GIFT City AIFs: Trust-to-LLP Conversion Opportunity Under Corporate Laws (Amendment) Bill, 2026

GIFT City AIFs: Trust-to-LLP Conversion Opportunity Under Corporate Laws (Amendment) Bill, 2026: A Complete Analysis for Fund Managers, Trustees, and Compliance Teams Operating in International Financial Services Centres

A new window just opened for India’s Rs. 12+ lakh crore AIF industry.

On 18th March 2026, the Corporate Laws (Amendment) Bill, 2026 was introduced in Lok Sabha. Buried within its 107 clauses and receiving far less attention than the NFRA amendments or small company relief is a set of provisions that could fundamentally alter the structural landscape for Alternative Investment Funds operating in GIFT City.

For the first time in Indian corporate law history, a trust may convert into a Limited Liability Partnership. And SEBI/IFSCA-regulated LLPs receive targeted compliance relaxations. And IFSC companies and LLPs get a complete foreign currency accounting framework.

This article analyses every AIF and IFSC-related provision in the 2026 bill with exact statutory text, practical implications, and a clear framework for fund managers evaluating structural decisions.

PART I: THE AIF UNIVERSE — CURRENT STRUCTURAL REALITY

Before analysing the amendments, the structural context:

The fundamental problem: India’s trust law framework was designed for charitable purposes — not for sophisticated financial structures managing institutional capital. LLP offers pass-through taxation, corporate features, limited liability, and a framework better suited for fund management. But conversion was impossible.

The 2026 bill resolves this.

PART II: NEW SECTION 57A – THE CONVERSION PROVISION

Section 57A is deceptively simple. Its implications are far-reaching:

• The conversion pathway is now statutory not dependent on judicial interpretation or regulatory guidance
• Both SEBI-registered AIFs (domestic) and IFSCA-registered AIFs (GIFT City) are covered
• The ‘specified trust’ definition requires SEBI/IFSCA registration purely private trusts without regulatory registration are excluded
• The specific activities that qualify will be prescribed by rules the Central Government can narrow or expand the scope

2.1 The Fifth Schedule – Conversion Procedure in Detail

The Fifth Schedule (inserted alongside Section 57A) provides the complete procedural framework. Here is a clause-by-clause analysis:

Eligibility — Paragraph 3

Critical restriction: The resulting LLP’s partners must be exclusively the current trustees. Third parties cannot be inducted as partners at conversion. This has direct implications for fund restructuring:

• If investors need to become LLP partners this conversion route does not apply directly
• Trustee-based LLP structures with separate investor vehicle arrangements can be contemplated
• Managers acting as trustees would become the sole initial partners of the LLP

Documents Required – Paragraph 4

The 3/4th investor consent requirement is material:

• Investors must be identified and their consent formally documented
• This may trigger investor communication requirements under SEBI AIF Regulations or IFSCA AIF Regulations
• Valuation at time of conversion needs to be determined for contribution accounting purposes

Registration and Effects – Paragraphs 5, 6, 7

‘Without further assurance, act or deed’ is the operative phrase. This means:

• No separate property transfer deeds required conversion certificate itself operates as transfer
• No stamp duty on transfer of assets to LLP (subject to State-specific stamp duty laws — this requires careful verification in each jurisdiction)
• Regulatory licenses, approvals, and registrations transfer automatically subject to Paragraph 15
• SEBI/IFSCA registration of the AIF would need to be updated the regulator must be notified

Continuity Provisions – Paragraphs 9 to 14

The Fifth Schedule provides comprehensive continuity mirroring provisions already in the Second, Third, and Fourth Schedules:

• Paragraph 9 Pending proceedings: All court/tribunal proceedings continue against/by the LLP
• Paragraph 10 Convictions/orders: All court orders enforceable against/by the LLP
• Paragraph 11 Agreements: All agreements to which trust was party continue as if LLP were the party
• Paragraph 12 Contracts: All deeds, bonds, instruments continue in force against the LLP
• Paragraph 13 Employment: All employment contracts continue with LLP as employer
• Paragraph 14 Appointments/powers: All appointments and powers of attorney transfer to LLP

Trustee Liability After Conversion – Paragraph 16

This is the ‘no clean break’ provision. Former trustees – now LLP partners remain personally exposed to pre-conversion liabilities. For fund managers evaluating conversion:

• Pre-conversion tax liabilities of the trust remain the personal liability of former trustees
• Investor claims arising from pre-conversion events are similarly not cleansed
• Indemnity from the LLP is available [Para 16(2)] but enforcement requires LLP solvency
• This makes the timing of conversion critical conversion after resolution of all known pre-conversion liabilities is the conservative approach

Conversion Notice — Paragraph 17

PART III: AIF-SPECIFIC COMPLIANCE RELAXATIONS – SECTIONS 23 & 25

Two specific relaxations for SEBI/IFSCA regulated LLPs directly addressing the pain points of AIF fund managers using LLP structures.

3.1 LLP Agreement Changes – Annual Filing Only [Section 23]

Under the existing provision, every single change in the LLP agreement including fund documentation changes triggered by investor subscriptions, redemptions, or regulatory modifications — required immediate MCA filing. For an AIF with frequent investor activity, this created a continuous compliance burden.

Impact: Rules will specify annual (or other periodic) filing for SEBI/IFSCA-regulated LLPs aligning with typical fund reporting cycles rather than real-time event-based filing.

3.2 Partner Changes – Annual Filing Only [Section 25]

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This is even more impactful than the agreement filing relaxation. For an AIF-LLP with multiple investor partners joining and exiting through the year, the 30-day filing requirement for each change was practically unworkable. Annual reporting aligns with the typical investor statement and audit cycle.

PART IV: IFSC LLP – COMPLETE FOREIGN CURRENCY FRAMEWORK

Sections 2 (new definitions), 13, 15, 32, 34, and 68 of the LLP Act are collectively amended to create a complete operational framework for Specified IFSC LLPs.

4.1 Definitions [Section 2(1)]

4.2 The Four Mandatory Requirements for Specified IFSC LLPs

4.3 Transition for Existing IFSC LLPs

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Critical: Existing GIFT City LLPs that have not yet converted their books to foreign currency face an immediate obligation. No new INR contributions can be accepted until the conversion is complete. IFSCA will specify the timeline and manner of conversion.

Fee/Fine payments [S.68 amendment]: Despite foreign currency operations, Specified IFSC LLPs shall pay fees, fines and penalties under the LLP Act in Indian Rupees maintaining the INR connection for regulatory payments.

PART V: IFSC COMPANIES — NEW SECTION 43A

Parallel to the LLP framework, Section 43A is inserted into the Companies Act for IFSC companies:

The framework for IFSC companies mirrors the LLP framework:

• Books of account and records in permitted foreign currency [S.43A(2)]
• Documents filed with Registrar in permitted foreign currency as Central Government may prescribe [S.43A(3)]
• Fees, fines and penalties under Companies Act in Indian Rupees [S.43A(4)]
• IFSCA may permit books in Indian Rupee optionality retained

PART VI: VALUATION FRAMEWORK – IBBI AS VALUATION AUTHORITY

For IFSC AIFs, valuation is a critical compliance function NAV computation, fair valuation for investor reporting, and exit valuation all depend on registered valuers.

IBBI’s role as Valuation Authority means:

• All valuations required under the Companies Act (which includes IFSC companies) must now be by IBBI-registered valuers
• Valuer organisations must be IBBI-recognised
• Valuation standards will be recommended by IBBI and notified by Central Government
• The IBBI-registered valuer framework replaces the old ICAI/prescribed organisation framework

For AIFs that used to engage valuers on the basis of ICAI membership alone a fresh verification of IBBI registration status of their valuation service providers is now essential.

PART VII: THE ACCOUNTING COMPLEXITY OF GIFT CITY AIFs – WHERE ADVOFIN ADDS VALUE

The 2026 amendments create a significantly more complex accounting and compliance environment for GIFT City AIFs regardless of whether they are trusts, LLPs, or companies. Here is the multi-layer compliance matrix:

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PART VIII: DECISION FRAMEWORK – SHOULD YOUR AIF CONVERT?

The trust-to-LLP conversion pathway is now legally available. But it is not right for every AIF. Here is a structured decision framework:

Important: Rules will specify which ‘activities’ qualify as a ‘specified trust’ for conversion purposes. Until these rules are notified, the conversion pathway is not yet operative. Monitor Central Government rule-making under Section 57A.

CONCLUSION: THE GIFT CITY AIF OPPORTUNITY AFTER 2026

The 2026 amendments collectively move GIFT City from being a tax and regulatory sandbox into a fully-integrated, structurally sophisticated financial services jurisdiction. Five changes stand out:

1. Trust-to-LLP conversion: For the first time, AIF trusts have a statutory exit route to the LLP structure – lower cost, corporate features, pass-through taxation.

2. Annual filing relaxation: SEBI/IFSCA LLPs no longer face the burden of real-time MCA filings for every partner or agreement change.

3. Foreign currency framework: IFSC LLPs and companies now have explicit statutory backing for USD/foreign currency accounting – removing interpretive uncertainty.

4. IBBI valuation framework: Standardised, regulated valuation for IFSC entities creates investor confidence and regulatory consistency.

5. Single NCLT jurisdiction for mergers: If IFSC fund structures need to be merged or amalgamated, a single NCLT bench will now handle it – faster, simpler M&A.

The GIFT City AIF ecosystem is growing rapidly. As of March 2026, over Rs. 12 lakh crore in AIF commitments have been registered with SEBI, with IFSC-registered AIFs growing significantly. The 2026 amendments provide the structural clarity that sophisticated fund managers and their LPs have been waiting for.

The accounting and compliance requirements, however, have simultaneously become more complex multi-currency books, IFSCA + MCA + SEBI + IBBI compliance, and conversion advisory all demand specialised expertise.

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About the Author: Adv. Mohit Jain is an Advocate and Tax Advisor with over 10 years of experience in GST and Income Tax litigation, practicing before the Delhi High Court, ITAT, CIT(A), GST Appellate Authority, and NCLT. He is the founder of AdvoFin Consulting Pvt Ltd, which provides accounting, bookkeeping, and compliance services for Indian businesses including GIFT City entities.

Email: advofinconsulting@gmail.com  |  Phone: +91 92116 76467

Disclaimer: This article is for informational and educational purposes only and does not constitute legal or professional advice. Readers are advised to consult their professional advisors before acting on any information contained herein. The views expressed are those of the author based on the bill as introduced in Lok Sabha and are subject to change upon enactment and rule-making.