business Organization PYQ 2020 PDF

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.

Promoters occupy a fiduciary position and must act in good faith for the company. They must make full disclosure of material facts and must not make secret profits; undisclosed profits can be recovered by the company. Promoters can be liable for breach of duty, fraud or concealment and may also incur civil/criminal liability for misstatements in prospectus as per law.

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.