AIF Trust-to-LLP Conversion: The Unresolved Investor Consent Ambiguity in the Corporate Laws (Amendment) Bill, 2026

Introduction

The Corporate Laws (Amendment) Bill, 2026, introduced in the Lok Sabha on 23 March 2026, carries a potentially transformative provision for the Alternative Investment Fund (AIF) industry in India. The Bill, currently under review by a Joint Parliamentary Committee (JPC) for line-by-line examination before being returned to Parliament for final enactment, includes a mechanism under Section 12 that enables trusts regulated by the Securities and Exchange Board of India (SEBI) and the International Financial Services Centres Authority (IFSCA) to convert into Limited Liability Partnerships (LLPs) with a considerably reduced regulatory burden.

To give this mechanism a structural home, the Bill proposes inserting a new Section 57A and a Fifth Schedule into the Limited Liability Partnership Act, 2008. The reform is broadly welcomed by the AIF ecosystem as a necessary and long-overdue simplification. However, buried within Paragraph 4(a)(iv) of the proposed Fifth Schedule lies a drafting gap that, if left unaddressed, could generate significant interpretive uncertainty the moment the conversion framework becomes operative.

The provision in question requires consent from "three-fourths of the investors" of the trust — but is entirely silent on whether this threshold is to be measured by the number of investors or by the value of their investments. This silence is not merely an inelegant oversight; it creates a material inconsistency with SEBI's own evolving regulatory practice around AIF governance and consent thresholds.

The Gap in Paragraph 4(a)(iv): What Is Missing and Why It Matters

The Drafting Silence on Measurement Methodology

Paragraph 4(a)(iv) of the proposed Fifth Schedule specifies a consent requirement of three-fourths of the investors but stops short of clarifying the basis on which that fraction is to be computed. In SEBI's regulatory vocabulary, this distinction is deliberate and consequential. Wherever SEBI intends votes to be weighted by economic participation rather than counted by head, it explicitly uses the phrase "by value."

Several existing and proposed provisions within SEBI's AIF framework illustrate this practice clearly:

  • Two-thirds by value — the threshold prescribed for Venture Capital Funds (VCFs) seeking re-registration as AIFs.
  • 75 percent by value — the threshold applicable for an AIF to commence winding up or to make distributions of any unliquidated assets, as introduced through the April 2024 amendments to Regulation 29(9) of the SEBI (Alternative Investment Funds) Regulations.
  • 75 percent majority of the value of investments — the proposed uniform threshold under SEBI's Consultation Paper dated 30 June 2026, which recommends value-based voting across virtually all material decisions an AIF may be required to take.

Against this backdrop, the absence of "by value" in Paragraph 4(a)(iv) is conspicuous. If Parliament intended a headcount-based rule, the omission may reflect a deliberate policy choice — though one that sits uneasily with SEBI's direction of travel. If Parliament did not intend a headcount rule, the omission is a drafting error that requires correction before the provision is finalised.