Article On Hindu Undivided Family (HUF) topic of Business Environment
Hindu Undivided Family
The term Hindu Undivided Family (HUF) is not defined under Income Tax Act. It is defined under Hindu Law. It means a family that consists of lineally descended persons from a common ancestor. HUF is considered a separate person from an individual and is separately taxable. Thus, a Hindu has a privilege of planning to have 2 assessments i.e. one as an individual and one as a HUF.
HUF is a business form of an organization. All the activities are handled by the head of the HUF called “Karta”. In a HUF business, only the male members get a share in the business. The membership is limited up to 3 successive generations and they are also called ‘Co-parceners”.
Characteristics of Hindu Undivided Family
- Legal Status: A HUF enjoys its status without any registration. It has got due recognition under Income Tax Act but it does not enjoy any separate legal status. It can enter into partnership agreements with others.
- Membership: A HUF consists of only 2 types of members; one is Karta and the other is Co-parcener. No membership is allowed to anyone other than these two. However, there is no limit to the number of members as they are members of the HUF by birth.
- Profit Sharing: All the members of the Hindu Undivided Family business share equal profits or losses. In the event of the death of the co-parcener, his wife can claim the share of profit.
- Management: The management of a Hindu Undivided Family is managed by the Karta of the family. He can take advice from the co-parceners of the family and is not bound to follow that advice i.e. he is free to take decisions on his own.
- Liability: The liability of each member of the business is limited to the extent of share enjoyed by the co-parcener in the business. However, the liability of the Karta of the business is unlimited.
- Fluctuating Share: The share enjoyed by each co-parcener keeps fluctuating. The share reduces on every birth and it increases on the death of the co-parcener.
- Continuity: A HUF continues to exist even on the death of any of the co-parcener including Karta of the family. On the death of the Karta, the next senior most member becomes the Karta of the family.
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Advantages of Joint Hindu Family Business
- Every co-parcener enjoys assured Share in Profits. This safeguards the interest of Minors, sick and the disabled.
- The Karta have full freedom in managing the business without any interference of the co-parceners.
- The young members of the family are able to share the knowledge and experience of the elder members of the HUF business.
- The Karta have the unlimited liability whereas the other members have limited liability i.e. up to the extent of their share.
- A HUF continues to exist even on the death of the Karta or any other co-parcener.
Disadvantages of Joint Hindu Family Business
- A HUF has limited resources i.e. limited financial and managerial resource.
- Co-parceners generally Lack the motivation because they do not get the benefit of their hard work and the profits are shared equally.
- Since Karta has the whole sole right to take decisions hence, there is a scope for misuse of power by Karta.
- There is Scope for Conflict among the members of the three generations of the family i.e. among the co-parceners.
- There is a risk Instability due to a small rift within the family.
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