The members of a Hindu Undivided Family carrying on a family business are not partners in the sense that their relationship inter se is not governed by the Partnership Act, 1932, but the Hindu Law while deciding joint ownership in the family business. The only substantial resemblance between the two forms of association seems to be that in each case the members carry on business together. In all other respects, they are wholly dissimilar.
Difference between Hindu undivided family (HUF) and a firm
The points of difference are, however, enumerated below:
The interest of a partner in the business is determined by a contract whereas the interest in HUF business is decided by the status.
The death of a partner results in dissolution of a partnership while the death of a member of an HUF docs not disturb the running of a business at all. On his death, his interest is automatically inherited by other surviving members.
In case of insolvency of a partner, he ceases to be a member of the firm but the insolvency of a member of a Hindu Undivided Family does not disentitle him of his membership of the HUF.
In a partnership, every members is entitled to a stipulated share in profits, to work diligently and to have access to all documents, books of accounts, etc., but the members of an HUF cannot claim these rights and privileges unless partition is effected.
New member :
A new partner can be admitted to a partnership when other partners agree but there is no such condition in the HUF. Every child by birth acquires an interest in the family business. Membership is automatic and is acquired by virtue of birth in the family.
Profit sharing :
So far as profit sharing is concerned, it is fixed in the partnership, unless some changes are introduced in the partnership deed by common consent of all the partners, but shares in HUF business are always liable to change due to death or birth of any member in the family.
Number of partners :
As regards the number of partners in a firm, the membership is restricted to a maximum of 20 but there is no such limit in respect of number of persons constituting an HUF.
Liability of a partner :
The liability of a partner is unlimited and he is personally liable to the outside world for all practical purposes so far as the firm’s liabilities are concerned, but the responsibility of any member of the IIUF is limited to the extent of his share in the HUF.