Proposed LLP Act 2008 tweaks could reshape AIF structures in India

Likely amendments may ease compliance, enable greater foreign inflows

More alternative investment funds (AIFs) are expected to opt for the Limited Liability Partnership (LLP) route, moving away from the trust structure, following the proposed amendments to the LLP Act, 2008. 

The changes are expected to ease compliance, resolve structural frictions, and facilitate greater foreign capital inflows into India.

At a post-Budget conference, Economic Affairs Secretary Anuradha Thakur indicated that the government is considering amendments to the LLP Act to better align it with the functional requirements of AIFs. 

“This has been a long-standing industry representation, and its articulation in the post-Budget discussions signals a clear policy intent to reduce structural and operational frictions for AIF platforms. Greater flexibility in fund structures, while remaining within a robust regulatory framework, will meaningfully improve ease of doing business and strengthen India’s positioning as a destination for global capital,” said Gopal Jain, managing partner & cofounder, Gaja Capital, and cochair of the Regulatory Affairs Committee at Indian Venture and Alternate Capital Association (IVCA). 

AIFs are pooled investment vehicles catering to sophisticated and institutional investors, with a minimum ticket size of ₹1 crore, subject to certain exceptions for accredited investors. These funds invest across private equity, venture capital, real estate, hedge funds, infrastructure, startups, and other alternative asset classes. 

Industry sources said nearly 97 per cent of AIFs are currently structured as trusts, largely due to the lower compliance burden and ease of formation. With amendments to the LLP Act, market participants expect Indian AIF structures to align more closely with global standards. 

“The Indian Trusts Act of 1882 is not an appropriate legal framework for sophisticated investing and pooled investment vehicles. It is primarily meant for charitable endowments, private family trusts, educational trusts, and other such establishments. The LLP Act is more suitable, transparent in terms of investors, and recognised globally,” explained a senior executive. 

Under the LLP structure, limited partners (LPs) — typically institutional and high-net-worth investors — have limited liability and do not participate in day-to-day management. The general partner (GP) acts as the active manager and is responsible for fund operations. Industry executives point out that the Trusts Act does not clearly provide for limitation of liability, a key concern for global investors. 

Further, LLPs in India are considered more tax-efficient, offering a natural passthrough structure where the entity is taxed on net profits, while partners are not subject to additional tax on distributions. 

Sources added that conflicts have also emerged between the roles of trustees and fund managers under the trust structure, an issue that could be addressed as more funds migrate to the LLP route. 

Emailed queries to the government seeking clarity on the timeline and specifics of the proposed amendments remained unanswered at the time of going to the press. 

The trust structure has traditionally been preferred as it can be set up quickly and keeps investor names out of the public domain. However, this opacity is not aligned with global practice. Under the LLP framework, the names of all LPs are publicly available or accessible. 

“At present, LLPs need to file extensive documentation for the entry and exit of partners, which creates practical challenges at the regulatory level. The proposed amendments may ease these documentation requirements,” said Punit Shah, partner, Dhruva Advisors. 

Experts said the changes could act as a catalyst for the industry, which recorded a 20 per cent year-on-year (Y-o-Y) increase in commitments to ₹15.74 trillion in December 2025. 

Investments by AIFs rose 27 per cent Y-o-Y to ₹6.45 trillion, according to data from the Securities and Exchange Board of India (Sebi).