PARTNERSHIP
‘Partnership’ is an association of two or more persons who pool their financial and managerial
resources and agree to carry on a business, and share its profit. The persons who form a
partnership are individually known as partners and collectively a firm or partnership
firm.
The agreement may be in oral, written or implied. When the agreement is
in writing it is termed as partnership deed. However, in the absence of an agreement, the
provisions of the Indian Partnership Act 1932 shall apply.
Partnership form of business organisation in India is governed by the Indian Partnership Act, 1932 which defines partnership as “the relation between persons who have agreed to
share the profits of the business carried on by all or any of them acting for all”.
CHARACTERISTICS OF PARTNERSHIP FORM OF BUSINESS
ORGANISATION
Based on the definition of partnership as given above, the various characteristics of
partnership form of business organisation, can be summarised as follows:
(a) Two or More Persons: To form a partnership firm atleast two persons are required.
The maximum limit on the number of persons is ten for banking business and 20 for
other businesses. If the number exceeds the above limit, the partnership becomes
illegal and the relationship among them cannot be called partnership.
(b) Contractual Relationship: Partnership is created by an agreement among the persons
who have agreed to join hands. Such persons must be competent to contract. Thus,
minors, lunatics and insolvent persons are not eligible to become the partners. However,
a minor can be admitted to the benefits of partnership firm i.e., he can have share in the
profits without any obligation for losses.
(c) Sharing Profits and Business: There must be an agreement among the partners to
share the profits and losses of the business of the partnership firm. If two or more
persons share the income of jointly owned property, it is not regarded as partnership.
(d) Existence of Lawful Business: The business of which the persons have agreed to
share the profit must be lawful. Any agreement to indulge in smuggling, black marketing
etc. cannot be called partnership business in the eyes of law.
(e) Principal Agent Relationship: There must be an agency relationship between the
partners. Every partner is the principal as well as the agent of the firm. When a partner
deals with other parties he/she acts as an agent of other partners, and at the same time
the other partners become the principal.
(f) Unlimited Liability: The partners of the firm have unlimited liability. They are jointly
as well as individually liable for the debts and obligations of the firms. If the assets of
the firm are insufficient to meet the firm’s liabilities, the personal properties of the
partners can also be utilised for this purpose. However, the liability of a minor partner
is limited to the extent of his share in the profits.
(g) Voluntary Registration: The registration of partnership firm is not compulsory. But
an unregistered firm suffers from some limitations which makes it virtually compulsory
to be registered. Following are the limitations of an unregistered firm.
(i) The firm cannot sue outsiders, although the outsiders can sue it.
(ii) In case of any dispute among the partners, it is not possible to settle the dispute
through court of law.
(iii) The firm cannot claim adjustments for amount payable to, or receivable from, any
other parties.
MERITS OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
(a) Easy to Form: A partnership can be formed easily without many legal formalities.
Since it is not compulsory to get the firm registered, a simple agreement, either in oral,
writing or implied is sufficient to create a partnership firm.
(b) Availability of Larger Resources: Since two or more partners join hands to start
partnership firm it may be possible to pool more resources as compared to sole
proprietorship form of business organisation.
(c) Better Decisions: In partnership firm each partner has a right to take part in the
management of the business. All major decisions are taken in consultation with and
with the consent of all partners. Thus, collective wisdom prevails and there is less
scope for reckless and hasty decisions.
(d) Flexibility: The partnership firm is a flexible organisation. At any time the partners
can decide to change the size or nature of business or area of its operation after taking
the necessary consent of all the partners.
(e) Sharing of Risks: The losses of the firm are shared by all the partners equally or as
per the agreed ratio.
(f) Keen Interest: Since partners share the profit and bear the losses, they take keen
interest in the affairs of the business.
(g) Benefits of Specialisation: All partners actively participate in the business as per
their specialisation and knowledge. In a partnership firm providing legal consultancy
to people, one partner may deal with civil cases, one in criminal cases, another in
labour cases and so on as per their area of specialisation. Similarly two or more
doctors of different specialisation may start a clinic in partnership.
(h) Protection of Interest: In partnership form of business organisation, the rights of
each partner and his/her interests are fully protected. If a partner is dissatisfied with
any decision, he can ask for dissolution of the firm or can withdraw from the partnership.
(i) Secrecy: Business secrets of the firm are only known to the partners. It is not required
to disclose any information to the outsiders. It is also not mandatory to publish the
annual accounts of the firm.
LIMITATIONS OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
A partnership firm also suffers from certain limitations. These are as follows:
(a) Unlimited Liability: The most important drawback of partnership firm is that the
liability of the partners is unlimited i.e., the partners are personally liable for the debt
and obligations of the firm. In other words, their personal property can also be utilised
for payment of firm’s liabilities.
(b) Instability: Every partnership firm has uncertain life. The death, insolvency, incapacity
or the retirement of any partner brings the firm to an end. Not only that any dissenting
partner can give notice at any time for dissolution of partnership.
(c) Limited Capital: Since the total number of partners cannot exceed 20, the capacity
to raise funds remains limited as compared to a joint stock company where there is no
limit on the number of share holders.
(d) Non-transferability of share: The share of interest of any partner cannot be
transferred to other partners or to the outsiders. So it creates inconvenience for the
partner who wants to transfer his share to others fully and partly. The only alternative
is dissolution of the firm.
(e) Possibility of Conflicts: You know that in partnership firm every partner has an
equal right to participate in the management. Also every partner can place his or her
opinion or viewpoint before the management regarding any matter at any time. Because
of this, sometimes there is friction and quarrel among the partners. Difference of opinion
may give rise to quarrels and lead to dissolution of the firm.
TYPES OF PARTNERS
(A) Based on the extent of participation in the day-to-day management of the firm
partners can be classified as ‘Active Partners’ and ‘Sleeping Partners’. The partners
who actively participate in the day-to-day operations of the business are known as
active partners or working partners. Those partners who do not participate in the
day-to-day activities of the business are known as sleeping or dormant partners. Such
partners simply contribute capital and share the profits and losses.
(B) Based on sharing of profits, the partners may be classified as ‘Nominal Partners’
and ‘Partners in Profits’. Nominal partners allow the firm to use their name as partner.
They neither invest any capital nor participate in the day-to-day operations. They are
not entitled to share the profits of the firm. However, they are liable to third parties for
all the acts of the firm. A person who shares the profits of the business without being
liable for the losses is known as partner in profits. This is applicable only to the minors
who are admitted to the benefits of the firm and their liability is limited to their capital
contribution.
(C) Based on Liability, the partners can be classified as ‘Limited Partners’ and ‘General
Partners’. The liability of limited partners is limited to the extent of their capital
contribution. This type of partners is found in Limited Partnership firms in some European
countries and USA. So far, it is not allowed in India. However, the Limited liability
Partnership Act is very much under consideration of the Parliament. The partners
having unlimited liability are called as general partners or Partners with unlimited liability.
It may be noted that every partner who is not a limited partner is treated as a general
partner.
(D) Based on the behaviour and conduct exhibited, there are two more types of
partners besides the ones discussed above. These are (a) Partner by Estoppel; and
(b) Partner by Holding out. A person who behaves in the public in such a way as to
give an impression that he/she is a partner of the firm, is called ‘partner by estoppel’.
Such partners are not entitled to share the profits of the firm, but are fully liable if some
body suffers because of his/her false representation. Similarly, if a partner or partnership
firm declares that a particular person is a partner of their firm, and such a person does
not disclaim it, then he/she is known as ‘Partner by Holding out’. Such partners are
not entitled to profits but are fully liable as regards the firm’s debts.
SUITABILITY OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
We have already learnt that persons having different ability, skill or expertise can join
hands to form a partnership firm to carry on the business. Business activities like construction,
providing legal services, medical services etc. can be successfully run under this form of
business organisation. It is also considered suitable where capital requirement is of a medium
size. Thus, business like a wholesale trade, professional services, mercantile houses and
small manufacturing units can be successfully run by partnership firms.
FORMATION OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
The following steps are to be taken in order to form a partnership firm:
(a) Minimum two members are required to form a partnership. The maximum limit is ten
in banking and 20 in other businesses.
(b) Select the like-minded persons keeping in view the nature and objectives of the
business.
(c) There must be an agreement among the partners to carry on the business and share
the profits and losses. This agreement must preferably be in writing and duly signed by
the all the partners. The agreement, i.e., the partnership deed must contain the following:
(i) Name of the firm
(ii) Nature of the business
(iii) Names and addresses of partners
(iv) Location of business
(v) Duration of partnership, if decided
(vi) Amount of capital to be contributed by each partner
(vii) Profit and loss sharing ratio
(viii) Duties, powers and obligations of partners.
(ix) Salaries and withdrawals of the partners
(x) Preparation of accounts and their auditing.
(xi) Procedure for dissolution of the firm etc.
(xii) Procedure for settlement of disputes
(d) The partners should get their firm registered with the Registrar of Firms of the concerned
state. Although registration is not compulsory, but to avoid the consequences of nonregistration,
it is advisable to get it registered when it is setup or at any time during its
existence. The procedure for registration of a firm is as follows.
(i) The firm will have to apply to the Registrar of Firms of the concerned state in the
prescribed form.
(ii) The duly filled in form must be signed by all the partners.
(iii) The filled in form along with prescribed registration fee must be deposited in the
office of the Registrar of Firms.
(iv) The Registrar will scrutinise the application, and if he is satisfied that all formalities
relating to registration have been duly complied with, he will put the name of the
firm in his register and issue the Certificate of Registration.
JOINT HINDU FAMILY FORM OF BUSINESS ORGANISATION
After knowing about sole proprietorship and partnership forms of business organisation
let us now discuss about a unique form of business organisation that prevails only in India
and that too among the Hindus. The Joint Hindu Family (JHF) business is a form of business
organisation run by Hindu Undivided Family (HUF), where the family members of three
successive generations own the business jointly. The head of the family known as Karta
manages the business. The other members are called co-parceners and all of them have
equal ownership right over the properties of the business.
The membership of the JHF is acquired by virtue of birth in the same family. There is no
restriction for minors to become the members of the business.
CHARACTERISTICS OF JHF FORM OF BUSINESS ORGANISATION
From the above discussion, it must have been clear to you that the Joint Hindu family
business has certain special characteristics which are as follows:
(a) Formation: In JHF business there must be at least two members in the family, and
family should have some ancestral property. It is not created by an agreement but by
operation of law.
(b) Legal Status: The JHF business is a jointly owned business. It is governed by the
Hindu Succession Act 1956.
(c) Membership: In JHF business outsiders are not allowed to become the coparcener.
Only the members of undivided family acquire co-parcenership rights by birth..
(d) Profit Sharing: All coparceners have equal share in the profits of the business.
(e) Management: The business is managed by the senior most member of the family
known as Karta. Other members do not have the 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. If the coparceners are not satisfied, the only remedy
is to get the HUF status of the family dissolved by mutual agreement.
(f) Liability: The liability of coparceners is limited to the extent of their share in the
business. But the Karta has an unlimited liability. His personal property can also be
utilised to meet the business liability.
(g) Continuity: Death of any coparceners does not affect the continuity of business.
Even on the death of the Karta, it continues to exist as the eldest of the coparceners
takes position of Karta. However, JHF business can be dissolved either through mutual
agreement or by partition suit in the court.
MERITS OF JHF FORM OF BUSINESS ORGANISATION
Since Joint Hindu Family business has certain peculiar features as discussed above, it has
the following merits.
(a) Assured Shares in Profits: Every coparcener is assured of an equal share in the
profits irrespective of his participation in the running of the business. This safeguards
the interest of minor, sick, physically and mentally challenged coparceners.
(b) Quick Decision: The Karta enjoys full freedom in managing the business. It enables
him to take quick decisions without any interference.
(c) Sharing of Knowledge and Experience: A JHF business provides opportunity for
the young members of the family to get the benefits of knowledge and experience of
the elder members. It also helps in inculcating virtues like discipline, self-sacrifice,
tolerance etc.
(d) Limited Liability of Members: The liability of the coparceners except the Karta is
limited to the extent of his share in the business. This enables the members to run the
business freely just by following the instructions or direction of the Karta.
(e) Unlimited Liability of the Karta: Because of the unlimited liability of the Karta, his
personal properties are at stake in case the business fails to pay the creditors. This
clause of JHF business makes the Karta to manage business most carefully and efficiently.
(f) Continued Existence: The death or insolvency of any member does not affect the
continuity of the business. So it can continue for a long period of time.
(g) Tax Benefits: HUF is regarded as an independent assessee for tax purposes. The
share of coparceners is not to be included in their individual income for tax purposes.
After knowing the merits let us see the limitations of Joint Hindu Family form of business
organisation.
LIMITATION OF JHF FORM OF BUSINESS ORGANISATION
(a) Limited Resources: JHF business has generally limited financial and managerial
resource. Therefore, it is not considered suitable for large business.
(b) Lack of Motivation: The coparceners get equal share in the profits of the business
irrespective of their participation. So generally they are not motivated to put in their
best.
(c) Scope for Misuse of Power: Since the Karta has absolute freedom to manage the
business, there is scope for him to misuse it for his personal gains. Moreover, he may
have his own limitations.
(d) Instability: The continuity of JHF business is always under threat. A small rift within
the family may lead to seeking partition.
SUITABILITY OF JHF FORM OF BUSINESS ORGANISATION
The Joint Hindu Family form of business organisation is suitable where the family inherits a
running business and the members of the family want to continue that business jointly as a
family business. Even otherwise, this form of business organisation 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.
‘Partnership’ is an association of two or more persons who pool their financial and managerial
resources and agree to carry on a business, and share its profit. The persons who form a
partnership are individually known as partners and collectively a firm or partnership
firm.
The agreement may be in oral, written or implied. When the agreement is
in writing it is termed as partnership deed. However, in the absence of an agreement, the
provisions of the Indian Partnership Act 1932 shall apply.
Partnership form of business organisation in India is governed by the Indian Partnership Act, 1932 which defines partnership as “the relation between persons who have agreed to
share the profits of the business carried on by all or any of them acting for all”.
CHARACTERISTICS OF PARTNERSHIP FORM OF BUSINESS
ORGANISATION
Based on the definition of partnership as given above, the various characteristics of
partnership form of business organisation, can be summarised as follows:
(a) Two or More Persons: To form a partnership firm atleast two persons are required.
The maximum limit on the number of persons is ten for banking business and 20 for
other businesses. If the number exceeds the above limit, the partnership becomes
illegal and the relationship among them cannot be called partnership.
(b) Contractual Relationship: Partnership is created by an agreement among the persons
who have agreed to join hands. Such persons must be competent to contract. Thus,
minors, lunatics and insolvent persons are not eligible to become the partners. However,
a minor can be admitted to the benefits of partnership firm i.e., he can have share in the
profits without any obligation for losses.
(c) Sharing Profits and Business: There must be an agreement among the partners to
share the profits and losses of the business of the partnership firm. If two or more
persons share the income of jointly owned property, it is not regarded as partnership.
(d) Existence of Lawful Business: The business of which the persons have agreed to
share the profit must be lawful. Any agreement to indulge in smuggling, black marketing
etc. cannot be called partnership business in the eyes of law.
(e) Principal Agent Relationship: There must be an agency relationship between the
partners. Every partner is the principal as well as the agent of the firm. When a partner
deals with other parties he/she acts as an agent of other partners, and at the same time
the other partners become the principal.
(f) Unlimited Liability: The partners of the firm have unlimited liability. They are jointly
as well as individually liable for the debts and obligations of the firms. If the assets of
the firm are insufficient to meet the firm’s liabilities, the personal properties of the
partners can also be utilised for this purpose. However, the liability of a minor partner
is limited to the extent of his share in the profits.
(g) Voluntary Registration: The registration of partnership firm is not compulsory. But
an unregistered firm suffers from some limitations which makes it virtually compulsory
to be registered. Following are the limitations of an unregistered firm.
(i) The firm cannot sue outsiders, although the outsiders can sue it.
(ii) In case of any dispute among the partners, it is not possible to settle the dispute
through court of law.
(iii) The firm cannot claim adjustments for amount payable to, or receivable from, any
other parties.
MERITS OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
(a) Easy to Form: A partnership can be formed easily without many legal formalities.
Since it is not compulsory to get the firm registered, a simple agreement, either in oral,
writing or implied is sufficient to create a partnership firm.
(b) Availability of Larger Resources: Since two or more partners join hands to start
partnership firm it may be possible to pool more resources as compared to sole
proprietorship form of business organisation.
(c) Better Decisions: In partnership firm each partner has a right to take part in the
management of the business. All major decisions are taken in consultation with and
with the consent of all partners. Thus, collective wisdom prevails and there is less
scope for reckless and hasty decisions.
(d) Flexibility: The partnership firm is a flexible organisation. At any time the partners
can decide to change the size or nature of business or area of its operation after taking
the necessary consent of all the partners.
(e) Sharing of Risks: The losses of the firm are shared by all the partners equally or as
per the agreed ratio.
(f) Keen Interest: Since partners share the profit and bear the losses, they take keen
interest in the affairs of the business.
(g) Benefits of Specialisation: All partners actively participate in the business as per
their specialisation and knowledge. In a partnership firm providing legal consultancy
to people, one partner may deal with civil cases, one in criminal cases, another in
labour cases and so on as per their area of specialisation. Similarly two or more
doctors of different specialisation may start a clinic in partnership.
(h) Protection of Interest: In partnership form of business organisation, the rights of
each partner and his/her interests are fully protected. If a partner is dissatisfied with
any decision, he can ask for dissolution of the firm or can withdraw from the partnership.
(i) Secrecy: Business secrets of the firm are only known to the partners. It is not required
to disclose any information to the outsiders. It is also not mandatory to publish the
annual accounts of the firm.
LIMITATIONS OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
A partnership firm also suffers from certain limitations. These are as follows:
(a) Unlimited Liability: The most important drawback of partnership firm is that the
liability of the partners is unlimited i.e., the partners are personally liable for the debt
and obligations of the firm. In other words, their personal property can also be utilised
for payment of firm’s liabilities.
(b) Instability: Every partnership firm has uncertain life. The death, insolvency, incapacity
or the retirement of any partner brings the firm to an end. Not only that any dissenting
partner can give notice at any time for dissolution of partnership.
(c) Limited Capital: Since the total number of partners cannot exceed 20, the capacity
to raise funds remains limited as compared to a joint stock company where there is no
limit on the number of share holders.
(d) Non-transferability of share: The share of interest of any partner cannot be
transferred to other partners or to the outsiders. So it creates inconvenience for the
partner who wants to transfer his share to others fully and partly. The only alternative
is dissolution of the firm.
(e) Possibility of Conflicts: You know that in partnership firm every partner has an
equal right to participate in the management. Also every partner can place his or her
opinion or viewpoint before the management regarding any matter at any time. Because
of this, sometimes there is friction and quarrel among the partners. Difference of opinion
may give rise to quarrels and lead to dissolution of the firm.
TYPES OF PARTNERS
(A) Based on the extent of participation in the day-to-day management of the firm
partners can be classified as ‘Active Partners’ and ‘Sleeping Partners’. The partners
who actively participate in the day-to-day operations of the business are known as
active partners or working partners. Those partners who do not participate in the
day-to-day activities of the business are known as sleeping or dormant partners. Such
partners simply contribute capital and share the profits and losses.
(B) Based on sharing of profits, the partners may be classified as ‘Nominal Partners’
and ‘Partners in Profits’. Nominal partners allow the firm to use their name as partner.
They neither invest any capital nor participate in the day-to-day operations. They are
not entitled to share the profits of the firm. However, they are liable to third parties for
all the acts of the firm. A person who shares the profits of the business without being
liable for the losses is known as partner in profits. This is applicable only to the minors
who are admitted to the benefits of the firm and their liability is limited to their capital
contribution.
(C) Based on Liability, the partners can be classified as ‘Limited Partners’ and ‘General
Partners’. The liability of limited partners is limited to the extent of their capital
contribution. This type of partners is found in Limited Partnership firms in some European
countries and USA. So far, it is not allowed in India. However, the Limited liability
Partnership Act is very much under consideration of the Parliament. The partners
having unlimited liability are called as general partners or Partners with unlimited liability.
It may be noted that every partner who is not a limited partner is treated as a general
partner.
(D) Based on the behaviour and conduct exhibited, there are two more types of
partners besides the ones discussed above. These are (a) Partner by Estoppel; and
(b) Partner by Holding out. A person who behaves in the public in such a way as to
give an impression that he/she is a partner of the firm, is called ‘partner by estoppel’.
Such partners are not entitled to share the profits of the firm, but are fully liable if some
body suffers because of his/her false representation. Similarly, if a partner or partnership
firm declares that a particular person is a partner of their firm, and such a person does
not disclaim it, then he/she is known as ‘Partner by Holding out’. Such partners are
not entitled to profits but are fully liable as regards the firm’s debts.
SUITABILITY OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
We have already learnt that persons having different ability, skill or expertise can join
hands to form a partnership firm to carry on the business. Business activities like construction,
providing legal services, medical services etc. can be successfully run under this form of
business organisation. It is also considered suitable where capital requirement is of a medium
size. Thus, business like a wholesale trade, professional services, mercantile houses and
small manufacturing units can be successfully run by partnership firms.
FORMATION OF PARTNERSHIP FORM OF BUSINESS ORGANISATION
The following steps are to be taken in order to form a partnership firm:
(a) Minimum two members are required to form a partnership. The maximum limit is ten
in banking and 20 in other businesses.
(b) Select the like-minded persons keeping in view the nature and objectives of the
business.
(c) There must be an agreement among the partners to carry on the business and share
the profits and losses. This agreement must preferably be in writing and duly signed by
the all the partners. The agreement, i.e., the partnership deed must contain the following:
(i) Name of the firm
(ii) Nature of the business
(iii) Names and addresses of partners
(iv) Location of business
(v) Duration of partnership, if decided
(vi) Amount of capital to be contributed by each partner
(vii) Profit and loss sharing ratio
(viii) Duties, powers and obligations of partners.
(ix) Salaries and withdrawals of the partners
(x) Preparation of accounts and their auditing.
(xi) Procedure for dissolution of the firm etc.
(xii) Procedure for settlement of disputes
(d) The partners should get their firm registered with the Registrar of Firms of the concerned
state. Although registration is not compulsory, but to avoid the consequences of nonregistration,
it is advisable to get it registered when it is setup or at any time during its
existence. The procedure for registration of a firm is as follows.
(i) The firm will have to apply to the Registrar of Firms of the concerned state in the
prescribed form.
(ii) The duly filled in form must be signed by all the partners.
(iii) The filled in form along with prescribed registration fee must be deposited in the
office of the Registrar of Firms.
(iv) The Registrar will scrutinise the application, and if he is satisfied that all formalities
relating to registration have been duly complied with, he will put the name of the
firm in his register and issue the Certificate of Registration.
JOINT HINDU FAMILY FORM OF BUSINESS ORGANISATION
After knowing about sole proprietorship and partnership forms of business organisation
let us now discuss about a unique form of business organisation that prevails only in India
and that too among the Hindus. The Joint Hindu Family (JHF) business is a form of business
organisation run by Hindu Undivided Family (HUF), where the family members of three
successive generations own the business jointly. The head of the family known as Karta
manages the business. The other members are called co-parceners and all of them have
equal ownership right over the properties of the business.
The membership of the JHF is acquired by virtue of birth in the same family. There is no
restriction for minors to become the members of the business.
CHARACTERISTICS OF JHF FORM OF BUSINESS ORGANISATION
From the above discussion, it must have been clear to you that the Joint Hindu family
business has certain special characteristics which are as follows:
(a) Formation: In JHF business there must be at least two members in the family, and
family should have some ancestral property. It is not created by an agreement but by
operation of law.
(b) Legal Status: The JHF business is a jointly owned business. It is governed by the
Hindu Succession Act 1956.
(c) Membership: In JHF business outsiders are not allowed to become the coparcener.
Only the members of undivided family acquire co-parcenership rights by birth..
(d) Profit Sharing: All coparceners have equal share in the profits of the business.
(e) Management: The business is managed by the senior most member of the family
known as Karta. Other members do not have the 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. If the coparceners are not satisfied, the only remedy
is to get the HUF status of the family dissolved by mutual agreement.
(f) Liability: The liability of coparceners is limited to the extent of their share in the
business. But the Karta has an unlimited liability. His personal property can also be
utilised to meet the business liability.
(g) Continuity: Death of any coparceners does not affect the continuity of business.
Even on the death of the Karta, it continues to exist as the eldest of the coparceners
takes position of Karta. However, JHF business can be dissolved either through mutual
agreement or by partition suit in the court.
MERITS OF JHF FORM OF BUSINESS ORGANISATION
Since Joint Hindu Family business has certain peculiar features as discussed above, it has
the following merits.
(a) Assured Shares in Profits: Every coparcener is assured of an equal share in the
profits irrespective of his participation in the running of the business. This safeguards
the interest of minor, sick, physically and mentally challenged coparceners.
(b) Quick Decision: The Karta enjoys full freedom in managing the business. It enables
him to take quick decisions without any interference.
(c) Sharing of Knowledge and Experience: A JHF business provides opportunity for
the young members of the family to get the benefits of knowledge and experience of
the elder members. It also helps in inculcating virtues like discipline, self-sacrifice,
tolerance etc.
(d) Limited Liability of Members: The liability of the coparceners except the Karta is
limited to the extent of his share in the business. This enables the members to run the
business freely just by following the instructions or direction of the Karta.
(e) Unlimited Liability of the Karta: Because of the unlimited liability of the Karta, his
personal properties are at stake in case the business fails to pay the creditors. This
clause of JHF business makes the Karta to manage business most carefully and efficiently.
(f) Continued Existence: The death or insolvency of any member does not affect the
continuity of the business. So it can continue for a long period of time.
(g) Tax Benefits: HUF is regarded as an independent assessee for tax purposes. The
share of coparceners is not to be included in their individual income for tax purposes.
After knowing the merits let us see the limitations of Joint Hindu Family form of business
organisation.
LIMITATION OF JHF FORM OF BUSINESS ORGANISATION
(a) Limited Resources: JHF business has generally limited financial and managerial
resource. Therefore, it is not considered suitable for large business.
(b) Lack of Motivation: The coparceners get equal share in the profits of the business
irrespective of their participation. So generally they are not motivated to put in their
best.
(c) Scope for Misuse of Power: Since the Karta has absolute freedom to manage the
business, there is scope for him to misuse it for his personal gains. Moreover, he may
have his own limitations.
(d) Instability: The continuity of JHF business is always under threat. A small rift within
the family may lead to seeking partition.
SUITABILITY OF JHF FORM OF BUSINESS ORGANISATION
The Joint Hindu Family form of business organisation is suitable where the family inherits a
running business and the members of the family want to continue that business jointly as a
family business. Even otherwise, this form of business organisation 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.
No comments:
Post a Comment