What are Master Limited Partnerships?

A master limited partnership, or MLP, is a limited partnership which has stock available for trading on a securities exchange. Most companies become master limited partnerships for tax purposes, as the limited partnership element of a master limited partnership helps the company avoid certain taxes and fees.

In particular, a company is taxed once when the company receives funds, and then an individual would be taxed once he or she received his or her share of the funds. But a limited partnership would involve only one round of taxation, when the money reached the individual. Thus, an MLP would help owners to avoid some taxes on incoming funds, while still offering up many of the important properties and characteristics of a corporation, such as the ability to have and trade security in the company.

Not all partnerships are inherently capable of becoming master limited partnerships. MLP status is limited to those organizations and companies which have the vast majority of their income, 90% at least, coming from certain sources, such as mineral or natural resource dealings or real property dealings.

In other words, a master limited partnership is very much likely to be a company which is focused on some stable element of the overall economy, as opposed to being a company focused on an unstable but potentially high-growth market. The vast majority of master limited partnerships are energy companies of some form or another and are often involved in such elements as pipeline construction and storage device construction.

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