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India Seeks More Dollars Via AIF Legal Overhaul
3 Jul
Summary
- Foreign investors favor LLPs over trusts for clarity.
- Proposed bill aims to ease AIF trust to LLP conversion.
- Tax neutrality is crucial for successful AIF reform.
India's private equity and venture capital industry is urging for significant structural reforms to boost the inflow of foreign capital and management expertise. A primary focus is the conversion of Alternative Investment Funds (AIFs), predominantly structured as trusts, into Limited Liability Partnerships (LLPs).
The AIF industry is presenting its case to a joint parliamentary committee reviewing the draft Corporate Laws (Amendment) Bill 2026. While LLPs offer a globally recognized structure combining partnership benefits with limited liability, most AIF sponsors currently prefer trusts for their ease of registration and operational flexibility.
However, foreign investors and managers often find LLPs more appealing due to clearer liability frameworks. A migration to LLPs would enhance India's standing as a global fund hub by clearly defining liability protections. Vishal Gada of Aurtus highlights that for this reform to be truly effective, corresponding amendments to the Income Tax Act are indispensable to ensure tax neutrality and avoid adverse capital gains tax implications.
Siddarth Pai of 3one4 Capital notes that the conversion of AIF trusts to LLPs is a long-standing industry demand. The proposed bill includes a framework for this conversion, with anticipated rules for AIF LLPs. This change is expected to provide investors with access to a globally competitive legal vehicle, thereby reducing friction in investment processes.
