Merits and Demerits of Joint Hindu Family?

Introduction: - When a business enterprise is run by the family member and they run the business as family business is called Joint Hindu Family business. It is said that the Joint Hindu Family firm comes into existence by the law of inheritance. It is important to note that the Joint Hindu Family firm with the Joint ownership of the business is created by the operation of Hindu law and not by the contract between the co-parceners The business of joint Hindu family is controlled and managed by the eldest male member of the family who is known as ‘Karta’ and other members of the family are called as “co-parceners”.

Definition: When a Joint Hindu Family (Hindu Undivided Family) conducts business inherited by it as per Hindu law, it is called Joint Hindu Family firm. Thus in a Joint Hindu Family firm, the business is passed on from one generation to another.”

Merits of Joint Hindu Family Firm are as follows: -

1.       Easy to Start: -Joint Hindu Family business is very easy to form. It comes into existence as per Hindu law. Family members become co-parceners in the firm by virtue of their birth in the family. Moreover no registration is required for a Joint Hindu Family firm respect of minimum or maximum members.

2.       Prompt Decision: -The Karta has complete control over his business. He takes all the business decisions. Therefore, Karta takes the right decisions at the right time.

3.       Good Relations with Employees: -Joint Hindu family has few employees with whom good and personal relations are maintained as in case of a sole trading concern. These motivated employees extend their complete support for conducting business successfully.

4.       Flexibility: -Due to quick decisions, Karta can bring about the required changes in business viz, expansion of the business activities or diversification of business as per the changing business trends quickly.

5.       Secrecy: -Karta of the Joint Hindu family business is the manager of the business himself and all the family members are co-parceners of the business, so the secrecy of the business remains with the family.

6.       Co-parcener's Liability: -Karta is the head of the family. The liability of co-parceners is limited to the extent of their share in the Joint Hindu family business. Karta is the custodian of the Joint property of the Joint Hindu family firm hence, the liability of the Karta's is unlimited.

7.       Good Credit Standing: -A Joint Hindu family firm enjoys a good credit standing in the market. Since the business is being conducted for a longer period of time and is being passed on from one generation to another, it enjoys goodwill in the market. Moreover, the liability of Karta is unlimited; as a result banks and other financial institutions are willing to grant the loans.

8.       Continuity and Stability: -Joint Hindu Family business does not come to an end by take over the business. Thus, continuity and stability of business is ensured, which is crucial for the success of any business organization.

Demerits/Limitations of Joint Hindu Family Business are as Follows: -

1.       Limited Resources: -The funds of Joint Hindu family business are limited. Because of limited funds, business cannot be established on a large scale.

2.       Limited Managerial Skills: -Only the managerial skills of Karta are used for running of the business to be very successful in this competitive business world. It cannot be expected from any co-parceners however intelligent he may be, to know all the intricacies (details) of the business.
3.       Unlimited liability of Karta: -Karta always faces the risk of his personal property being used for paying the third party liabilities. If the business assets are not sufficient to pay them off. He therefore becomes over cautious and may not be prepared to take any business risk. This may adversely affect the profitability of the firm.

4.       Breaking of Joint Family: -The firm is always exposed to the risk of the breaking of the Joint Family, in such a case, the family business may also come to an end to the extent, the stability and continuity of the firm is endangered.

5.       Lack of Direct Effort: -Though Karta is the only family member who put in all his managerial skills for running the business efficiently and successfully, the profits are shared by all the co-parceners. Therefore, they may not be motivated to give the best to the firm.

6.       Restricted Expansion: -Due to limited financial and managerial resources of the firm and over cautious nature of Karta, it is not possible for the firm to expand the business beyond a certain limit. The firm is forced to conduct business on the same scale and deal in the local market.

7.       Unlimited Co-parceners: -Since the membership in the joint family business is on the basis of birth, there is no limit on membership. The number increases as per births in the family. Thus the number cannot be predicted and it may be unlimited. There is no upper limit for number of membership.