The HUF is an Indian form of business organization that is primarily used for the Joint Hindu Family Business's, governed by the Hindu Law.
It is a body consisting of people descended from the same ancestral head, including the wives and daughters of the male descendants who live together.
The size of the HUF is continuously fluctuating. It increases with the birth of a member in the family and decreases on the death of a member of the family. For the formation of the HUF, one does not require to submit any documents, the admission of the member of the HUF is by birth.
Hence, even minors will be a part of the HUF.
The essentials of HUF are:
- Hindu, Jains, Sikhs and Buddhists shall be considered Hindus for the purpose of this definition.
- There should be a family, i.e. a group of people more than one.
- The family should be undivided, i.e. living jointly and having a sense of commonness among themselves.
- Lastly, there must be some assets or ancestral property that they have inherited or will inherit.
Who is a Karta?
The eldest member of the family will be the head of the Joint Family. He is known as the 'Karta', and he is the main person responsible for the business and finances of the family. At the death of Karta, the next eldest member shall become the Karta of the HUF.
Who is a Coparcener?
The Hindu Coparcenary is a narrower body within the HUF. These are the individuals (known as the 'Coparcener') who acquire an interest in the joint family property by their birth.
Advantages and Disadvantages of HUF
- Several exemptions can be claimed by the HUF in its income tax returns. A HUF is taxed at the same rate as an individual.
- An adopted child shall also become a member of the HUF.
- The joint family has a lot of scope of disagreements and conflicts due to a difference in opinion, but since the Karta has the ultimate and absolute power, there shall be effective management.
- The existence of HUF is perpetual. The death of the Karta will not affect the workings of the HUF as the next eldest member will resume the position of the Karta.
- There is a constant balance between the powers and liabilities under the HUF. The members and the coparceners do not have control over the management of the HUF, and hence, their liability is limited only to their share in the property. The Karta has total control over the management and therefore is entirely liable for the HUF businesses.
- The trust amongst members ensures overall cooperation since all the members of the HUF are relatives and have a certain sense of loyalty towards each other.
- Since the HUF does not accept members other than family members as part of the HUF, it is challenging to get additional capital and therefore, the scope of the business is hampered.
- Due to the unlimited liability faced by the Karta, he may not be able to take challenging and risky business decisions in favour of the HUF.
- The Karta may be wrongfully held liable for the actions of the other members of the HUF.
- Conflicts may arise in the family due to the dominance of the Karta.
- The Karta may not possibly be the most qualified person to take on the business of the HUF.
- Since every member has some right on every asset of the family, the common property of the HUF cannot be sold without the consent of every member involved. Hence, the partition of the HUF is even more complicated than opening a HUF.
Currently, joint families are losing their importance as there are several cases wherein members of the HUF are fighting over property.