The Hindu Undivided Family (HUF) is a distinct form of Business organization peculiar to India. Hindu Undivided Family (HUF) is created by the operation of law. Hindu Undivided Family (HUF) does not have any separate legal entity from that of its members. The laws that govern HUFs are not codified and are read along with the Hindu Succession Act and the Income-tax Act.
The business of Hindu Undivided Family (HUF) is controlled under the Hindu Law instead of the Partnership Act. Membership in this form of business organization can be acquired only by birth or by marriage to a male person who is already a member of the Joint Hindu Family.
“When two or more families agree to live and work together, throw their resources and labor with joint-stock and share profits and the losses together, then this family is known as a composite family.”
There are two schools of Hindu Law-one is Dayabhaga which is prevalent in Bengal and Assam and the other is Mitakshara prevalent in the rest of the country. As per Mitakshara law, there is a son’s right by birth in the property of a joint family. It means, when a son is born in a family, he acquires an interest in the property jointly held by the family.
The business of the Hindu Undivided Family (HUF) is controlled and managed by one person who is called ‘Karta’ or ‘Manager’. The Karta or manager works in consultation with other members of the family but ultimately he has a final say. The liability of ‘Karta’ is unlimited while other members have limited liability.
Benefits of Hindu Undivided Family (HUF)
- Easy to Start: It is very easy to start the Hindu Undivided Family (HUF) Business. No legal formalities are required to be faced, such as registration. It requires no agreement, though, in actual practice, it is documented to avoid litigation and for regulatory purposes.
- Efficient Management: The management of Hindu Undivided Family (HUF) Business is centralized in the hands of ‘Karta’ of family. In this business, Karta takes all decisions and gets them implemented with the help of other members. No other member interferes with his management.
- Secrecy: In Hindu Undivided Family (HUF) Business, all the decisions are taken by the ‘Karta’ himself. He is in a position to keep all the affairs to himself and maintains perfect secrecy in all matters.
- Prompt Decision: Karta is the only person who exercises control and direction over the business. He may not consult anyone in making decisions. This ensures prompt or quick decisions. Being the sole master, he takes prompt decisions and takes advantage of the opportunity.
- Economy: For the success of any business, the economy is a must. It is well- balanced and maintained in the Hindu Undivided Family (HUF) Business. The ‘Karta’ of the family spends money cautiously.
- Credit Facilities: In Hindu Undivided Family (HUF) Business the credit facilities are more. One reason for this is that liability of the ‘Karta’ is unlimited. ‘Karta’ has personal relations with others, which helps in raising credit.
- Freedom regarding Selection of Business: The Karta is at freedom to select any business of his choice. He has not to depend on others.