Alternative Investment Funds (AIFs) in India can be structured as trusts, LLPs, companies or body corporates. While the trust structure has traditionally been preferred for its relatively lighter setup, operational flexibility and established market practice, an LLP offers a separate legal identity, limited liability and greater contractual flexibility. The proposed Corporate Laws (Amendment) Bill, 2026 could further change the landscape by introducing a statutory mechanism for conversion of specified AIF trusts into LLPs.

Key Takeaways:

• Trusts remain a widely used AIF structure, offering relatively simpler constitution, established governance practices and a clear separation between the sponsor, manager, trustee and investors.
• An LLP provides a separate legal identity and limited liability, but involves additional incorporation, designated-partner and ongoing compliance requirements under the LLP Act alongside the AIF Regulations.
• The trust-versus-LLP choice has governance and investor-rights implications, particularly around beneficial ownership, management participation, sponsor status, continuing interest and winding-up procedures.
• The proposed Corporate Laws (Amendment) Bill, 2026 introduces a statutory route for converting specified trusts into LLPs, with provisions addressing transfer of assets, liabilities, contracts, approvals and existing arrangements.
• The proposed conversion framework still raises important questions, including minimum designated-partner requirements, sponsor and continuing-interest obligations, investor rights, tax neutrality and stamp-duty implications.

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