HUF (Hindu Undivided Family) cannot be a partner in firm
As per Ministry of Corporate Affairs, in response to clarification sought by ICAI (Institute of Chartered Accountants of India), states that a Hindu Undivided Family (HUF) cannot become a partner in a partnership firm; MCA states that Karta or any other individual of the HUF can be a partner in his ‘individual’ capacity and not the HUF; Corporate Affairs Ministry relies on SC ruling in Rashiklal & Company vs CIT wherein it was observed that “HUF being a fluctuating body of individuals, cannot enter into partnership with other individuals partners”
The partnership is a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Hence, to become a partner in a partnership firm, the partner should be a natural person or recognized as person by the law (Company – by virtue of Companies Act 1956). Since, HUF is not a “person”, but only group of persons belonging to the same family and carrying on the family business, HUF cannot be a partner in a partnership firm.
The above view is supported by a number of judgments. The Supreme Court of India held that HUF is an association of persons is “not a person” within the meaning of expression in the Partnership Act. “… and now with the above clarification from Ministry of Corporate Affairs it is now well settled that HUF cannot enter into contract of partnership with another person or persons.”. But a Karta of a HUF or an adult member of the family in their individual capacity can enter into a partnership as a representative of the family. In such cases, it is the individual who is becoming a partner and not the HUF. For further clarifications and details please contact us.