Joint Hindu Family Business | Class 11 | In English

1.What is JHF business? Discuss its main features
Answer: A business, which continues from one generation to another generation, is known as JHF business. It is owned and carried by a joint family who live under one roof. A Joint Family consists of a minimum of three generations (Grand Parents, Parents and Children). It is a unique form of business organization which found only in India. The head of the family is known as karta or manager and the other members of the family are known as co-parceners. JHF business is recognized all over India except Kerala.
Features:
a.Formation: To form a JHF business, there must be at least 2 members in the family, having some ancestral property. The registration of this type of business is not compulsory.
b.Governed by Hindu Law: It is formed, managed and controlled as per Hindu succession Act, 1956. The rights, duties and liabilities of members are determined by the rules of Hindu law.
c.Membership: There is no limit on the maximum number of members. The membership in the business is acquired automatically by birth. Membership can also acquired by marriage to a male person who is already a member of JHF. By adoption, an outsider can be admitted as member.
d.Management: The business is managed and controlled by the karta. His decisions are final.
e.Profit Sharing: The business profit is equally divided among all the members.
f.Liability: The liability of karta is unlimited and the liability of coparceners is limited to the extent of their share in the business.
g.Continuity: Joint Hindu family business does not dissolve due to death of Karta. After the death of Karta, the next eldest member of the family becomes karta. The existence of the Joint Hindu Family firm is not affected by the long illness, death, bankruptcy or insanity of any coparcener. This business continues from one generation to another generation.
h.Accounts: The accounts are maintained by karta. He is not accountable to any member.
2.State the Advantages and Disadvantages of JHF Business Organization.
Ans: Advantages:
a.Centralized and Efficient Management:
Being the eldest and most experienced person, karta manages the business effectively. He only takes all the decisions and gets them implemented with the help of members. This Centralised management results in unity of command and disciplined management.
b.Continuity: The important advantage of the JHF business is its continuity. Even on the death of the Karta, JHF will be continued as the next eldest member of the family assumes the charge of Karta.
c.Unlimited Membership: By birth, every coparcener will automatically become a member in Hindu Undivided Family. There is no limit to membership.
d.Better Credit Facilities: Compared to the sole proprietor, the credit worthiness of JHF business is more. One reason for this is that karta’s liability is unlimited. Another reason is, JHF business is located at the same place for many generations, so the customers residing in the locality have good relation with JHF business.
e.Quick Decision: Karta only takes all business decisions. He need not consult any one before taking any decisions. If opportunities come his way, he can exploit them readily. Thus, there is a scope for spot decisions.
f.Secrecy: Secrets are important for business to avoid the competitors to enter into the same business. Karta is not required to disclose any business information to the family members and outsiders. Therefore, the business is able to take full advantage of any new ideas.
Disadvantages:
a.No Direct Reward for Efficiency: There is no relation between efforts and rewards. Karta alone looks after the business more efficiently and dedicatedly. But profits are shared among all members equally. It encourages qualities like idleness, laziness and stay at home among coparceners. Karta may lose interest to put more effort in the business.
b.Limited Managerial Ability: Due to limited financial resources, JHF cannot employ professional employees. Karta only executes all business functions. A single person can¬not possess full knowledge in every aspect of the business. Sometimes, the members suffer due to the wrong and unfair business decisions taken by the karta.
c.Suspicion among Members: Karta keeps business affairs secret from members. This leads to suspicion among the members. Sometimes, members may think that karta is misusing the power for his personal benefit. This may create conflicts between the Karta and the other members.
d.Limited Capital and Financial Resources: There are two main sources of capital for JHF business. 1.Ancestral property 2.Borrowings from friends, relatives and banks. They may not be sufficient to meet all business requirements. Therefore, the capital and financial resources of JHF business are limited as compared with that of partnership and joint stock company. This results in limited expansion and growth of the business. Large scale economies cannot be obtained.