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Corporate Governance Issues in Indian Family-Based Businesses

Sapovadia, Vrajlal (2012): Corporate Governance Issues in Indian Family-Based Businesses.


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The family business is the simplest, easiest and oldest business form in India. A family business may be company, partnership firm or any other form of business owned, controlled and operated by members of family. In India, by virtue of law, businesses or properties may be held in the name of Hindu Undivided Family (HUF). HUF is assessed for income tax purpose as a separate person under Section 2(31) (ii) of the Income Tax Act 1961. Many companies that are now widely held company were once upon a time founded as family business either as proprietary concern, HUF or partnership. HUF is not required to be registered with any authority and is the result of birth and marriage of co- parcner in a family. HUF may be a partner in a partnership firm or member/shareholder in a company.

Family businesses are the major form of enterprise in India and across the world, viz. Corporation houses like Suzlon, Tata, Birla, Bajaj, Reliance, Ford Motor, Tetra Pak, Wal- Mart, DuPont, Cadbury, Acer Computers were started as family business. Several studies indicate that family business carry the weight of economic wealth creation in all economies. As per prudent estimates, the proportions of all worldwide business enterprises that are owned or managed by families are in range of 65 to 80% (Gersick, Davis, Hampton, & Lansberg). It is estimated that 40% of the Fortune 500 are family owned or controlled (Gersick et al, 1997). Large family businesses play a major role in OECD economies. Family-run businesses account for more than 85% of all firms in OECD countries (2006). Moreover, family businesses dominate many developing economies as well as figure prominently in certain developed economies. Sir Cadbury (2000) has also concluded that family businesses are one of the foundations of the world's business community. This paper discusses issues of corporate governance in family controlled business houses.

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