7 Disadvantages of Joint Hindu Family Business

Joint Hindu Family Business

Joint Hindu family business is a distinct form of business organization practiced only in India. These businesses are not governed by any business law or partnership act. Joint Hindu family businesses are fully governed by Hindu law.

These businesses are run & managed by the members of the Joint Hindu Family. The head of the business is the eldest member of the family. Head of the business is called “Karta”. Karta has full control over the business. He can take every decision on its own & controls other members role. Karta looks after all the finances of business. Karta has unlimited liability whereas rest all members have liability as per their share.

These businesses are carried from generation to generation. These businesses are basically of 2 types: Mitakshara & Dayabhagha. In Mitakshara only male members can become a member of the business. But in Dayabhagha both male & female persons of the family can become a member of the business.

Joint Hindu Family Business Examples

Disadvantages of Joint Hindu Family Business

Disadvantages of Joint Hindu Family Business
Disadvantages of Joint Hindu Family Business

Limited Funds

Joint Hindu family businesses suffer from a lack of sufficient capital. The source of funds for these businesses is limited. Business is fully dependent on its limited members of the family. These members have a very small amount to invest in business.

Due to limited financial resources, it is difficult for a business to expand. Karta cannot take large risk due to non-availability of enough funds.

Lack of Management Skill

The whole business is managed by a single person. There is the only Karta who supervise the whole business. Karta may not be able to perform managerial skills efficiently. He may lack proper skills.

It is not possible to get the services of a professional manager because of limited financial resources. Due to the lack of management business may lack efficiency.

Unlimited Liability

The liability of Karta, that is the head of business, is unlimited. He is fully responsible for the affairs of business. His liability towards the business is unlimited. His liability is not only to the extent of his share.

But even his personal property can be used for paying off the business debt. Whereas all other members have liability for business as per their share. This factor demotivates the Karta from taking larger risk. 

Limited Membership

Membership of joint Hindu family business is not open to the public. Only the members of the joint Hindu family can become a member of business. Due to this, no fresh talent enters the business. Business also has limited financial source as it is dependent on its family members.

Uncertain Life

The life of Joint Hindu family business is uncertain. It is totally dependent upon good relations among its family members. If any clash & mistrust arises among family members the business may result in discontinuation. It is not always possible to maintain good relations among family members. 

No legal Status

Joint Hindu family business is not controlled by business law or partnership act. These businesses are not registered, unlike other business. They are fully operated under Hindu law. The business & its members do not have any distinct identity.

Misuse of Power

The whole power of Joint Hindu family business lies in the hands of Karta. Full power is centralized in the hands of Karta. No other member can interfere in Karta decisions. Karta may misuse his power & take decisions according to his interest.

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