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.