Identify the form of business which is headed by a Karta. Explain two merits and two
limitations of such form of organization.
Answers
Answer:
The Merits and Limitations of Joint Hindu Family Business are as follows :
Merits
Effective control
The Karta has absolute decision making power.
This avoids conflicts among members as no one can interfere with his right to decide.
This also leads to prompt and flexible decision making.
Stability in existence
The death of the Karta will not affect the business as the next eldest member will then take up the position.
Hence operations are not terminated and continuity of business is not threatened.
Limited liability of members
The liability of all the co-partners except the Karta is limited to their share in the business and consequently their risk is well defined and precise.
Increased loyalty and cooperation
Since the business is run by the members of a family, there is a greater sense of loyalty towards each other.
Price in the growth of business is linked to the achievements of the: family.
This helps in securing better cooperation from all the members.
Limitations
Limited resources
The Joint Hindu Family Business faces the problem of limited capital as it mainly depends on the ancestral property.
This limits the scope for expansion of business.
Unlimited liability of Karta
The Karta is burdened not only with the responsibility of decision making and management but also with Unlimited liability.
His personal property can be used to satisfy business debts.
Dominance of Karta
The Karta individually manages the business which may at times not be acceptable to other members.
This may cause conflicts amongst them and may even lead to break down of the family unit.
Limited managerial skills
Since the Karta cannot he an expert in all areas of management, the business may suffer as a result of his unwise decisions.
His inability to decide effectively may even cause financial problems.