Company, LLP or Trust? Choosing the Right Fund Structure in GIFT IFSC

The IFSCA (Fund Management) Regulations, 2025 allow investment schemes in GIFT City IFSC to be structured as a company, LLP or trust, subject to the applicable requirements. However, the choice of legal structure involves more than regulatory compliance. It can influence governance responsibilities, tax treatment, fiduciary duties and the rights of investors in a fund.

This article examines the legal and practical implications of using different structures for investment funds in GIFT IFSC. Rather than ranking companies, LLPs and trusts, it considers how each option may suit different investment strategies, investor requirements and exit plans.

What the Regulations Fix, and What They Leave Open

Three regulatory requirements are worth considering before choosing a legal form for an investment fund in GIFT IFSC.

The manager’s form is constrained. Under regulation 5, an FME may be a company, an LLP, a branch of either, or another permitted form, except that a Registered FME (Retail) may not be an LLP or a branch, and the branch route is open only to an entity already regulated for similar activities in India or abroad.

The scheme’s fiduciaries follow the form. Regulation 17 requires an FME, before filing a scheme document, to appoint fiduciaries: the board of directors for a company, designated partners for an LLP, or trustees, including the board of a trustee company, for a trust. All must satisfy fit-and-proper requirements, and for retail schemes their appointment requires IFSCA’s prior approval.

Family Investment Funds have their own list. An FIF may be a company, a contributory trust or an LLP, with express determinacy conditions where a trust is used (Article 20).

The Governance Consequence

The choice between different GIFT IFSC fund structures also affects how governance responsibilities are assigned.

• In a company, the board owes duties under the Companies Act, 2013 as modified for IFSC companies (Article 44), and the shareholders’ rights are statutory. Governance is the most codified of the three, and the most familiar to institutional investors.
• In an LLP, the designated partners carry statutory responsibility, and the internal arrangement is governed by the LLP agreement. Flexibility is greatest here, and correspondingly more depends on drafting.
• In a trust, the trustee holds assets for the beneficiaries. The Third Schedule to the Regulations sets out the trustee’s role and obligations, and the trust deed does the constitutional work. This is the structure most commonly used for private funds, but it places heavy weight on the deed and on trustee independence.

The Tax Consequence: The Pass-Through Boundary

The decisive tax question is not the vehicle’s form but whether it falls within a defined tax category.

Category I and II: pass-through. Section 224 of the Income-tax Act, 2025 provides that where a unit holder of an “investment fund” receives income out of investments made in the fund, that income is chargeable in the same manner as if the investments had been made directly by the unit holder. Business income is treated differently: losses under the head “profits and gains of business or profession” are carried forward and set off at fund level, and ignored for the pass-through.

Section 224(10)(a) defines “investment fund” as a fund established or incorporated in India as a trust, company, limited liability partnership or body corporate which holds a certificate of registration as a Category I or Category II Alternative Investment Fund and is regulated under the SEBI (Alternative Investment Funds) Regulations, 2012 or the IFSCA Fund Management Regulations. The form of the vehicle is therefore irrelevant to eligibility; the category is what matters.

Category III, retail schemes and ETFs: the specified fund route. These do not use section 224. Their treatment runs through Schedule VI and section 210 (Article 7): exemptions for defined categories of income, attributed to units held by non-residents, and special rates on the rest.

The vehicle still affects minimum tax. Under section 206, a company that is an IFSC unit deriving income solely in convertible foreign exchange pays MAT on book profit at 9%; a non-corporate IFSC unit, including an LLP, pays AMT at 9% on adjusted total income, which adds back deductions claimed (Article 6). For a vehicle claiming the section 147 deduction, the LLP route brings AMT squarely into play.

Trust taxation has its own architecture. Where a trust is used and the fund is not within section 224, the general law on the taxation of trusts and representative assessees applies, and determinacy of beneficiaries and their shares becomes important. That is one reason the Family Investment Fund conditions insist on identifiable beneficiaries and determinable shares.

A Summary Comparison

The main differences between company, LLP and trust structures for GIFT IFSC funds are summarised below, covering governance, tax treatment and regulatory requirements.

A Drafting Point Worth Noting

The Income-tax Act, 2025 refers, in section 224(10)(a) and in Schedule VI, to the IFSCA (Fund Management) Regulations, 2022. Those regulations were repealed by the 2025 Regulations. Regulation 148(4) of the 2025 Regulations provides that, after the repeal, any reference to the 2022 Regulations “in any other regulations made, guidelines or circulars issued thereunder by the Authority, any act of the Government of India or laws enacted by other statutory authorities” is deemed to refer to the corresponding provisions of the 2025 Regulations. Regulation 148(3) preserves registrations and approvals granted under the repealed regulations.

The practical effect is that a scheme authorised under the 2025 Regulations should be read as satisfying the statutory descriptions framed by reference to the 2022 Regulations. Whether a regulation made by IFSCA can, of its own force, govern the construction of a Central Act is a question of some nicety, and as at 17 September 2026 no judicial authority on the point was traced. Structures that depend on the characterisation should record the basis on which it is taken.

How the Choice is Usually Made in Practice

• Investor expectations often decide it. Institutional limited partners familiar with LP structures may prefer an LLP or trust; strategic or corporate investors may prefer a company.
• Category matters more than form for the tax outcome, so the category should be settled with the strategy, not after it.
• Retail ambitions foreclose options at the manager level, since a Registered FME (Retail) cannot be an LLP or branch.
• Exit mechanics differ: transfer of shares, assignment of LLP interest and transfer of units each raise different documentation, consent and, where relevant, stamp questions.

FAQs

1. Do the IFSCA (Fund Management) Regulations, 2025 require a specific legal form for a fund?
No. A scheme can be constituted in the IFSC as a company, LLP or trust. The Regulations are largely vehicle-neutral, but the choice still affects governance, tax and what investors own.

2. Can an LLP act as a Fund Management Entity (FME)?
Yes, except for a Registered FME (Retail), which cannot be an LLP or a branch.

3. Who are the fiduciaries of a fund under regulation 17?
It depends on the form: the board of directors for a company, designated partners for an LLP, and trustees for a trust. For retail schemes, their appointment needs IFSCA’s prior approval.

4. Does the vehicle’s form decide whether the fund gets pass-through taxation?
No. Under section 224 of the Income-tax Act, 2025, eligibility depends on the fund being a Category I or II AIF, not on whether it is a company, LLP or trust.

5. How are Category III funds, retail schemes and ETFs taxed?
They do not use section 224. They are taxed under the specified fund route (Schedule VI and section 210), with exemptions for defined income, attribution to non-resident unit holders, and special rates on the rest.

6. Does the vehicle affect minimum tax?
Yes. An IFSC company earning income solely in convertible foreign exchange pays MAT at 9% on book profit. An LLP pays AMT at 9% on adjusted total income.

7. Can a Family Investment Fund (FIF) be a trust?
Yes, as a contributory trust, subject to determinacy conditions (identifiable beneficiaries and determinable shares). A company or LLP is also permitted.

8. Which structure is best for a fund in the GIFT City IFSC?
There is no legal hierarchy. The right choice depends on the strategy, investor base, exit plans and intended fund category, which should be settled together at the outset.