to conflicts within the family.
In conclusion, the Joint Hindu Family Business is a
traditional form of business ownership that has its advantages and limitations.
It is primarily operated and managed by the members of the same family who are
part of the HUF and can be a viable option for those looking to start a family
business.
Management
of HUF
The management of a Hindu Undivided Family (HUF) is
governed by the Hindu Succession Act, 1956, and is typically handled by the
eldest male member of the family, known as the Karta. The Karta is responsible
for managing the affairs of the HUF, including any property or business owned
by the family.
The Karta has a wide range of powers, including the
power to make decisions regarding the HUF's assets, investments, and
expenditures. The Karta is also responsible for ensuring that the HUF's
financial and legal obligations are met and for maintaining the HUF's accounts
and records.
The other members of the HUF do not have the same
level of authority as the Karta, but they do have certain rights and
responsibilities. For example, they are entitled to a share in the HUF's
property and assets, and they may also be involved in the decision-making
process of the HUF.
In cases where the Karta is unable to manage the
affairs of the HUF due to death or incapacity, the management of the HUF is
typically transferred to the next senior male member of the family. If there
are no male members available, the management of the HUF may be transferred to
the senior-most female member of the family.
Overall, the management of an HUF is a complex process
that requires careful planning, coordination, and communication among the
members of the family. It is important for the Karta to be aware of the legal
and financial responsibilities associated with managing an HUF and to ensure
that the affairs of the HUF are managed in an efficient and transparent manner.
Liability
of HUF
In a Hindu Undivided Family (HUF), all the members of
the family are considered as co-owners of the HUF's property and assets. As a
result, the HUF has a separate legal identity and can enter into contracts, own
property, and conduct business in its own name.
The liability of an HUF is limited to the assets and
property owned by the HUF. In other words, if the HUF incurs any debts or
obligations, the creditors can only recover their dues from the HUF's assets
and property and not from the personal assets of the individual members of the
HUF.
However, it is important to note that the liability of
the individual members of the HUF is not completely absolved. Under certain
circumstances, the individual members of the HUF can be held personally liable
for the debts and obligations of the HUF. For example, if a member of the HUF
enters into a contract on behalf of the HUF and fails to disclose that he is
acting on behalf of the HUF, he may be held personally liable for any debts or
obligations arising from that contract.
Additionally, if any member of the HUF engages in any
illegal or wrongful activities, he may be held personally liable for any
damages or losses caused by his actions, regardless of whether he was acting on
behalf of the HUF or not.
Overall, the liability of an HUF is limited to the
assets and property owned by the HUF, but it is important for the members of
the HUF to be aware of their legal and financial responsibilities and to ensure
that the affairs of the HUF are managed in a transparent and responsible
manner.
CJARACTERISTICS
OF JOINT HINDU FAMILY BUSINESS
Joint Hindu Family Business (JHFB) is a type of
business organization that is commonly found in India. It is characterized by
the following features:
1. Joint Ownership: JHFB
is owned and managed by the members of a Hindu undivided family. The property
and assets of the family are collectively owned, and the business is run using
these resources.
2. Common Pool of Funds: The
funds of the family are pooled together and used for the business. The capital
is contributed by the members of the family, and profits are shared among them.
3. Continuity: JHFB has continuity in its existence
as it is passed down from one generation to another. The family members have a
long-term commitment to the business and strive to ensure its success.
4. Family Control: The
family members have control over the management and decision-making process of
the business. They are involved in the day-to-day operations and work together
to achieve the goals of the business.
5. Limited Liability: The
liability of each member is limited to their capital contribution in the
business. In case of any losses, only the capital invested is at risk, and personal
assets are not affected.
6. Traditional Values: JHFB
is based on traditional Hindu values and customs, which are reflected in the
way the business is run. These values emphasize the importance of family,
loyalty, trust, and respect for elders.
7. Informal Structure: JHFB
is characterized by an informal structure, with decisions being made based on
consensus among family members. There is no formal organizational hierarchy,
and roles are determined based on family dynamics and seniority.
Overall, JHFBs are unique in their organization and
management structure, as they are driven by the values and traditions of the
Hindu culture.
ADVANTAGES
OF JOINT HINDU FAMILY FIRM
Joint Hindu Family
Firm (JHFF) has several advantages, some of which are as follows:
1. Continuity: One
of the main advantages of JHFF is that it ensures continuity in the business.
The business is passed down from generation to generation, and family members
have a long-term commitment to the business.
2. Shared Resources: In
JHFF, the family members pool their resources together, which ensures that the
business has access to a larger pool of capital. This helps in financing the
business operations, expansions, and investments.
3. Trust and Loyalty: JHFF
is based on traditional Hindu values that emphasize trust, loyalty, and respect
for elders. This ensures that the family members work together for the success
of the business and remain committed to it, even during tough times.
4. Informal Structure: The
informal structure of JHFF allows for quick decision-making and flexibility in
adapting to changing market conditions. Family members can easily communicate with each other and
make decisions based on mutual understanding and agreement.
5. Limited Liability: JHFF offers limited
liability to its members, which means that the personal assets of the members
are not at risk in case of any business losses. This encourages family members
to invest in the business without the fear of losing their personal assets.
6. Tax Benefits: JHFFs
are eligible for certain tax benefits, such as lower tax rates and exemptions,
which can reduce the overall tax liability of the business.
7. Efficient Use of Resources: JHFFs
often have a close-knit family structure, which allows for the efficient use of
resources. Family members can work in various roles and responsibilities, which
reduces the need for hiring external employees and leads to cost savings.
Overall, JHFFs have several advantages that make them
a popular form of business organization in India.
DISADVANTAGES
OF JOINT HINDU FAMLIY FIRM
While Joint Hindu Family Firms (JHFF) have many
advantages, there are also some
disadvantages that need to be considered, including:
1. Limited Pool of Talent: JHFFs
are often limited to the skills and knowledge of family members. This can lead
to a lack of diversity in skills, ideas, and perspectives, which can be a
disadvantage in a rapidly changing business environment.
2. Lack of Professionalism: JHFFs
may suffer from a lack of professionalism in their management and operations.
Family members may not have the necessary skills and training to run the
business effectively, leading to poor decision-making and inefficiencies.
3. Family Conflicts: JHFFs
can be prone to conflicts and disputes between family members, which can lead
to disruption of business operations. The family dynamics can also interfere
with the decision-making process and hinder the growth of the business.
4. Limited Liability: While limited liability
can be an advantage, it can also lead to a lack of accountability among family
members. This may result in a lack of financial discipline, which can
ultimately hurt the business.
5. Limited Access to Capital: JHFFs
may face difficulty in raising capital from outside sources, such as banks and
investors, as they may be viewed as less attractive due to their family-based
ownership structure.
6. Limited Growth Potential: JHFFs may be limited in
their growth potential due to their reliance on family members for capital and resources.
This can hinder their ability to expand and compete with larger, professionally
managed firms.
Overall, while JHFFs have their advantages, they may
also face challenges in terms of professional management, growth potential, and
family conflicts. It is important for family members to address these
challenges and work together to ensure the long-term success of the business.
Multiple
Choice Questions:
1. What is a Joint Hindu Family Business (JHFB)?
a. A type of business owned and operated by unrelated
individuals.
b. A business structure that is tax-inefficient.
c. A traditional
form of business ownership managed by members of the same family who are part
of the HUF.
d. A business structure primarily operated and managed
by non-family members.
2. Who is responsible for managing the affairs of the HUF?
a. The eldest male
member of the family, known as the Karta.
b. The senior-most female member of the family.
c. All members of the family.
d. An external manager appointed by the family.
3. In a Hindu Undivided Family, all the members are considered as:
a) Individual owners of the property
b) Co-owners of the property
c) Partners in the business
d) Directors of the company
4. The liability of an HUF is limited to:
a) Personal assets of the individual members
b) The assets and property owned by the HUF
c) The assets owned by the creditors
d) The assets owned by the individual members
5. Under what circumstances can individual members of an HUF be held
personally liable for the debts and obligations of the HUF?
a) If they engage in illegal activities
b) If they enter into a contract on behalf of the HUF
without disclosing it
c) Both a and b
d) None of the above
6. What is the continuity of Joint Hindu Family Business?
a) It is not passed down from one generation to
another
b) It is passed down from one generation to another
c) It is a partnership business
d) It is a sole proprietorship business
7. The liability of each member in Joint Hindu Family Business is
limited to:
a) The assets and property owned by the family
b) The profits earned by the business
c) Their capital contribution in the business
d) The personal assets of the individual members
8. Which of the following is not a characteristic of Joint Hindu
Family Business?
a) Common pool of funds
b) Limited liability
c) Formal organizational hierarchy
d) Informal structure
9. Joint Hindu Family Business is based on which of the following
values?
a) Family, loyalty, trust, and respect for elders
b) Individualism, competition, and profit-maximization
c) Meritocracy, innovation, and entrepreneurship
d) None of the above
10. What is one of the main advantages of JHFF?
A. Shared resources
B. Limited access to capital
C. Lack of diversity
D. Limited liability
11.What does the informal structure of JHFF
allow for?
A. Limited liability
B. Quick
decision-making
C. Lack of diversity
D. Limited growth potential
12. What is a disadvantage of JHFF?
A. Continuity
B. Efficient use of resources
C. Lack of
professionalism
D. Tax benefits
True-False
Questions:
1. The JHFB is primarily operated and managed by
non-family members. False
2. The Karta has the authority to make all important
decisions regarding the business and manages the affairs of the business on
behalf of the family. True
3. The family members are jointly and severally liable
for the debts and obligations of the business, which can expose the family to
financial risks. True
4. The management of an HUF is a simple process that
requires no planning or coordination. False
5. If there are no male members available, the
management of the HUF may be transferred to the senior-most female member of
the family. True
6. In an HUF, the individual members are not
considered as co-owners of the property and assets. False
7. The liability of an HUF is limited to the assets
and property owned by the HUF. True
8. The individual members of an HUF can be held
personally liable for the debts and obligations of the HUF only if they engage
in illegal activities. False
9. Joint Hindu Family Business has a formal
organizational hierarchy. False
10. The liability of each member in Joint Hindu Family
Business is limited to their capital contribution in the business. True
11. JHFF ensures continuity in the business. True
12. JHFFs often have a close-knit family structure, which
leads to cost savings. True
13. Limited liability can be a disadvantage of JHFF. True
14. JHFFs have unlimited access to capital. False
15. Family conflicts are not a challenge faced by
JHFF. False
VERY
SHORT QUESTIONS
Q.1.
What do you understand by HUF?
Ans. HUF stands for Hindu Undivided Family, which is a
legal entity recognized under Indian tax law. It is a type of joint family
structure where members are descended from a common ancestor and hold joint
ownership of family property. The income and expenses of the HUF are taxed
separately from the income of its individual members.
Q.2.
Explain the management of HUF?
Ans. The management of an HUF is typically done by the
karta, who is the head of the family and responsible for making financial and
legal decisions on behalf of the family. The karta is usually the eldest male
member of the family, but in some cases, it can be a female member. The karta
has the power to manage the HUF's assets, make investments, and distribute
income among the members. In case of any disputes, the karta's decision is
considered final, although members can challenge it in court if they have a
valid legal basis.
Q.3.
What is the position of karta in HUF?
Ans. The Karta is the head of the Hindu Undivided
Family (HUF) and is responsible for managing the family's affairs, including
its assets and finances.
Q.4.
Give five advantages of HUF?
Ans. 1. Tax benefits
2. Continuity of family business
3. Limited liability
4. Succession planning
5. Pooling of resources
SHORT
ANSWER QUESTIONS
Q.1. What do you understand by joint Hindu
family?
Ans. A Joint Hindu Family (JHF) is a form of family
organization that is traditionally found among Hindus in India. It is a type of
extended family where multiple generations of a family live together and share
common ancestry, property, and wealth. The head of the family is known as the
Karta and is responsible for managing the family affairs, including the family
business and finances. The male members of the family are considered
co-parceners and have equal rights to the family property. In a JHF, the
property is not divided among the members but is held jointly by the family as
a whole. The JHF is governed by Hindu law, and its members are subject to
certain legal obligations and responsibilities.
Q.2.
Discuss the ‘School of MitakShara’ and ‘School of Dayabhaga’
Ans. The School of Mitakshara and the School of
Dayabhaga are two major schools of Hindu law that differ in their approach to
inheritance and succession.
The School of Mitakshara, also known as the Mitakshara
school of Hindu law, is prevalent in North and Western India. It is based on
the commentary on the Yajnavalkya Smriti by Vijnaneswara, known as the
Mitakshara. This school believes in the concept of coparcenary, which means that
the male members of the family have an equal right to ancestral property. The
coparcenary includes the father, sons, grandsons, and great-grandsons. The
property is held jointly by the coparceners, and they have the right to
partition their share. The Mitakshara school also recognizes the concept of
survivorship, which means that in case of the death of a coparcener, his share
passes on to the surviving coparceners.
The School of Dayabhaga, also known as the Dayabhaga
school of Hindu law, is prevalent in Bengal, Assam, and Orissa. It is based on
the commentary on the Yajnavalkya Smriti by Jimutavahana, known as the
Dayabhaga. This school does not recognize the concept of coparcenary and
believes that the father has absolute control over the property. He has the
right to dispose of the property as per his wish, and the sons have no right to
it during his lifetime. After the father's death, the sons become joint owners
of the property, and they have equal rights to it. The Dayabhaga school also
recognizes the concept of spiritual benefit, which means that the son who
performs the last rites of the father has a greater claim to the property than
the other sons.
In summary, the School of Mitakshara believes in
coparcenary and recognizes survivorship, while the School of Dayabhaga believes
in absolute control of the father over the property and recognizes the concept
of spiritual benefit.
LONG
ANSWER QUESTIONS
Q.1.
What is HUF? Discuss its characteristics?
Ans. HUF stands for Hindu Undivided Family, which is a
form of family organization under Hindu law that is traditionally found in
India. Here are some of the key characteristics of an HUF:
1. Members: An
HUF comprises of all persons lineally descended from a common ancestor and
includes their wives and unmarried daughters. The male members of the HUF are
known as coparceners and have an equal share in the ancestral property.
2. Karta: The head of the HUF is known as the Karta,
who is usually the eldest male member of the family. The Karta is responsible
for managing the HUF property and affairs and has the power to make decisions
on behalf of the family.
3. Property: HUF
property includes ancestral property, which is inherited from the father or
paternal grandfather, and joint family property, which is acquired through the
joint efforts of the HUF members.
4. Taxation: An
HUF is treated as a separate entity for tax purposes and can avail of tax
benefits and exemptions that individuals are not eligible for. The income of
the HUF is taxed separately from the income of its members.
5. Continuity: HUFs
allow for the smooth transfer of assets and management from one generation to
another. The HUF remains intact even if one member passes away, ensuring
continuity of the family's assets and affairs.
6. Limited liability: The liability of HUF
members is limited to the assets of the HUF. This means that the personal
assets of the members are protected in case the HUF incurs any debts or
liabilities.
In summary, an HUF is a family unit comprising of
lineally descended members, managed by a Karta, with ancestral and joint family
property, taxed as a separate entity, ensuring continuity of family assets, and
limited liability for its members.
Q.2.
What are the advantages and disadvantages of the joint Hindu family?
Ans. Advantages
of Joint Hindu Family (HUF):
1. Tax benefits: An
HUF can avail of several tax benefits, including lower tax rates and
exemptions, which individual taxpayers are not eligible for.
2. Continuity of family business: The
HUF provides a framework for the smooth transfer of family business and assets
from one generation to another. This ensures the continuity of the family's
wealth and legacy.
3. Limited liability: The
members of the HUF have limited liability, meaning that their personal assets
are protected in case the HUF incurs any debts or liabilities.
4. Succession planning: The
HUF allows for efficient succession planning, where the assets are passed down
to the next generation in a structured and organized manner, without the need
for legal intervention.
5. Pooling of resources: The
pooling of resources and joint ownership of property allows for greater
financial strength and stability, making it easier to undertake larger
investments or business ventures.
Disadvantages of
Joint Hindu Family (HUF):
1. Lack of individual control: The
HUF operates on the principle of joint ownership, which means that the
individual members have limited control over the assets and affairs of the HUF.
2. Conflict and disputes: In
some cases, the joint ownership of property can lead to conflicts and disputes
among the family members, which can strain relationships and lead to legal
battles.
3. Succession disputes: If
there is no clear succession plan or agreement, the transfer of assets from one
generation to another can become a contentious issue, leading to
4. Limited flexibility: The HUF structure can be
inflexible, making it difficult to adapt to changing circumstances or business
environments.
5. Legal formalities: There
are several legal formalities involved in setting up and managing an HUF, which
can be time-consuming and require expert advice.
In summary, while an HUF offers several advantages,
including tax benefits, continuity of family business, and pooling of
resources, it also has certain disadvantages, such as lack of individual
control, succession disputes, and legal formalities, which need to be
considered before opting for this form of family organization.
A. One Word to One
Sentence Questions
Q. 1. Name some
Industrial Goods.
Ans. Machinery, Equipments, Tools, Plants etc.
Q. 2. Name some
Intermediate Goods.
Ans. Rubber, Plastics, Aluminium.
Q. 3. What are
the categories of Industries ?
Ans. Primary, Secondary, Tertiary.
Q. 4. Which
type of industries are included in the Primary Industry ?
Ans. Genetic Industries, Extractive Industries.
Q. 5. Name two
types of secondary industries.
Ans. (i) Construction Industry
(ii)
Manufacturing Industry.
Q. 6. Name the
types of manufacturing industries.
Ans. (i) Analytical Industry
(ii)
Synthetic Industry
(iiii)
Processing Industry.
Q. 7. Name the
categories of service industry.
Ans.
(i) Transport
(ii)
Insurance
(iii)
Warehousing
(iv).
Banking
(v)
Advertising.
Q. 8. What is
insurance?
Ans. It provides coverage for all types of risks
related to business.
Q. 9. Name the
components of commerce.
Ans. Trade and Aids to Trade.
Q. 10. Name the
types of trades.
Ans. Internal Trade, External Trade, Wholesale Trade,
Retail Trade.
Q. 11. What is
retail trade?
Ans. Retail trade involves buying of goods from the
manufacturers and selling them in small quantatities.
Q. 12. What do
you mean by Aids to Trade?
Ans. The agencies which facilitate trade are known as
aids to trade.
Q. 13. Define
business risks.
Ans. According to Wheeler, “Risk is the chance of
loss. It is the possibility of some unfavourable occurrence.”
Q. 14. Name the
causes of business risks.
Ans. (i) Physical Causes
(ii)
Natural Causes
(iii) Human
Causes
(iv)
Economic Causes.
Q. 15. Write
down two physical causes of business risk.
Ans. (i) Wear and Tear of machinery
(ii)
Mechanical defects in machines.
Q. 16. Write
down two economic causes of business risk.
Ans. (i) Fluctuations in Demand
(ii)
Increase in Competition.
B. Fill in the
blanks
1............ fills the gate between producer of goods
and service and their consumers.
2. Construction Industry is an example of.........
3. ......... provides coverage for all types of risks
related to business.
4. ......... is used for storing of raw materials and
finished goods.
5. ......... removes the hindrance of finance.
6. Commerce is basically concerned with the transfer
of.................
7. When the goods are produced according to local
demands it is called..............
Ans.
1. Service industries 2. secondary industries, 3. Insurance, 4. Warehousing, 5.
Banking, 6.
goods 7, local trade.
C. True or False
1. Commerce is concerned with exchange of goods and
services for profit.
2. Banks make the consumer aware about the
availability of goods in the market.
3. Trade refers to purchase and sale of goods and
services.
4. When the trader of one country purchases goods from
seller of the foreign countries,it is known as export trade.
5. Banks provide short term and long term funds to the
business enterprises.
Ans. 1. True, 2. False, 3. True, 4. False 5. True
D. MCQ
1. The units
which are engaged in manufacturing of products are collectively known as:
(a) Firms
(b) Commerce
(c) Industry
(d) Trade
2. Import and
Export Trade is an example of:
(a) Internal
Trade
(b) Foreign Trade
(c) External Trade
(d) Both b and c
3..........
deals only with buying and selling of goods.
(a) Trade
(b) Industry
(c) Commerce
(d) All of the above
4. The trade is
confined to the boundaries of the state is known:
(a) Provincial Trade
(b) Local Trade
(c) External Trade
(d) None of the above
5. Which one of
the following is not the type of foreign trade?
(a) Import Trade
(b) Export trade
(c) Provincial Trade
(d) Entrepot trade
6. Which of the
following services come under aids to trade?
(a) Banking and Insurance
(b) Transportation and Communication
(c) Both (a) and (b)
(d) None of the above.
Ans.
1. (c), 2. (d), 3. (a), 4. (a), 5. (c), 6. (c)
