Definitions [5]
Define ‘Joint Hindu family business/firm’.
A Joint Hindu Family Business is a family concern that operates under the provisions of the Hindu Law and the Hindu Succession Act 1956. It may be defined as a business organisation which is inherited or owned, conducted and managed by the members of a Hindu undivided family, pointedly under the direction and control of the senior-most member of the family, called karta, for earning profits.
Under Hindu Law, an HUF is a family that consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract.
Define the following business entities:
Partnership
A partnership is a form of business in which two or more persons come together to carry on a business and share its profits and losses as per an agreed-upon partnership deed.
- Section 4 of the Indian Partnership Act, 1932, defines partnership as ''Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.''
- According to Prof. Handy, "Partnership is the relation existing between persons competent to make contract, who agree to carry on a lawful business in common with a view to earn private gain.
The document containing the partnership agreement among partners is called Partnership Deed.
Key Points
- Meaning: A partnership is when two or more people join to run a business and share profits as per a mutual agreement.
- Key Features: Based on agreement, profit-sharing, mutual agency, legal limit of 50 partners, and lawful business only.
- Nature: Treated as separate for accounting, but not legally—partners are personally responsible for the firm’s debts.
- Rights of Partners: Take part in business, share profits, check accounts, get interest on loans, and retire with notice.
- Liabilities: Unlimited; partners must use personal assets if needed and can’t keep personal gains made using the firm’s name/assets.
- Meaning: A written agreement between partners outlining terms—recommended but not compulsory.
- Contents: Includes firm name, partners' details, capital, profit-sharing, interest, salary, etc.
- Purpose: Avoids disputes by clearly defining partners' rights, duties, and liabilities.
- Disputes: Provides rules for admission, retirement, death, and dispute settlement.
- Importance: Ensures smooth functioning, legal clarity, and easy conflict resolution.
- Dissolution of a partnership means a change in the existing relationship between partners, but the firm may continue its business.
- It occurs due to events such as a change in the profit-sharing ratio, admission, retirement, death, or insolvency of a partner.
- Dissolution also happens upon completion of a specific venture or expiry of a fixed partnership period.
- It differs from the dissolution of a partnership firm, in which the firm ceases to exist, and the business is closed.
- On dissolution of the firm, partners’ claims are settled as per agreed terms, and a Realisation Account is prepared to record the disposal of assets and settlement of liabilities.
