# Proposed LLP Act Tweaks and Impact on AIF Structures in India

Published: 09 Feb 2026
Author: Treelife
Practice area: Quick Takes
Tags: AIF structuring under LLP Act, cross-border fundraising LLP, LLP Act amendments 2008, LLP amendments impact on AIFs, LLP law changes India, LLP structure for AIFs, LLP taxation for AIFs, LLP vs trust AIF, pass-through taxation LLP AIF, proposed LLP Act tweaks
Source: https://treelife.in/quick-takes/proposed-llp-act-tweaks-and-impact-on-aif-structures-in-india/

## Summary

- Proposed amendments to the LLP Act, 2008 aim to make Limited Liability Partnership vehicles more usable for Alternative Investment Funds (AIFs), which currently operate mainly through trust structures.
- As of December 2025, India's AIF industry had ₹15.74 trillion in total commitments, growing at approximately 20 percent year on year.
- Actual investments under AIFs stood at ₹6.45 trillion as of December 2025, registering 27 percent year on year growth, with a compound annual growth rate of about 30 percent since March 2019.
- The AIF industry is projected to approach ₹100 lakh crore in size by 2030, prompting policymakers to address structural gaps in existing fund vehicles.
- Anuradha Thakur, Secretary, Department of Economic Affairs, Ministry of Finance, confirmed at a post-Budget interaction that the government is actively considering LLP Act amendments to align the structure with AIF requirements.
- Trust-based AIFs currently offer faster setup and greater investor privacy but lack statutory ring-fencing of liability, relying instead on bespoke trust deeds.
- LLP-based AIFs, once amended, are expected to provide statutorily codified limited liability for investors and designated partners, along with defined governance roles and decision rights.
- Likely changes include simplified processes for partner admission and exit to support secondary transfers and General Partner commitments, along with removal of frictions that currently restrict LLP use for fund pooling.
- The government's stated intent is not to replace trust structures but to offer an additional, institution-friendly LLP alternative aligned with globally recognised LP/LLP fund models to attract offshore capital.

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Blog Content Overview

- [1 What are the proposed LLP Act 2008 tweaks for AIFs?](#What_are_the_proposed_LLP_Act_2008_tweaks_for_AIFs)
[1.1 Core policy intent behind Limited Liability partnership Act tweaks](#Core_policy_intent_behind_Limited_Liability_partnership_Act_tweaks)
- [1.2 Market context driving the changes](#Market_context_driving_the_changes)
- [1.3 Trust AIF vs LLP AIF trade-off](#Trust_AIF_vs_LLP_AIF_trade-off)

- [2 What is changing in the LLP Act for AIFs?](#What_is_changing_in_the_LLP_Act_for_AIFs)
[2.1 Likely areas of change](#Likely_areas_of_change)
- [2.2 What this means in practice](#What_this_means_in_practice)
- [2.3 Industry and regulatory outlook](#Industry_and_regulatory_outlook)

- [3 Why do LLP Act changes matter for AIF structures? ](#Why_do_LLP_Act_changes_matter_for_AIF_structuresnbsp)
[3.1 Fundraising and LP comfort](#Fundraising_and_LP_comfort)
- [3.2 Governance and liability clarity](#Governance_and_liability_clarity)
- [3.3 Operational efficiency and lifecycle management](#Operational_efficiency_and_lifecycle_management)

- [4 AIF Trusts vs LLPs – structural comparison ](#AIF_Trusts_vs_LLPs_8211_structural_comparisonnbsp)
[4.1 Tabular overview](#Tabular_overview)

- [5 How big is the market size affected? ](#How_big_is_the_market_size_affectednbsp)
[5.1 Tabular overview](#Tabular_overview-2)
- [5.2 Impact Analysis](#Impact_Analysis)

- [6 SEBI rulebook if vehicles shift to LLP ](#SEBI_rulebook_if_vehicles_shift_to_LLPnbsp)
[6.1 Operating perimeter remains constant](#Operating_perimeter_remains_constant)

- [7 Tax lens if AIFs move to LLP ](#Tax_lens_if_AIFs_move_to_LLPnbsp)
[7.1 Current vs intended treatment](#Current_vs_intended_treatment)
- [7.2 Manager actions](#Manager_actions)

- [8 Category-wise impact (Cat I, Cat II & Cat III)](#Category-wise_impact_Cat_I_Cat_II_Cat_III)
[8.1 Strategy bucket](#Strategy_bucket)
- [8.2 What managers should action](#What_managers_should_action)
- [8.3 Decision checks before choosing the offshore–onshore route](#Decision_checks_before_choosing_the_offshoreonshore_route)
- [8.4 Operating notes](#Operating_notes)

## **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 trillionDec 2025Investments₹6.45 trillionDec 2025Commitments growth~20 percent YoYDec 2025Investments growth27 percent YoYDec 2025Commitments CAGR~30 percentSince Mar 2019Industry trajectoryToward ₹100 lakh croreBy 2030

### **Trust AIF vs LLP AIF trade-off**

**Dimension****Trust AIF****LLP AIF post-tweak intent**Investor liabilityNot expressly ring fenced under trust lawLimited liability inherent to partnersGovernanceFlexible, deed drivenRoles and duties codified in statuteSetup speedTypically fasterMore upfront process, offset by clarityTransparencyHigher investor privacyGreater public filings and comparabilityGlobal alignmentLimitedHigh, 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](https://treelife.in/finance/alternative-investment-funds-in-india/). 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 liabilityLargely contractual under trust deedsStatutorily limited under LLP frameworkGovernanceHeavily customised documentationDefined roles and decision rightsOnboarding and exitBespoke and time-intensiveStandardised partner pathwaysCross-border fundraisingWrapper less familiar to some LPsStructure 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 liabilityNot expressly codified under Indian Trusts Act, 1882Limited liability inherent to partnersMarket share today~97% of AIFs use trustsTweaks expected to unlock LLP adoptionTransparencyHigher privacy for beneficiariesDepends on the amendments to be made under LLP ActFormation and operationsFavoured for speed with flexible deedsClear partner roles with easier admission and exitGlobal alignmentMore aligned to estate or planning usesCloser to Delaware-style LP and UK LLP norms

## **How big is the market size affected? **

### **Tabular overview**

**Metric****Value****Period/Note**Commitments₹15.74 trillionDec 2025, ~20% YoYInvestments₹6.45 trillionDec 2025, 27% YoYCommitments CAGR~30%Since Mar 20192030 outlook₹100 lakh croreIndustry 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 packagesReduced privacy due to partner disclosures; align carry terms and Investment Committee designCat II (Private equity, credit)Greater familiarity for foreign LPs; clearer liability ring-fence; smoother secondary transfers of LP interestsMaintain tax parity with trust pass-through and withholding mechanicsCat III (Hedge, long-short)Operational clarity for prime broker documentation and margining workflowsConformity 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 profileInstitutional or cross-border LPs tilt toward LLP familiarityAsset class and leverageCategory III leverage and encumbrance rules may drive wrapper and SPV designTax residence and controlTreaty use, POEM risk and manager location determine the optimal stackLifecycle eventsEase 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.

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