Joint Hindu Family Business
Joint Hindu Family Business...
Nature and Meaning: The Joint Hindu Family Firm is the next non-corporate, group ownership form of family business operative in India. It is governed by the Hindu Law. In the Hindu Law, there are two schools: (i)
Dayabhaga, which is applicable in Bengal and Assam.
Mitakshara, which is applicable in the rest of India.
The origin of the Joint Hindu Family firm is to be found in the principles of inheritance under the second school i.e., Mitakshara school of Hindu Law. Under this school, the property of a Joint Hindu Family is inherited by a Hindu from his father, grandfather, and great grandfather is called ancestral property. Thus, three successive generations in the male line (son, grandson, and great grandson) can simultaneously inherit the ancestral property. This interest in inheritance is called coparcenary interest and the members of the Joint Hindu Family. Hindu Undivided families (HUF) Firm are called coparceners and the senior most as karta. In this group of coparceners, however, the female members of the Joint Hindu Family are not included. It should be carefully noted here that with the operation of the Hindu Succession Act, 1956, the female relative of a deceased coparcener is eligible to receive only some share out of the coparcenary interests of such a Coparcener.
Joint Hindu Family Business: The Joint Hindu Family (JHF) business is a form of business organization run by Hindu Undivided Family (HUF) , where the family members of three successive generations own the business jointly. The head of the family is known as “Karta” who manages the business. The other members are called “Co-parceners” and all of them have equal ownership right over the properties of the business.
Provisions required for formation of Hindu Joint Family Business. 1. Membership from Birth: In Hindu Joint Family Business, there are membership has been self activated from the member birth. It means, members of business are not required for contracting with company. They become a member from their birth, who are known as “Co-parceners”. They have an equal ownership on the hereditary property. In India, there are two systems (Laws) which have different provisions in case of membership. a) Dayabhaga System: In this system, male and female both are required to become Coparceners of business and it prevails only in West Bengal. (b) Mitakshara System: In this system, female and women’s cannot be become a member of business, only male members are required and it allows in all over India except West Bengal. 2. Formation of Business: For formation of business, there should be at least two members are present at time of formation and a hereditary property should be formed for Hindu Joint Family Business. There membership is not created by an agreement in among individuals. 3. No restriction on maximum limit: In Hindu Joint Family Business, there no restrictions are allowed on maximum numbers of members or Co-parceners. However, restriction will be allowed after three successive generations. 4. Liability: In Hindu Joint Family Business, the karta has an unlimited liability in business and all other members have limited liability in property of business. 5. Control: The whole control of business has managed by eldest member of business, who is called as “Karta”. Karta has taken all decisions to manage the business. 6. Extreme opportunity for Minors: In Hindu Joint Family Business, a family member get the membership from their birth, therefore, there minor can also become of Co-parcener of business. 7. Continuity:
The business will never end after the death of Karta. It will continue and appoint the other eldest member of business, who takes the position of Karta. The nature of business is stable.
Distinction between Partnership and Joint Hindu Family (HUF) Firm:
JOINT HINDU FAMILY BUSINESS
Mode of creation
Through an agreement
Operation of law and by birth
Status of Minor
Basically incompetent, but may be taken in.
Becomes member by birth
Rights of Members
Right is there unless one waives such a right
Only Karta conducts, bet may invite others, if he so desires
Every partner can inspect
A co-parcener has no such right
Liability of Members
Every partner personally liable, including his personal estate
Only Karta is liable for the debts of business
No restriction about caste, color or creed
Only Hindus, the members of the same family
May or may not have perpetual succession
Perpetual succession till the last member of HUF survives
May or may not get registered
Does not require registration
Characteristics of Joint Hindu Family Business: Formation: There should be at least two members in the family and the family should possess some ancestral. There membership is not created by an agreement but by operation of law. Legal Status: The Joint Hindu Family business is a jointly owned business. It is governed by the Hindu Succession Act, 1956. Membership: In JHF business the outsiders are not allowed to become the co-parceners. Only the members of undivided family acquire co-parcernership right by birth. Profit Sharing: All co-parcener have equal share in the profits of the business. Management The business is managed by the senior most member of the family also known as “Karta”. Other members do not have any right to participate in the management. The Karta has the authority to manage the business as per his own will and his ways of managing cannot be questioned by other members. If the co-parceners are not satisfied the only remedy is to get the HUF status of the family resolved by mutual agreement. Liability: In Hindu Joint Family Business, the karta has an unlimited liability in business and all other members have limited liability in property of business. Continuity: The business will never end after the death of Karta. It will continue and appoint the other eldest member of business, who takes the position of Karta. The nature of business is stable.
Merits of JHF Business
Demerits of JHF Business
Assured share in profit.
Have capital & manpower limited.
Lack of motivation
Sharing of knowledge and experience
Scope of misuse of power
Limited liability of members
Unlimited liability of karta Continued existence Tax benefits
Suitability of JHF Business:
The Joint Hindu Family form of organization is suitable
Where the family inherits a running business and The family of the business wants to continue that business jointly as a family business. This form of business organization is considered suitable for a business that requires limited financial and managerial resources and having a very limited area of operation. It is found that JHF are usually engaged in trading business, indigenous banking, small industry and crafts etc.
Merits of Joint Hindu Family Firm:
Assured share in profits. Every co-parcener is assured of an equal share in the profits of the business no matter what his participation in the running of the business. This safeguards the interest of the minor, physically and mentally challenged co-parcener.
Quick decision The karta enjoys full freedom in managing the business. It enables him to take quick decision without any interference.
Sharing of knowledge and experience A JHF business provides an opportunity for the young members of the family to share the knowledge and expertise of the elder members of the family.
Limited liability of members In Hindu Joint Family Business, the co-parceners have limited liability in the property of business which leads to efficient running of the business. Unlimited liability of Karta:
That leads to efficient running of the business as Karta personal property is also on stake.
Continued existence The business will never end after the death of Karta. It will continue and appoint the other eldest member of business, who takes the position of Karta. The nature of business is stable.
Tax benefits: HUF is regarded as an independent assesses for tax purpose. The share of co-parceners is not to be included in their individual income for tax purposes.
Limitations of Joint Hindu Family Firm:
Have capital & manpower limited. The JHF business has generally limited financial and managerial resource therefore it is not considered for large businesses. Lack of motivation The co-parcener get equal share in the profits of the business irrespective of their participation. So generally they lacks motivation.
Scope of misuse of power The Karta can misuse the powers to make for his personal gains. Moreover he may have his own limitations. Instability JHF is a highly unstable form of business, even a small rift within the family members can lead to partition.
A Case study: Kalyan Bhel – A Snacks&Chaat Centre
Kalyan Bhel House is a renowned chaat and snack house operating since the last 30 years in Pune. The founder Mr.Rameshbhau commenced this esteemed snack house as a street vendor and as they say fortune favors the brave, Mr.Rameshbhau in a short span of time expanded this chaat and snack house business from a street vendor to acquiring 7-8 snack places in and around Pune and many more coming up soon. The goal is to satisfy the hunger of chaat and snack lover’s and having loyal customers all year around. Our esteemed customers visit us from all walks of life and we customize our chaats and snacks as per their requirements. We also cater to party orders, weddings or any other functions. Testimonials ‘Mmmmmmmmmmm’,’Lai Bhaaree’, ‘Badhia hai yaar’,’yummy’,’Awesome’,’Wah! Kya taste hai’, ‘superb’,It’s Amazing’, ‘I’m full but I still want to eat some more.’ The above are few of the testimonials stated by our esteemed customers who have relished and enjoyed our chaat and snacks. The above compliments boost our moral and lift Kalyan Bhel House to be the best in town for chaat and snacks.
One can run a business based on basic idea of business management but having the modern technologies is place is really important today. The businesses rely on computers for information management (billing, orders, menu, customer’s detail, employee pay etc). Mr. Rameshbhau understands that he can’t operate and manage business at the same time and there was need for professionals to pitch in and take the management into their hands. Communication has been the main issue in JHF as they have depending on outdated systems and there was no one employed who was highly proficient in this area. Increase in business demand the companies to ensure that they have all the modern technologies in place which will ensure that the business is running smooth as well as the customer’s base stronger. Management of organizational change Implementation of any new information systems in the organization will bring out lot of chaos and confusion among the members and the stakeholders. It is important to ensure that appropriate change management strategies are in place to avoid any further problems in accepting the new systems. JHF decision to implements this new IS will completely change the current structure of the business. As far as the company is concerned, currently all the staff members are well aware of the problems hence they would welcome any change that will take away the problem and help them in performing better. 1. Identification of problems and the problematic areas has already been done. 2. JHF will have relook into their vision and ensure that now they develop their future plan and their aim that they want to achieve. 3. Communication the vision and the goals to the staff and stakeholders will ensure that they are part of business and they make a difference. 4. JHF will have to tackle one problem at a time. If they will try to implement every change at once, management issues will kick in. Hence first they need to take care of the transaction related issues and then move onto to management of information and communication systems. No change can happen overnight, it is a gradual process and it will take its time.
Decision making at JHF Once the current problematic areas have to solved through implementation of the appropriate information system, JHF can move towards decision making aspect. It is not easy to take decision in a business and requires lot of thinking and research. Implementation of a decision making system will ensure that the company is able to access all the internal as well as external details before taking any decision. Availability of information will enable JHF to foresee the pros and cons of certain decision. They will be able to make decisions which will have a positive impact on the business. Decisions are important in terms of which marketing strategy will yield more results, which promotional technique will attract more number of customers, which business management strategy will offer best customer service etc. Ethical consideration JHF has now identified the scope for using IT for improving their overall business performance. Stakeholders of the business have to be ready to face initial turbulence in the performance due the new system and there might be scenarios wherein the customer’s data will be required for further research. Customer might be contacted without taking their consent previously. JHF should increase the awareness all around about the changes that they are planning to implement and the results that they are expecting
Even though JHF was able to start the business on a good note and got the attention of the people, but they failed to understand the importance of changing market requirements and the change in the perception and needs of the people. Over a period of JHF was unable to show any evolution or development in terms of variety in food and the management of the business. The JHF business is losing its popularity now a days and the main cause for its decline is the gradual breaking of the joint family system itself. The present day trends of industrialization and westernization are giving way to individual/nuclear family system.
SUGGESTIONS AND RECOMMENDATION A huge scope of improvement has been identified in the business processes in JHF. JHF has been lacking in terms of their business management areas and needs development in this area. Apart from the implementation of new technologies, it is recommended that JHF develop new strategies which ensure that they are focused on utilizing the positives of these new systems. Business is all about customers and revenue. Happy customers bring in revenue and at the same time an unhappy customer will impact the profits along with the overall outlook of the business. JHF will have to ensure that organizational change recommended above is welcomes by all the stakeholders of the company including, employees, staff and other business partners. They should be able to see the benefits of the change.
Websites: https://tedneva.wordpress.com/2014/09/16/understanding-business https://www.youtube.com/watch?v=Px_1r8a14Xs http://www.kalyanbhel.com/