Merits and demerits of joint Hindu family business

MERITS And DEMERITS OF JOINT HINDU FAMILY BUSINESS

MERITS

1)Easy to start

Joint Hindu family business is very easy to form. It becomes into existence as per Hindu law. Family members become co-parceners in the firm by virtue of their birth in the family. Moreover no restriction is required for a joint Hindu family firm in respect of minimum or maximum numbers.

2)continuity of business

 This types of business is normally carried on by generation. If the kara dies ,the next head of the family takes over the responsibility. Again, emotional attachment of the family makes the business for a longer period of  time.

3)Quick decisions

Due to complete control, the karts can take quick decisions. He may or may not concern with other co-parceners. Normally, the co-parceners agree with the decision taken by kart.

4)close contact

Karta and other co-parceners do maintain close contact with customers as will as employees. By maintaining close contact with customers, they serve the customers much better. By maintaining close contact with employees they develop team sprit among the employees.

5)credit standing

As the business is carried on for long period of time, it generates goodwill in the market. Moreover, unlimited liability of karta gets facility of loans from banks and financial institution. Thus, a joint Hindu family business enjoys a good credit standing in the market.

6)limited liability of co-parceners

The co-parceners liability is limited to the extent of their share in the family business. This means personal properties of the co-parceners will never be utilized.

7)flexibility in operation

The karta can expand the business, can change the line of business or even can close down the business if the situation demands . thus, there is complete flexibility in business operation.

8)Business secrecy 

The business secrecy can be maintained to the maximum extent because they need not publish their accounts and other records. So, competitors cannot easily obtain the secrets of joint Hindu family business.

DEMERITS

1)limited capital 

This types of business cannot raise amount of capital. This is because, the sources of collecting are limited. The capital can be raised from savings of the family members, borrowing from friends and relative and also taking loans from bank but of limited amount.

2)limited managerial skills

The karta and other co-parceners lack necessary business skills. Also it may not be possible to appoint professionals because of limited capital.

3)Generates inefficiency

As there is on direct relationship between efforts and rewards for an individual co-parceners, they  do not put efforts but gets the shares equally. This generates inefficiency among co-parceners.

4)lack of economics of scale

As the business is operated on a limited scale, kara and co-parceners cannot get the benefits of large scale operations. Hence, there is a lack of economies of scale.

5)unlimited liability of karta

The liability of karta is unlimited. This means, if the property of joint Hindu family firm is not sufficient to pay off the third party liabilities, his personal property can be utilized.

6)family disputes

There may be family disputes and the co-parceners may demand partition of business. Thus, continuity of business is really affected.

7)limited growth

Due to limited capital and limited managerial ability, this business may not be  able to expand or diversify.

8) No legal status

Like sole trading concerns a joint Hindu family business also does not have separate legal status. In the eyes of law,the joint Hindu family firm and the family members are the same.