Ambiguity in investor consent for trust-to-LLP conversions under AIF framework highlights need for 75% value-based approval to protect investor rights.
Trust-to-LLP Conversion: AIF Investor Consent Issue
Recent scrutiny has emerged over the conversion of Alternative Investment Fund (AIF) structures from trusts to Limited Liability Partnerships (LLPs). A key ambiguity lies in the consent threshold—whether it should be based on number of investors or capital commitment value.
While SEBI Regulations require approval from a majority of investors, they do not clarify the basis. The article argues for a 75% value-based threshold, aligning with investor protection objectives under the SEBI (Alternative Investment Funds) Regulations, 2012. This prevents minority blockholders from derailing conversions while ensuring substantial capital support.
Legal practitioners must address consent mechanisms explicitly in fund constitutions. Structuring conversions without clear investor mandates risks regulatory pushback and litigation. Pre-conversion disclosures and valuation fairness opinions should be integral to the process to maintain compliance and trust.
Citations
- SEBI (AIF) Regulations, 2012