Update: Corporate Laws (Amendment) Bill, 2026 to allow conversion of Specified Trusts to LLP

On 23 March 2026, the Corporate Laws (Amendment) Bill, 2026 [“Bill”] was introduced in the Lok Sabha. It aims to achieve several goals, including the enhancement of flexibility in the structuring of investment funds, decriminalizing of certain offences, expanding compliance mechanisms, allowing hybrid board meetings, strengthening oversight bodies such as the National Financial Regulatory Authority, etc.

Among the many monumental changes that the Bill seeks to bring about, a significant reform is proposed wherein specified trusts will now be allowed to convert into LLPs through the insertion of Section 57A and a Fifth Schedule under the Limited Liability Partnership [“LLP”] Act, 2008s. To set the context, the proviso to Section 57A defines a “specified trust” as a “trust established under the Indian Trusts Act, 1882 (or under a Central Act or State Act) and registered by the Securities and Exchange Board of India [“SEBI”] or by the International Financial Services Centres Authority [“IFSCA”]. Such trusts primarily include Alternative Investment Funds [“AIF(s)”] registered with SEBI as per the SEBI (AIF) Regulations, 2013 and the AIFs/Real Estate Investment Trusts [“REIT(s)”]/Infrastructure Investment Trusts [“InvIT(s)”] registered with IFSCA as per the IFSCA (Fund Management) Regulations, 2022. For the purpose of this benefit of conversion, unregistered trusts are excluded from the scope, and only specified trusts are included.

Presently, the majority of the above-mentioned AIFs, REITs and InvITs [collectively as “Funds”] are set up as trusts. Most Funds begin as trusts due to the familiarity with the trust structure in the business ecosystem, faster establishment, lower filing/documentation requirements and privacy of the investor identity from the scrutiny of the Ministry of Corporate Affairs [“MCA”]. However, trusts have limited corporate features and high personal liability of the Trustees. LLPs, on the other hand, provide opportunities for a corporate framework governed by the MCA and a partnership structure of governance within the Fund, which reduces personal liability of the individuals engaged with the firm. With the introduction of Section 57A and a Fifth Schedule, there now exists a definitive pathway for Funds to convert from a trust to an LLP, enabling them to move to a more suitable structure at a different stage of the Fund lifecycle. The same is expected to increase the ease of doing business and structuring flexibility as per business needs.

For the purpose of facilitating the conversion of a trust to an LLP, the Fifth Schedule of the Bill sets out the following in detail:

1. required conditions that a trust must fulfil to be eligible for conversion to an LLP;
2. statements to be filed with the registrar;
3. registration for conversion; and
4. effects of the conversion.

The above requirements are similar to those under the Second and Third Schedules, which provide for conversion from a firm/private company into an LLP.  Herein, conversion of a trust to an LLP under the Bill will ensure that the original trust is dissolved, the trustees of the trust become partners of the LLP, the assets/liabilities/rights/obligations are automatically vested in the LLP and that contracts/legal proceedings continue without interruption.

Although a majority of existing trust AIFs may not undergo conversion based on the enforcement of this Bill, the mere existence of a legislative conversion pathway alters the considerations at the initiation phase. Sponsors and managers can now organise a fund, with the assurance that a subsequent transition to LLP structure remains a viable option. This renders the initial decision between trust and LLP for setting up a Fund less dichotomous than ever.

The Bill currently lies before a Joint Parliamentary Committee for the purpose of further scrutiny and stakeholder discussions, post which recommendations will be submitted to the Parliament.