Hi, I’m Rose Jacobs, here with you for Kalkine TV. Today we’re going to look at what is Master
Limited Partnership? But first, make sure you press the bell icon for all the latest updates
here on Kalkine TV. A master limited partnership (MLP) is a type of publicly traded corporate
venture that combines the characteristics of a firm with those of a partnership and exists
as a publicly traded limited partnership. Such businesses are not subject to corporate income
tax. It combines the tax advantages of a private partnership with the liquidity of
a publicly traded corporation. A master limited partnership can also trade on national exchanges.
Because MLPs are mandated to release all available cash to investors, they maximise cash flow
benefits. They may also assist in the reduction of capital costs in capital-intensive industries
like the energy sector. The MLP is a distinctive hybrid legal entity that combines two business
structures: a corporation and a partnership. It is first treated as a collection of its partners
rather than a separate legal organisation. Second, it is technically devoid of personnel.
The general partners will offer all necessary business services and usually hold a 2% share
in the venture and can boost their ownership. An MLP, like a partnership, issues units rather than
stocks. These units are, nonetheless, regularly traded on national stock exchanges. Traditional
partnerships will not be able to supply this level of liquidity due to the lack of
liquidity offered by exchanges. As these publicly traded units are not stock shares, investors in
MLPs are commonly referred to as unitholders instead of shareholders. Limited partners
are individuals who invest in a master limited partnership. The deductions, revenue, credits,
and losses of the MLP have been allocated to these unitholders. MLPs have two types of partners:
Limited partners - Silent partners are another term for limited partners. They are investors
who buy MLP stock and contribute capital to the entity's operations. They've been getting
distributions regularly from the MLP, usually every quarter. And General partners - The owners
in charge of the MLP's day-to-day activities are general partners. They were paid a salary
based on the partnership's financial performance. What are the characteristics of a master limited
partnership? A master limited partnership is not treated as a separate legal body
like a firm but as a collection of present partners. In every such corporate enterprise,
there are two kinds of partners: . The general partners have overseen the firm's day-to-day
activities. Limited partners, often referred to as unitholders, are individuals who have invested
in business operations. And Limited partners get cash distributions that are considered
capital returns. General partners are compensated based on the firm's overall business performance.
What benefits do master limited partnership offer?
MLPs are renowned for their slow investment opportunities. MLPs are frequently in
slow-growing industrial sectors, like pipeline building, which explains the low profits. However,
MLPs are low risk because of their moderate and steady expansion.
In addition, long-term service contracts offer them a steady source of revenue.
As a result, MLPs generate consistent cash distributions and reliable cash flows.
MLP cash pay-outs often grow at a slightly quicker rate than inflation. Typically,
80%-90% of distributions are tax-deferred for limited partners. As a result, MLPs could offer
appealing income yields that are much greater than the average dividend yield of stocks. Furthermore,
as a flow-through company, more capital is available for future developments.
The availability of finance aids the MLP firm's capacity to compete in its industry.
What are some of the drawbacks of master limited partnership? Master limited partnerships have a
poor return on investment since they are in a slow-growing industry, like exploration.
The investors will be given the corporate tax liability that might hurt their return. If the
limited partners possess units in many states where the partnership does business, the entire
tax filing process could become complex. And Because institutional investors bear tax charges
when making investments in units, master limited partnerships have a small pool of investors.
And that’s it for today. If you like what you’ve learned then don’t forget to like, share and
subscribe and go to kalkinemedia.com for all our latest. I’m Rose Jacobs, see you next time!