Introduction
Wondering how a company and HUF are to be distinguished? Stay along and read the article to get accurate knowledge of the difference between a company and HUF.
In this article, you will be knowing the meaning, members, membership, management, registration and audit compliance for a company and a Hindu undivided family (HUF).
What is meant by a company?
According to Section 2(20) of the Companies Act 2013, “Company means a company incorporated under this Act or any previous Company Law. This is what the law describes about the definition of the company.
In a general sense, a company is a form of business entity where there are groups of individuals who come together, engage and operate a business to run good profits.
What HUF means?
HUF is “Hindu Undivided Family” is a form of business organization where common ancestors and all the lineal male descendants can their wives including unmarried daughters come together and run a business.
Not only Hindus but also Buddhists, Jains, and Sikhs can register as a Hindu Undivided Family. One important thing relating to formation is that a single member or co-parcener cannot form an HUF. And HUF can exist and continue to run the business even after the death of sole male member identified as “Karta” of HUF.
Difference between a company and a HUF
| Nature | Company | Hindu Undivided Family |
| Meaning | company means a company formed and registered under this Act or an existing company as defined in the Companies Act, 2013. | HUF can be defined as a family that consists of a common ancestor and all his lineal male descendants and their wives and unmarried daughters. |
| Members | a company consists of heterogeneous members. | HUF consists of homogeneous members since it consists of members of joint family itself. |
| Membership | in the case of a company limited by shares a person can become member by acquiring shares. | a person becomes a member of HUF by virtue of birth. |
| Management | affairs of company are managed by Board of Directors. Members cannot take part into day to day business. | in HUF business the Karta has the sole authority to contracts, and debts for the purpose of business, other coparceners cannot do so. |
| Registration | every company must be registered as per the Companies Act 2013. | no Registration is compulsory for Carrying on business for gain by HUF. |
| Audit | The company must get their accounts compulsorily audited per the Companies Act 2013. | HUF business are required to get their accounts audited only if the turnover exceeds Rs. 1,00,000. as per Income Tax Act 1961. |
What is the main advantage of opting for Hindu Undivided Family?
Amazingly, in the company form of business organization, the profits earned by the company are fairly distributed according to the number of shares of the members. Thus, luckily all the profits arising in the HUF entity in distributed equally among all members.
Conclusion
So, if you have a family consisting minimum of 2 related family members and one male person responsible enough to manage the business effectively and to be known as “Karta” then, it is better or you can say it best to go with Hindu Undivided Family.
However, where you want to start and run a good business that is possible to be expanded in the future then, going with Company would be a good option.
There are various factors to consider that you can know given in the above table. Also, if you want to best and legal advice relating to which form of business you should start with then, here are we. The EAdvisors, to help you solve your every query and also to incorporate your suitable form of business organization.
Choose wisely and make your decision as your today’s decision will make your future.
Hope you found what you were looking for.
Thanks for reading.
Hindu Undivided Family business examples
- Haldiram’s Private Limited
- Tata Sons Private Limited
- Mahindra & Mahindra Limited
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