Sole Proprietorship and Joint Hindu Family (HUF) Business Questions

Question 1

Define sole proprietorship.

Accepted Answer

Sole proprietorship is a form of business owned, controlled and managed by one person who enjoys profits and bears all risks and losses.

Question 2

State any one merit of sole proprietorship.

Accepted Answer

Quick decision-making is a merit of sole proprietorship because the owner has full control and no consultation delays.

Question 3

What is HUF business?

Accepted Answer

HUF business is a family business governed by Hindu law, owned by members of a Hindu Undivided Family and managed by the Karta.

Question 4

Who is Karta?

Accepted Answer

Karta is the head of the Hindu Undivided Family who manages and controls the HUF business.

Question 5

State any one feature of HUF business.

Accepted Answer

Membership in HUF business is by birth; coparceners become members automatically by birth in the family.

Question 6

State any one limitation of sole proprietorship.

Accepted Answer

Unlimited liability is a limitation because the proprietor’s personal assets can be used to pay business debts.

Question 7

Explain features of sole proprietorship.

Accepted Answer

Sole proprietorship has **single ownership and control**, meaning one person owns and manages the business. There is **no separate legal entity**, so business and owner are the same. The proprietor has **unlimited liability**, bearing all risks and losses. It is **easy to form and close** with minimal legal formalities and allows **secrecy** and quick decision-making due to personal control.

Question 8

Explain merits and demerits of sole proprietorship.

Accepted Answer

Merits of sole proprietorship include **easy and economical formation**, **quick decisions**, close supervision and **secrecy**. Demerits include **limited capital and resources**, **unlimited liability**, limited managerial ability and **lack of continuity** due to death/illness/insolvency of the proprietor. Hence it suits small businesses but has limited scope for large expansion.

Question 9

Explain features of HUF business.

Accepted Answer

HUF business is governed by **Hindu law** and membership is acquired **by birth**. It is managed by the **Karta**, whose decisions are binding. **Coparceners have limited liability** up to their share in family property, while **Karta’s liability is unlimited**. HUF business enjoys better **continuity** because business continues even if a member dies.

Question 10

Explain merits and demerits of HUF business.

Accepted Answer

Merits of HUF business include **continuity and stability**, quick decisions due to Karta’s authority, and **limited liability of coparceners**. Demerits include **limited capital**, possible **autocratic control** of Karta, limited managerial talent if management stays within family, and chances of **family disputes** affecting business. Therefore it is suitable mainly for traditional family-managed enterprises.

Question 11

Differentiate between sole proprietorship and HUF business.

Accepted Answer

In **sole proprietorship**, ownership and control are with one person and the business arises by individual choice; the owner has **unlimited liability** and continuity is affected by the proprietor’s death/insolvency. In **HUF**, ownership lies with family members and membership is **by birth**; business is managed by **Karta**, coparceners have **limited liability** while Karta is unlimited, and continuity is generally better due to birth-based membership.

Question 12

State suitability of sole proprietorship and HUF business.

Accepted Answer

Sole proprietorship is suitable for **small businesses** with low capital requirement, limited risk and need for quick decisions and personal supervision. HUF business is suitable where **family unity and cooperation** exist, the business is traditional and family-managed, and capital needs are moderate. Both are generally not suitable for large-scale expansion due to limited resources.

Question 13

Explain sole proprietorship. Discuss its merits, demerits and suitability.

Accepted Answer

Sole proprietorship is the simplest form of business organisation owned, controlled and managed by a single person. The proprietor provides capital, takes all decisions, enjoys the entire profit and bears all risks and losses. There is no separate legal entity distinct from the owner.

**Merits:** It is easy and economical to form with minimum legal formalities. The proprietor has full control which leads to quick decisions and operational flexibility. Close personal supervision improves efficiency and customer service. Secrecy can be maintained because accounts and plans need not be disclosed. The owner gets direct motivation as the rewards of efforts are fully enjoyed.

**Demerits:** The biggest limitation is unlimited liability; the proprietor’s personal assets may be used to pay business debts. Capital and resources are limited because they depend on the owner’s funds and borrowing capacity, restricting growth. One person may not possess all managerial skills, leading to limitations in specialised functions. Continuity is uncertain as business may be affected by death, illness or insolvency of the proprietor.

**Suitability:** Sole proprietorship is suitable for small-scale businesses with low capital requirements and limited risk, where quick decisions and personal contact with customers are important, such as small retail shops, repair services, salons and local trading activities.

Question 14

Explain Joint Hindu Family (HUF) business. Discuss its features, merits and demerits.

Accepted Answer

Joint Hindu Family (HUF) business is a form of business organisation governed by Hindu law. It is owned by members of a Hindu Undivided Family and membership is acquired by birth. The business is managed by the Karta, the head of the family.

**Features:** HUF arises by status and does not require an agreement. Membership is by birth and the members are called coparceners. The Karta manages and controls the business and his decisions are binding. Coparceners generally have limited liability up to their share in family property, while the Karta’s liability is unlimited. HUF business enjoys continuity as it continues even after death of a member.

**Merits:** It provides continuity and stability. Centralised authority of Karta ensures quick decisions and effective control. Limited liability of coparceners reduces their risk. Family members generally show loyalty and cooperation which strengthens business.

**Demerits:** Capital is limited because it depends on family property and it is difficult to raise large funds. Karta may exercise autocratic control and there may be misuse of authority. Management talent may remain limited to family members even if they are not competent. Family disputes among members can negatively affect the business.

Thus, HUF business is suitable mainly for traditional family enterprises with moderate capital needs and strong family unity.

Question 15

Differentiate between sole proprietorship and HUF business on important points.

Accepted Answer

**Sole proprietorship vs HUF business:**

1. **Ownership:** Sole proprietorship is owned by one person, whereas HUF business is owned by family members (coparceners).
2. **Formation:** Proprietorship is formed by the choice of an individual with minimal formalities. HUF arises by status under Hindu law and membership is by birth.
3. **Management:** In proprietorship, the owner manages and controls the business. In HUF, the Karta manages the business and his decisions are binding on the family.
4. **Liability:** In sole proprietorship, the owner has unlimited liability. In HUF, the Karta has unlimited liability, while coparceners have limited liability up to their share in family property.
5. **Continuity:** Proprietorship lacks continuity and may end due to death/insolvency/illness of proprietor. HUF has better continuity because membership continues by birth even if a member dies.
6. **Capital and growth:** Both have limited resources for large expansion, but HUF depends mainly on family property while proprietorship depends on owner’s personal funds and credit.

Therefore, proprietorship suits small individual businesses, while HUF suits traditional family-managed businesses with strong family cooperation.

Sole Proprietorship and Joint Hindu Family (HUF) Business

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