Joint Hindu family business

A joint Hindu family business is found only in India. It is owned and carried on by the members of a Hindu Undivided Family (HUF), and is governed by Hindu law. Think of a family business that the grandfather began, the father now runs and the children will take over: it uses the family's ancestral property.

How it works:

• Membership comes by birth: anyone born into the family is a member, and members from three successive generations share in it. The members are called co-parceners.
• Minors can be members, even a small child. This is one of very few forms of business where that is so.
• The karta is the eldest member and the head of the family business. Since the 2005 amendment to the law, the eldest member may be male or female.
• The karta controls and manages the business, and has unlimited liability.
• The other co-parceners' liability is limited to their share of the family property.
• Continuity: when the karta dies, the next eldest member becomes karta, so the business goes on.

Merits: effective control by the karta, who makes quick decisions; continued existence; limited liability for co-parceners; and greater loyalty and cooperation, because the business belongs to the whole family.

Limitations:

• Limited resources: the capital is mainly the family's ancestral property.
• Unlimited liability of the karta, which makes the karta cautious about expanding.
• Dominance of the karta: other members may disagree with how it is run, which can cause conflict.
• Limited managerial skills: one person cannot be an expert in every area.