Proposed LLP Act Tweaks and Impact on AIF Structures in India

What are the proposed LLP Act 2008 tweaks for AIFs?

Proposed amendments to the LLP Act, 2008 signal a policy push to allow more Alternative Investment Funds to operate through LLP vehicles instead of trusts. The objective is to simplify compliance, clarify liability frameworks and make Indian fund structures more familiar to global institutional investors, thereby supporting fundraising at scale. The timing is significant. India’s AIF ecosystem has grown rapidly, with ₹15.74 trillion in commitments as of December 2025, growing at about 20 percent year on year, ₹6.45 trillion already invested with 27 percent year on year growth, and an estimated 30 percent CAGR since March 2019. At this pace, the industry is widely projected to approach ₹100 lakh crore by 2030. Against this backdrop, structural inefficiencies in fund vehicles have become more visible, especially for managers targeting offshore capital.

From a structuring perspective, LLPs offer statutory limited liability, clearer governance and closer alignment with global LP or LLP fund models. Trusts, which currently dominate the market, are faster to set up and offer higher investor privacy, but rely heavily on bespoke trust deeds and do not provide the same level of liability ring fencing under statute. The proposed LLP Act tweaks are therefore aimed at rebalancing this trade-off, particularly for institutional and cross-border capital.

Core policy intent behind Limited Liability partnership Act tweaks

• Enable LLPs to be used more seamlessly for AIF pooling and fund operations
• Reduce structural friction compared to trust-based fund documentation
• Clarify limited liability for investors and designated partners
• Standardise governance, roles and decision rights within the LLP framework
• Simplify partner admission and exit to support secondary transfers and GP commitments
• Improve global investor comfort by aligning with widely used LP or LLP fund structures

Market context driving the changes

Metric	Value	Period
AIF commitments	₹15.74 trillion	Dec 2025
Investments	₹6.45 trillion	Dec 2025
Commitments growth	~20 percent YoY	Dec 2025
Investments growth	27 percent YoY	Dec 2025
Commitments CAGR	~30 percent	Since Mar 2019
Industry trajectory	Toward ₹100 lakh crore	By 2030

Trust AIF vs LLP AIF trade-off

Dimension	Trust AIF	LLP AIF post-tweak intent
Investor liability	Not expressly ring fenced under trust law	Limited liability inherent to partners
Governance	Flexible, deed driven	Roles and duties codified in statute
Setup speed	Typically faster	More upfront process, offset by clarity
Transparency	Higher investor privacy	Greater public filings and comparability
Global alignment	Limited	High, aligned with LP or LLP markets

What is changing in the LLP Act for AIFs?

At a post-Budget interaction, Anuradha Thakur (Secretary (DEA), Department of Economic Affairs, Ministry of Finance) indicated that the government is actively considering amendments to the LLP Act, 2008 to better align LLP structures with the functional and regulatory needs of AIFs. The intent is not to replace existing trust structures but to provide a credible, institution-friendly alternative that works at scale.

Likely areas of change

• Removal of structural frictions that currently limit LLP usage for AIFs
• Simplified and standardised processes for partner admission and exit
• Clear statutory recognition of limited liability for fund investors
• Codification of governance roles such as designated partners and decision-making bodies
• Structural alignment with globally recognised fund partnership models to enable foreign inflows

What this means in practice

Area	Current position	Post-tweak direction
Investor liability	Largely contractual under trust deeds	Statutorily limited under LLP framework
Governance	Heavily customised documentation	Defined roles and decision rights
Onboarding and exit	Bespoke and time-intensive	Standardised partner pathways
Cross-border fundraising	Wrapper less familiar to some LPs	Structure closer to global norms

Industry and regulatory outlook

Industry participants, including leadership associated with IVCA and Gaja Capital, have emphasised the need for flexibility within a robust regulatory framework, balancing ease of fundraising with strong compliance standards. From a regulatory standpoint, the evolution of LLP-based AIF structures will be shaped primarily by Ministry of Corporate Affairs, which oversees LLP legislation, and Securities and Exchange Board of India, which continues to govern AIF operations, disclosures and investor protection.

Why do LLP Act changes matter for AIF structures? 

Fundraising and LP comfort

• LLPs closely resemble globally accepted LP or LLP fund structures used by institutional investors
• Greater structural familiarity reduces friction for offshore LPs during diligence and onboarding
• Improved comfort can directly support cross-border commitments, especially from pension funds, sovereign funds and global asset managers
• This is critical in a market that has already reached ₹15.74 trillion in AIF commitments and is projected to scale sharply toward ₹100 lakh crore by 2030

Governance and liability clarity

• LLPs statutorily codify limited liability for partners, unlike trust-based AIFs that rely heavily on contractual protections
• Clear definition of designated partners and decision-making roles improves accountability and oversight
• Reduced ambiguity around liability helps lower perceived tail risk for institutional LPs
• Stronger governance frameworks align better with global fund governance expectations

Operational efficiency and lifecycle management

• Potential simplification of partner admission and exit processes lowers friction in fund lifecycle events
• Easier onboarding and exit supports secondary LP transfers and GP commitment restructuring
• Standardised LLP documentation can reduce bespoke drafting and negotiation time compared to trust deeds
• Over time, this can improve fund agility without materially increasing regulatory burden

AIF Trusts vs LLPs – structural comparison 

Tabular overview

Dimension	Trust-AIF (status quo)	LLP-AIF (post-tweak intent)
Investor liability	Not expressly codified under Indian Trusts Act, 1882	Limited liability inherent to partners
Market share today	~97% of AIFs use trusts	Tweaks expected to unlock LLP adoption
Transparency	Higher privacy for beneficiaries	Depends on the amendments to be made under LLP Act
Formation and operations	Favoured for speed with flexible deeds	Clear partner roles with easier admission and exit
Global alignment	More aligned to estate or planning uses	Closer to Delaware-style LP and UK LLP norms

How big is the market size affected? 

Tabular overview

Metric	Value	Period/Note
Commitments	₹15.74 trillion	Dec 2025, ~20% YoY
Investments	₹6.45 trillion	Dec 2025, 27% YoY
Commitments CAGR	~30%	Since Mar 2019
2030 outlook	₹100 lakh crore	Industry projection

Impact Analysis

• The addressable pool is large and accelerating, so vehicle efficiency has outsized effects on fundraising and deployment velocity.
• Even small reductions in structural friction can unlock meaningful capital, especially from cross-border LPs.
• Policy clarity now influences how quickly managers scale strategies across Category I, II and III.

SEBI rulebook if vehicles shift to LLP 

Operating perimeter remains constant

• The AIF Master Circular applies irrespective of trust or LLP wrapper.
• Core obligations continue: Private Placement Memorandum standards, valuation methodology, performance benchmarking, reporting cadence, audit and investor disclosures.
• Managers should map LLP governance to existing requirements and maintain alignment with the encumbrance framework where applicable.
• Expect no relaxation on compliance intensity simply by switching vehicles. The shift is about structural clarity, not lighter regulation.

Tax lens if AIFs move to LLP 

Current vs intended treatment

• Today under trust-based AIFs, in the case of Category I and Category-II AIF, income is generally taxed in the hands of investors with withholding at the fund level according to prevailing provisions.
• The LLP pathway aims to preserve single-layer taxation, retain character look-through and provide clarity on whether LLP interests are treated as unit equivalent for withholding and reporting.

Manager actions

• Build side-by-side models for distributions and withholding across trust and LLP options, including domestic and foreign LP profiles.
• Test capital gains, interest and dividend streams for character retention and timing differences.
• Recheck treaty access, filing workflows and investor statements to avoid leakage or compliance gaps.
• Align waterfall mechanics and partner admission or exit procedures with the intended tax outcomes.
  

Category-wise impact (Cat I, Cat II & Cat III)

Strategy bucket

AIF Category	Upside from LLP Act tweaks	Key watch-outs
Cat I (VC, SME, Infra)	Cleaner co-invest structures and LLP-SPVs; easier integration with encumbrance frameworks for security packages	Reduced privacy due to partner disclosures; align carry terms and Investment Committee design
Cat II (Private equity, credit)	Greater familiarity for foreign LPs; clearer liability ring-fence; smoother secondary transfers of LP interests	Maintain tax parity with trust pass-through and withholding mechanics
Cat III (Hedge, long-short)	Operational clarity for prime broker documentation and margining workflows	Conformity with leverage limits and encumbrance norms; controls for frequent partner turnover

What managers should action

• Map fund documentation to LLP governance so secondaries and co-invests move with fewer bespoke amendments
• Pre-test withholding and investor reporting to preserve look-through outcomes alongside operational changes
• Build playbooks for partner onboarding and exits that meet Category-specific constraints on leverage, pledges and disclosures

Decision checks before choosing the offshore–onshore route

Checkpoint	Considerations
Target LP profile	Institutional or cross-border LPs tilt toward LLP familiarity
Asset class and leverage	Category III leverage and encumbrance rules may drive wrapper and SPV design
Tax residence and control	Treaty use, POEM risk and manager location determine the optimal stack
Lifecycle events	Ease of secondary LP transfers, co-invests and GP commitment adjustments under LLP pathways

Operating notes

• Standardise partner admission and exit templates across IFSC and onshore entities
• Align disclosure thresholds so investor privacy expectations and statutory filings are balanced across jurisdictions
• Pre-clear bank, broker and custodian documentation to ensure a consistent approach to pledges, margin and security creation across the stack
  

For managers evaluating an LLP shift, the priority is disciplined execution: map fund documents to current AIF requirements across PPM, valuation, benchmarking and reporting cadence, clarify the split between the Investment Committee and designated partners to prevent governance ambiguity and shadow director exposure, run side-by-side cash flow and withholding models for trust versus LLP while testing treaty access and investor profiles such as FPI, FVCI and HNI, and align privacy expectations with anchor investors since LLP filings are inherently more public than trust beneficiary records.

If the LLP Act is refined to support AIF use, India gains a fund wrapper that pairs statutory liability protection with institution-grade governance and familiar global norms, improving the odds of deeper cross-border participation as the market scales. Success will hinge on execution details across legislation, tax parity and operating rules. Teams that standardise governance, model cash flows and withholding outcomes, and communicate disclosure expectations clearly will be best placed to convert structural clarity into faster fundraising, smoother secondaries and more resilient fund operations.