Key Takeaways:

• What the Bill Proposes?
  Proposed section 57A introduces, for the first time, a statutory mechanism to convert a “specified trust” into an LLP under the LLP Act, 2008.¹ For the AIF industry, this is a material structural reform: it gives trust-based AIFs a legislative route to convert into an LLP framework without dismantling the existing vehicle from scratch.
• Why Does It Matters for AIFs?
  The proposal is directly relevant to trust-based AIFs that may want access to an LLP structure at a later stage of the fund lifecycle. Its significance lies less in triggering immediate large-scale conversions and more in the structural flexibility it offers to sponsors, managers, and trustees while structuring and designing fund vehicles.
• Why Is the Route Limited?
  The conversion pathway is not open-ended. It applies only to specified regulated trusts, demands investor consent, restricts who can be partners in the resulting LLP at the point of conversion, and preserves trustee exposure for all pre-conversion liabilities.
• What It Really Is?
  This is not a trust replacement mechanism. It is better understood as a targeted restructuring window for eligible AIF structures that want the LLP form for governance, operational, or lifecycle reasons.
• What is the Likely Industry Impact?
  If enacted, the proposal may not trigger mass trust-to-LLP conversions overnight. Its deeper impact may lie in reshaping how sponsors, managers, and trustees approach vehicle design, lifecycle flexibility, and long-term structuring decisions when a fund is first launched.

The Trust Baseline: Why the Industry Still Begins There

Approximately more than 95% of AIFs in India today use the trust model. That is the starting point for understanding why proposed section 57A of the LLP Act, 2008 matters. The trust structure remains dominant because it is familiar, workable and deeply embedded in fund practice. In a market where AIF commitments stood at ₹15.74 trillion as of December 2025, any structural reform is significant. LLPs have remained a credible alternative, particularly for sponsors seeking a more corporate operating framework or a partnership-driven governance model. What has been missing is not acceptance of the LLP form, but a statutory route for trust-based funds to move into it.

At a post-Budget interaction, Economic Affairs Secretary Anuradha Thakur indicated that the government was considering amendments to the LLP Act to better align the framework with the functional requirements of AIFs.² That statement matters because it shows that the present reform is part of a broader recognition that existing structural and operational frictions can constrain flexibility and ease of doing business. Trusts have also retained a practical advantage: they are generally quicker to constitute and have traditionally offered greater privacy around investor identity, while LLPs have involved heavier filing and documentation requirements around partner changes.

That is precisely why the proposed compliance relaxations for regulated LLPs are important. The Corporate Laws (Amendment) Bill, 2026 therefore does more than simply recognise LLPs as a permissible form. It addresses a practical gap in the current framework by making the LLP route more workable for regulated fund structures.

The LLP Opening: What the Bill Now Does

Proposed section 57A of the LLP Act, 2008 creates a statutory route for a “specified trust” to convert into an LLP in accordance with Chapter X and the new Fifth Schedule.³ The Explanation defines a “specified trust” as one established under the Indian Trusts Act, 1882 or under any Central or State Act, registered by SEBI or IFSCA, and carrying such activities as may be prescribed.⁴ The legislative intent is clear: the amendment is designed to facilitate conversion of AIFs formed as trusts into LLPs. At the same time, the route is limited. It applies only to regulated trusts meeting the statutory description and is not a general trust-conversion provision. Further, because the qualifying “activities” remain to be prescribed by rules, the amendment creates the legal route but leaves its practical scope to future rulemaking.

The Conversion Framework: A Structured Path, Not a Loose Permission

The Fifth Schedule does the real work. It sets out a complete conversion framework rather than leaving the mechanics to implication. The most significant condition appears in paragraph 3: the partners of the LLP into which the trust is converted must be trustees of that specified trust⁵.

Paragraph 4 lays out the filing requirements.⁶ The application must be made by all trustees and include the trust’s name and registration number, its date of establishment, the date of SEBI or IFSCA registration, the consent of three-fourths of the investors, and the incorporation document and section 11 statement. In practice, that investor-consent threshold may be one of the most significant commercial filters on the use of this route.

The resulting registration architecture is equally important. Once the Registrar is satisfied and issues the certificate, the law gives the conversion full statutory effect. The LLP comes into existence in the name specified in the certificate, the trust’s assets and undertaking vest in the LLP without further assurance, act or deed, and the trust is deemed to be dissolved.

The Continuity Promise: Why This Could Work Commercially

The real commercial strength of the proposal lies in continuity. The Fifth Schedule preserves proceedings, judgments, agreements, contracts, employment arrangements, appointments and powers through the conversion, thereby avoiding the need to unwind and recreate the fund vehicle’s legal and commercial network.⁷ Without that continuity, the conversion route would have been far less usable in practice.

The Governance Shift: From Trust Vehicle to LLP Structure

If enacted, the most consequential effect of section 57A may be governance-related rather than purely procedural. Trusts and LLPs do not operate in the same way. The Bill does not permit the trust to continue merely under a different name; it permits the trust to convert into an LLP, and in doing so brings about a substantive structural change by anchoring the initial LLP partner base in the trustee group itself. That said, the conversion does not, by itself, eliminate the possibility of friction between control functions and manager-led commercial decision-making. Its real significance lies in giving an existing trust-based AIF the option to move into an LLP framework and thereby adopt a structure that is more formally organised and more clearly aligned from a governance and operational perspective, rather than continuing entirely within the trust model.

This is where the related LLP amendments gain significance. The Bill also proposes targeted filing relief for prescribed LLPs regulated by SEBI or IFSCA. Changes in the LLP agreement would be handled in the manner to be prescribed.⁸ Changes in partners could be furnished to the Registrar on an annual basis. For fund vehicles that regularly process partner changes, agreement updates, and ongoing investor movement, this is not a marginal reform. It directly removes one of the structural irritants that has historically limited the appeal of the LLP form in a regulated fund context.

The Liability Caveat: Why This Is Not a Clean Exit

The most important brake on enthusiasm appears in paragraph 16 of the Fifth Schedule.⁹It provides that every trustee of a specified trust that converts into an LLP remains personally liable, jointly and severally with the LLP, for liabilities incurred before conversion or arising from pre-conversion contracts. The Bill therefore allows a change of vehicle, but not a discharge of historical exposure. That is likely to be a decisive consideration for mature funds with legacy obligations. The route may work well where the trust has a clean liability profile, limited contingent exposure and a clear strategic case for migration to an LLP platform. Where the structure carries historical liabilities, embedded investor protections or a governance model built around the trust deed, the commercial case for conversion becomes materially more complex.

The Real Industry Effect: What Could Actually Change

The most immediate consequence of the Bill may be strategic, not transactional. Even if many existing trust AIFs do not convert, the mere availability of a statutory conversion route changes the calculus at the launch stage. Sponsors and managers can now structure a fund knowing that a later move into LLP form is no longer off the table. That makes the initial trust-versus-LLP decision less binary than it has historically been.

The second likely effect is that LLPs may become more credible as an AIF platform in their own right. That credibility does not come from section 57A alone. It comes from the full package: conversion permission, annualised partner-change reporting for prescribed regulated LLPs and a more flexible approach to LLP agreement filings. Taken together, these changes reflect a legislative intent to make LLP-based fund structures more administratively viable, not merely technically permissible.

The third likely effect is sharpest in the IFSC context. The Bill also introduces an operational framework for specified IFSC LLPs covering foreign-currency contribution, books and filings. While that does not resolve every fund-structuring question, it does show that the LLP reform package is being designed for regulated capital platforms and not merely for small business LLPs.¹⁰ Section 57A is therefore better read as part of a broader effort to make the LLP form more workable for sophisticated investment structures.

The fourth likely effect may be in cross-border fundraising. LLP structures are closer to globally familiar LP or LLP fund models used by institutional investors, and that familiarity can reduce friction for offshore LPs during diligence and onboarding. If the LLP route becomes more workable for AIFs, it may improve investor comfort and strengthen the credibility of Indian fund platforms with foreign capital that is more accustomed to partnership-style structures.

The Unresolved Transition Question

The proposal is therefore significant, but disciplined. It opens a route without compelling migration. It creates continuity without offering a full reset. It makes LLPs easier to use, but not effortless. What it gives the AIF industry is something genuinely new: optionality backed by statute. Whether that optionality becomes a mainstream structuring tool will depend far less on the headline of section 57A and far more on how sponsors, trustees, managers and investors engage with its actual conditions i.e. the mandatory trustee partner rule, the investor-consent threshold, the preserved trustee liability, and the rulemaking still to come.

At the same time, the reform raises a broader question for the future of Indian fund structuring: is this simply a limited enabling provision, or does it point to a gradual shift away from the trust model towards more structured partnership-based vehicles that are closer to global market practice and better suited to a maturing, increasingly cross-border fund ecosystem?

Against that backdrop, the core structural differences between the trust and LLP models may be viewed as follows:

Conclusion

The proposed insertion of section 57A has the potential to shift the AIF industry in a quiet but meaningful way. It does not dethrone the trust model. It does not make LLP conversion universally attractive. But it delivers something the market has not previously had: a clear statutory pathway for eligible trust-based funds to migrate into LLP form, supported by related LLP reforms aimed at regulated structures. That is enough to reopen the structuring debate. If enacted in its present form, the Bill may not produce immediate large-scale conversion. But it could fundamentally alter the way the next generation of AIFs is planned, documented, and future proofed.

Footnotes

1 Clause 12, Corporate Laws (Amendment) Bill, 2026

2 https://www.business-standard.com/markets/news/proposed-llp-act-2008-tweaks-could-reshape-aif-structures-in-india-126020501980_1.html

3 Clause 14 & 26, Bill

4 Section 57A, Explanation (a), Bill

5 Para 3, Fifth Schedule, Bill

6 Para 4(b), Fifth Schedule, Bill

7 Para 9,10,11,12,13,14,15, Fifth Schedule, Bill

8 Clause 6, amending Section 23 of the LLP Act, Bill

9 Para 16, Fifth Schedule, Bill

10 Clause 12, Bill

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