2. Define Hindu undivided family. Write features merits and demerits of HUF.
Answers
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Answer
Features:
1. Formation
2. Liability
3. Control
Merits:
1. Effective Control
2. Continued Business Existence
3. Limited liability of members
Demerits:
1. Limited Resources
2. Unlimited Liability of karta
3. Limited Managerial skills
Explanation:
Definition- Hindu Undivided Family is also called joint hindu family business which was governed by hindu law. The membership of Hindu Undivided Family is the birth in the particular family and three successive generation can be the member in business.
Features:-
1. Formation- For a joint hindu family business there should be at least two members in the family and an ancestral property to be take over by them. The organization does not need any agreement because membership is done by birth. It is governed by Hindu Succession Act 1956.
2. Liability- The liability of all the members of the family is limited expect the karta . However the karta has unlimited liability.
3. Control- The control of the family is in the hands of karta. He has the authority to take all the decision because he is the eldest member of family.
He has the power of decision making.
Merits:-
1. Effective Control- The karta who is the eldest member of the family has the right to take absolute decisions. This will avoid conflict among the family members and no one can stand in front of him to take decision.
2. Continued Business Existence- The the death of the karta will not affect the business of the family because the next eldest member can take position. Hence operations are not put to an end and continuity of business
are not violated.
3. Limited liability of members- The liability of all the members who have equal ownership right over the property of an ancestor is limited except the karta to their share in the business and consequently their risk is well defined.
Demerits:-
1. Limited Resources- The joint hindu family business faces the problem of limited funds as they are mainly dependent on ancestral property.
2. Unlimited Liability of karta- The karta is not only responsible for decision making and management of the family business but also face the drawback of having unlimited liability.
3.Limited Managerial skills- Since the karta cannot be an expert in all the areas of the management the business may suffer poor profits and or sometime even losses for the organization because of his wrong decisions.