If you talk about a master limited partnership or MLP, it should be known that it is a publicly traded partnership that is limited and the shares of the various ownerships are called as units. MLPs generally operate in the natural resource just as NGL Energy Partners or, maybe in financial services and real estate industries. Like for an instance Alerian MLP. If you talk about the MLP fund, 90% of them come from these various industries and it is very much needed for that company in order to qualify as being called a master limited partnership company or firm.
The working of master limited partnership.
A master limited partnership is considered to be the total of its partners rather than a separate entity unlike the normally running companies. The most differentiating fact, however, of the MLPs is the combination of the tax advantages of a partnership along with the liquidity of a stock that is traded publicly. The MLPs also allow pass through income. This means that these companies are not subjected to income taxes usually paid on a corporate level. The owners are rather personally responsible for paying taxes on their individual portions. Thus, this process actually subtracts the double taxation. This taxation is generally applied to corporations whereby the corporation pays taxes on its income and the corporation’s dividends.
What is the importance of master limited partnership?
Another fact is that master limited partnerships or MLPs are not subjected to income tax. It means that more cash is available for distributions. It is much more than what would be available if the company was incorporated. Thus the units are worth more than shares of a corporation of the same range. The range of cash distributions of a MLP generally drives the value of its units. Hence, it should be particularly important for investors to carefully evaluate whether it can meet the current distribution obligations. It should be able to continue its future distributions and raise them if possible. A ratio of 1:1 generally indicates that the MLP has adequate cash to meet the requirements of cash requirements.