LLP Boost for AIFs in New Bill

Significant changes have been proposed to the Limited Liability Partnership Act, 2008 to enable limited liability partnerships (LLPs) to be used as vehicles for alternative investment funds (AIFs), pursuant to the Corporate Laws (Amendment) Bill, 2026, introduced in the Lok Sabha on 23 March 2026 (currently under parliamentary review). India’s AIF market is at an inflection point as the Bill proposes a meaningful shift in how funds can be structured. While the existing framework permits AIFs to be established as trusts, companies, or LLPs, market practice has overwhelmingly favoured the trust model. The proposed amendments signal a clear intent to make LLPs a more practical and globally aligned alternative for fund managers and investors.

The limited acceptance of LLPs in the AIF ecosystem has largely been driven by operational and compliance-related constraints rather than legal barriers. LLPs require frequent filings with the Registrar of Companies (RoC), particularly for every admission or exit of a partner. This creates friction for AIFs, which typically raise capital through several closings and allow periodic investor exits. In addition, public disclosure requirements under the LLP framework raise confidentiality concerns for institutional investors.

The Bill aims to remedy these concerns and re-establish LLPs as a viable fund vehicle, harmonised with global best practices, where partnership-based structures are commonly used.

Key Changes Under the Bill

1. Compliance framework: The requirement to report each change in partners within a fixed timeline is proposed to be replaced with a more flexible, periodic reporting system. This will enable smoother onboarding and exit of investors in line with commercial timelines.
2. LLP agreement reporting: Amendments to LLP agreements will be reported in accordance with timelines to be prescribed by the Government. This is expected to reduce the frequency and rigidity of filings.
3. Conversion to LLPs: Existing AIFs structured as trusts may convert into LLPs with the approval of three-fourths of investors. Upon conversion, all assets, liabilities, and obligations will automatically vest in the LLP, and the trust will stand dissolved.
4. Specified IFSC LLP: LLPs operating in GIFT IFSC will be permitted to accept capital contributions in foreign currency. Thus, maintenance of accounts in foreign currency will be allowed, eliminating the need for conversion into INR.

Although the Bill marks a progressive shift, several critical issues remain unresolved, which may affect its overall effectiveness.

1. Confidentiality concerns: LLP disclosures continue to be publicly accessible; consequently, institutional investors may seek robust privacy safeguards before embracing this structure.
2. Structural inconsistencies in conversion: The requirement that only trustees become partners does not align with the minimum partner requirement under LLP law. Further, there is limited clarity on the treatment and rights of investors post-conversion.
3. Absence of clarity on multi-scheme structures: The Bill does not address whether LLP-based AIFs can operate multiple schemes under a single vehicle.
4. Investor eligibility: Entities such as HUFs and trusts currently face limitations in becoming LLP partners. This may restrict participation by certain domestic investors.
5. Overlapping compliance requirements: LLP-based AIFs would be subject to both regulatory and corporate filings, and the absence of harmonisation between these regimes may increase compliance burdens.

The proposed amendments reflect a conscious effort to modernise India’s investment fund ecosystem and align it with global standards. By reducing procedural friction and introducing flexibility, the Bill lays the groundwork for LLPs to emerge as a credible alternative to trusts.