Introduction to Master Limited Partnerships (MLPs)
A master limited partnership (MLP) is a unique investment vehicle that combines the tax benefits of a private partnership with the liquidity of a publicly-traded company. Established in 1981, MLPs offer investors an attractive way to invest in capital-intensive industries while benefiting from tax advantages and a steady income stream. In this section, we will explore what MLPs are, their distinct features, and the key benefits they provide.
Master Limited Partnerships (MLPs): An Overview
An MLP is a limited partnership that is publicly traded on national stock exchanges, allowing investors to buy and sell units like stocks. Unlike traditional partnerships, MLPs’ units offer liquidity without sacrificing the tax benefits of a partnership structure. In an MLP, there are two main partner classes: general partners (GPs), who manage the day-to-day operations, and limited partners (LPs), who invest in the MLP by purchasing its units.
MLPs have their roots in the energy sector but have since expanded into real estate and infrastructure sectors as well. Since an MLP itself does not pay federal income taxes, it is considered a pass-through entity for tax purposes. This means that the partnership’s income, losses, deductions, and credits are passed directly to its investors (limited partners), allowing them to benefit from these tax savings.
Key Features of Master Limited Partnerships (MLPs)
Some essential features make MLPs an attractive investment option for both professional and institutional investors:
1. Pass-Through Tax Structure: An MLP passes its income, losses, deductions, and credits directly to its investors, who are taxed on their individual tax returns. This eliminates the double taxation faced by corporations.
2. Stable Income Stream: The slow and steady growth of industries such as energy pipelines, real estate, or infrastructure provides a consistent income stream for limited partners in the form of quarterly distributions.
3. Limited Liability: Limited partners have no involvement in managing the day-to-day operations and are not liable for debts beyond their initial capital contribution.
4. Tax-Deferred Capital Gains: The tax deferral feature allows investors to delay paying taxes on capital gains until they sell their units, providing an additional tax advantage.
5. Low Risk: MLPs are known for their low risk profile due to their steady income stream and the passive nature of being a limited partner.
In the next sections, we will delve deeper into the taxation structure, advantages, disadvantages, types, and investing strategies associated with Master Limited Partnerships (MLPs).
The Basics of MLP Structure
Master Limited Partnerships (MLPs) represent a unique investment vehicle that offers the tax advantages of partnerships and the liquidity of publicly traded companies. Established as limited partnerships for tax purposes, these entities combine two distinct roles: general partners and limited partners. In this section, we delve deeper into the structure of MLPs.
Definition & Characteristics: An MLP is a business venture structured as a publicly-traded limited partnership. It combines elements of both limited partnerships and corporations: tax advantages from partnership status and the liquidity offered by public trading. Trading on national stock exchanges, MLP units can be easily bought and sold without the complexity that comes with traditional partnerships. The first MLP was formed in 1981, primarily in response to the energy sector’s capital-intensive nature. However, due to concerns over lost corporate tax revenues, Congress limited their use to real estate and natural resources sectors.
MLP Structure:
Limited Partners: Limited partners are investors who purchase units in the MLP and provide funding for its operations. They receive periodic cash distributions from the partnership and are classified as unitholders or silent partners. Taxed on their individual income tax returns, limited partners have no say in the day-to-day management of the partnership.
General Partners: General partners are responsible for managing the MLP’s operations and overseeing its assets. They hold an approximately 2% ownership stake and may increase this. Compensated based on the performance of the partnership, general partners serve a crucial role in the success and sustainability of the MLP.
MLP Units vs. Shares: Unlike traditional corporations with stock shares, MLPs issue units instead of shares. However, these units can be traded on national exchanges due to their liquidity. This flexibility is a significant advantage over the inflexibility inherent in traditional partnership structures.
In the next section, we will discuss the tax implications associated with investing in an MLP, which further highlights the unique benefits of this investment vehicle.
Taxation of Master Limited Partnerships (MLPs)
Master Limited Partnerships (MLPs) are unique investment vehicles with attractive tax benefits for investors. Unlike traditional corporations, MLPs do not pay federal income taxes since they are considered limited partnerships for tax purposes. Instead, the income and losses pass through to individual partners or unitholders, who pay taxes on their share of these earnings.
Pass-Through Tax Consequences: MLPs’ tax structure allows for a significant reduction in overall taxes paid. As a pass-through entity, MLPs distribute profits and losses to the limited partners. The MLP itself does not pay federal income tax. Instead, the limited partners report their share of partnership income on their personal tax returns. This results in tax savings since each partner is only taxed on their portion of the partnership’s earnings.
Avoiding Double Taxation: One of the major benefits of investing in an MLP is its ability to avoid double taxation, unlike traditional corporations that face both corporate and individual taxes on their profits. When you invest in a corporation, the company pays income tax on its earnings, and then shareholders pay taxes again when they receive dividends from the company. However, since MLPs do not pay federal income taxes, limited partners only pay taxes on their allocable share of the partnership’s earnings, which results in more capital being available for reinvestment.
The Role of the K-1 Form: The Internal Revenue Service (IRS) requires each MLP to issue a Schedule K-1 form to its limited partners, reporting each partner’s share of the partnership’s income, deductions, and tax liabilities. This form enables limited partners to accurately report their portion of the MLP’s earnings on their personal tax returns. While the K-1 can be complex and time-consuming, it is an essential component of the MLP structure, ensuring that each partner pays taxes only on their rightful share of the partnership’s earnings.
In conclusion, understanding Master Limited Partnerships (MLPs) taxation is crucial for investors considering this investment vehicle. Their pass-through tax status and avoidance of double taxation are significant advantages compared to traditional corporations. By familiarizing yourself with MLP taxation, you can make informed decisions regarding whether this investment fits your financial situation and investment goals.
Coming up next, we will explore the types of Master Limited Partnerships (MLPs) and their advantages for professional and institutional investors. Stay tuned!
Advantages and Disadvantages of Master Limited Partnerships (MLPs)
Master Limited Partnerships (MLPs) provide attractive investment opportunities for both professional and institutional investors due to their tax efficiency, steady cash distributions, and low-risk nature. Let’s explore the advantages and disadvantages of investing in MLPs:
Pros:
1. Steady Returns and Low Risk: MLPs are often found in industries with slow but stable growth, such as pipeline construction, resulting in predictable income and minimal risk for investors.
2. Tax Efficiency: MLPs are taxed as partnerships rather than corporations, thus avoiding the double taxation that corporations face. This translates to more capital being available for future projects and larger cash distributions for investors.
3. Consistent Cash Distributions: Limited partners can enjoy regular distributions from MLPs, which often grow slightly faster than inflation and are largely tax-deferred until units are sold.
4. Limited Liability: As limited partners, investors’ liability for an MLP’s debts and obligations is limited to the amount of their capital contribution.
5. Favorable Tax Environment: Investors can deduct 20% of their distributions from their taxable income under the 2017 tax cuts act, significantly reducing overall taxes paid. Additionally, MLPs offer unique estate planning benefits when units are passed to beneficiaries (tax-free and fair market value determination at the time of death).
6. Competitive Edge: The flow-through structure of MLPs provides a competitive edge by keeping more capital available for future projects, allowing them to remain industry leaders.
7. Attractive Income Yields: With cash distributions often exceeding those of typical dividend yields, investing in MLPs can lead to higher returns without taking on excessive risk.
Cons:
1. Complex Filing Requirements: The complex tax environment surrounding MLPs results in detailed reporting requirements, which can be a burden for both the investors and their tax professionals.
2. State Income Taxation: As MLPs operate in multiple states, investors may face income taxes on their allocated portion of income in each state where the partnership is active.
3. Limited Upside Potential: Although not a significant disadvantage, MLPs have limited upside potential compared to other investment opportunities due to their focus on steady and consistent growth.
4. Net Losses: Unlike some investments, net losses cannot be used to offset other income in the year they occur but can carry forward for future tax benefits.
By weighing these advantages and disadvantages, investors can determine whether MLPs align with their investment objectives and risk tolerance.
Types of Master Limited Partnerships (MLPs)
Master Limited Partnerships (MLPs) are flexible structures with applications in various industries. Three primary types of MLPs exist: Energy MLPs, Real Estate MLPs, and Infrastructure MLPs. Each type offers its unique benefits and challenges to investors.
1. Energy Master Limited Partnerships (E-MLPs):
Energy MLPs focus on the exploration, production, or transportation of natural resources such as oil, coal, natural gas, and minerals. They often own pipelines, processing plants, or drilling equipment used in the energy sector. Energy MLPs have a long history, with some of the earliest examples being pipeline companies like Kinder Morgan Energy Partners LP and Enterprise Product Partners LP. These entities can offer attractive income yields due to their stable cash flows, which stem from long-term contracts with customers or commodity producers.
2. Real Estate Master Limited Partnerships (R-MLPs):
Real Estate MLPs invest in commercial real estate, including office buildings, apartments, malls, and hotels. They earn revenue through renting out their properties to tenants or by selling them. Some R-MLPs focus on specific segments of the real estate industry, such as senior housing or storage facilities. Real Estate Investment Trusts (REITs) are a common alternative to RE-MLPs. However, MLPs may offer additional tax benefits, allowing for a higher distribution yield and greater potential for capital appreciation.
3. Infrastructure Master Limited Partnerships (I-MLPs):
Infrastructure MLPs invest in long-term infrastructure projects like toll roads, water and wastewater systems, cell phone towers, or electric power transmission lines. These assets typically generate consistent cash flows through user fees or regulated revenues. By focusing on essential services, infrastructure MLPs can offer investors a stable income stream while potentially benefiting from the growth in demand for these services as populations increase and economies expand.
Understanding the various types of MLPs is crucial to identifying which one might best suit your investment goals. As you consider this option, it’s important to weigh their advantages and disadvantages carefully. Remember that each type of MLP comes with unique characteristics, risks, and benefits. By conducting thorough research and consultations with financial professionals, you can make an informed decision about whether investing in a master limited partnership is right for your investment portfolio.
Investing in Master Limited Partnerships (MLPs)
Master Limited Partnerships (MLPs) offer numerous benefits to professional and institutional investors, but it’s essential to understand the process of investing in these unique investment vehicles. This section will provide an overview of how to invest in MLPs, assess their risks, and discuss various investment strategies.
How to Invest in a Master Limited Partnership (MLP)
Investors can purchase units in an MLP through a brokerage account or by directly investing with the partnership itself. It’s important to note that MLPs typically trade on national stock exchanges, allowing for easy liquidity and quick access for investors. To invest, simply follow these steps:
1. Open a brokerage account with a reputable online broker. This will allow you to buy and sell units of various MLPs as needed.
2. Research the specific MLPs that pique your interest. Factors such as industry sector, management team, financial performance, and tax structure should all be considered when making a decision.
3. Place an order for the desired number of units in the chosen MLP using your brokerage account. Once the order is executed, you will become an unitholder and receive regular distributions based on the partnership agreement.
Risk Assessment for Potential Investors
Before investing in an MLP, it’s crucial to assess potential risks and determine whether this investment aligns with your financial goals and risk tolerance. Some factors that should be considered when evaluating the risk of investing in MLPs include:
1. Industry Risk – The sector in which the MLP operates can significantly impact the overall risk profile. For example, energy MLPs might experience increased volatility due to fluctuations in commodity prices, while real estate MLPs may face risks related to property values and tenant occupancy rates.
2. Management Risk – Effective management is essential for a successful MLP. Assess the partnership’s track record of delivering consistent cash distributions and evaluating the experience and reputation of its management team.
3. Market Risk – As with any investment, market conditions can impact the performance of an MLP. Be aware of macroeconomic factors that could potentially affect your investment, such as interest rates, inflation, and global economic trends.
4. Tax Risk – Understanding how tax implications will impact your investment is essential, particularly when it comes to potential changes in tax laws or your personal financial situation. Consult with a tax professional for advice on how the MLP’s tax structure might affect you as an investor.
MLP Investment Strategies
Several investment strategies can be employed when considering an MLP investment, including income-focused strategies and growth-oriented approaches.
1. Income-Focused Strategy – For investors seeking steady, passive income, MLPs may be an attractive option due to their tax-efficient structure and consistent cash distributions. A focus on high current yields can help provide a stable return, making this strategy well-suited for those nearing retirement or looking to generate income from their investments.
2. Growth-Oriented Strategy – While MLPs are often considered slow growers due to their industry focus and tax structure, there is still potential for capital appreciation within these partnerships. Investors seeking to capitalize on this growth can consider a growth strategy, which might include holding units for an extended period or investing in MLPs that show promise for expanding their operations and asset base.
In conclusion, understanding the intricacies of Master Limited Partnerships (MLPs) is essential for professional and institutional investors seeking stable, tax-efficient investment opportunities in the energy, real estate, or infrastructure sectors. By following a well-informed investment strategy and staying up to date on market trends, one can effectively navigate the MLP landscape and capitalize on the unique advantages these partnerships offer.
Examples of Successful Master Limited Partnerships (MLPs)
Master Limited Partnerships (MLPs) are known for their stable income and tax-efficient structures. In this section, we explore successful MLPs that have delivered substantial returns to their investors over the years.
Example 1: Kinder Morgan Energy Partners LP (KMP)
Founded in 1997, Kinder Morgan Energy Partners LP (KMP) is one of the largest and oldest MLPs in existence. KMP’s focus is on midstream energy infrastructure in North America. It owns an expansive network of pipelines and terminals that transport natural gas, crude oil, refined petroleum products, CO2, and other liquids.
As of 2019, KMP operated approximately 85,000 miles of pipelines and owned interests in over 155 terminals. The company’s scale enables it to benefit from economies of scale and efficiently operate its infrastructure assets. This has contributed significantly to its success.
KMP has paid regular quarterly distributions since the partnership’s inception in 1997. From its initial public offering (IPO) through December 31, 2018, KMP returned approximately $35 billion to its unitholders through stock appreciation and distributions.
Example 2: Enterprise Product Partners LP (EPD)
Established in 1968 as a natural gas liquids (NGL) marketing company, Enterprise Product Partners LP (EPD) has evolved into a leading provider of midstream energy services. EPD’s operations include gathering, processing, transportation, and logistics for natural gas, NGLs, crude oils, and petrochemicals.
In 2018, EPD had approximately $39 billion in total assets under management. The company’s diverse portfolio of infrastructure assets includes:
– Natural gas gathering pipelines (24,000 miles)
– NGL transportation pipelines (35,000 miles)
– Crude oil pipelines (7,800 miles)
– Terminal and storage facilities
– Marine transportation services
EPD’s financial success can be attributed to its strong operations and strategic acquisitions. Between 2014 and 2016, EPD acquired several MLPs:
– Enterprise GP Holdings LP
– Lone Star NGL LP
– SeaRiver Maritime Holding LLC
These acquisitions significantly expanded EPD’s infrastructure assets and market reach. They have also contributed to the company’s steady growth.
Between its IPO in 1986 and December 31, 2017, EPD returned $51 billion to its unitholders through stock appreciation and distributions. The partnership paid consistent quarterly distributions throughout this period.
Example 3: Energy Transfer Partners LP (ETP)
Founded in 1995 as a natural gas liquids (NGL) company, Energy Transfer Partners LP (ETP) has grown into one of the largest MLPs in the United States. ETP’s operations include transportation, processing, terminalling, and acquisition of midstream energy assets. The partnership specializes in natural gas, NGLs, crude oil, refined products, and petrochemicals.
In 2018, ETP’s assets totaled $46 billion. Some notable facilities within the company’s portfolio include:
– Natural gas gathering pipelines (45,000 miles)
– NGL transportation pipelines (19,500 miles)
– Crude oil pipeline systems (23,000 miles)
– Terminal and storage facilities
– Marine transportation services
ETP’s growth has been driven by strategic acquisitions such as:
– Energy Transfer Equity, L.P.
– Sunoco Logistics Partners L.P.
– Regency Energy Partners LP
These acquisitions significantly expanded ETP’s infrastructure assets and market reach. Between 2014 and 2016, ETP made over $35 billion in acquisitions. These deals have enabled the partnership to achieve consistent growth and generate substantial returns for its unitholders.
From its IPO in 1998 through December 31, 2018, ETP returned approximately $47 billion to its unitholders through stock appreciation and distributions. The partnership consistently paid quarterly distributions throughout this period.
In conclusion, the success stories of Kinder Morgan Energy Partners LP (KMP), Enterprise Product Partners LP (EPD), and Energy Transfer Partners LP (ETP) demonstrate the potential benefits of investing in master limited partnerships (MLPs). These MLPs have delivered substantial returns to their unitholders through steady cash distributions and capital appreciation over several decades. However, it’s important for investors to carefully weigh the advantages and disadvantages of MLP investments before making a commitment.
The Role of General Partners in Master Limited Partnerships (MLPs)
Master Limited Partnerships (MLPs) are unique investment vehicles that bring together the tax advantages of private partnerships and the liquidity of publicly-traded companies. As we have previously discussed, an MLP is a legal entity with two types of partners: general partners and limited partners. The general partner plays a crucial role in managing the day-to-day operations of the MLP and overseeing its investments. Let’s delve deeper into the responsibilities and compensation of these vital players.
General Partner Responsibilities
The general partner is responsible for managing the financial, operational, and strategic aspects of an MLP. They are tasked with identifying potential acquisitions or projects that align with the MLP’s investment objectives. Once approved, they oversee the development process from start to finish. The general partner manages the budget, negotiates contracts, and ensures that all regulatory requirements are met. They also play a role in maintaining relationships with investors, regulators, and industry peers.
Compensation of General Partners
General partners’ compensation is typically structured as a combination of two components: management fees and incentive distribution rights (IDRs). Management fees are calculated as a percentage of the total assets under management by the MLP. These fees are paid regardless of the performance of the partnership. IDRs, on the other hand, are variable compensations that reward general partners for strong performance. They are typically structured as a percentage of the cash flow from the MLP’s investments. This alignment of interests ensures that the general partner is incentivized to maximize returns for limited partners.
How to Become a General Partner
To become a general partner, one must possess extensive industry knowledge and experience. A background in finance, law, or engineering can be beneficial when pursuing this career path. Networking within the industry and gaining practical experience through internships or entry-level positions is also important. As you gain experience and develop your expertise, opportunities to advance into a general partnership position may become available.
In the next section of our article, we will explore the taxation of MLPs and how they manage to avoid double taxation. Stay tuned!
Future Developments in Master Limited Partnerships (MLPs)
The master limited partnership (MLP) industry has seen numerous developments over the past few years, with trends continuing to shape the landscape for these tax-efficient investment vehicles. In this section, we’ll discuss recent changes and upcoming potential advancements that could impact investors looking into MLPs.
Recent Changes:
1. Tax Reform Act of 2017
The Tax Cuts and Jobs Act (TCJA), which took effect in January 2018, brought about significant alterations to the tax code and created a positive impact on MLPs. One of the most notable changes for MLP investors was the implementation of a new tax provision allowing them to deduct up to 20% of their income from qualified business income (QBI). This provision expired in 2025, but it served as a considerable incentive for many individuals and institutions considering investing in MLPs.
2. Rise of Infrastructure MLPs
Traditionally, energy and real estate sectors dominated the MLP industry. However, infrastructure MLPs have recently emerged as an attractive alternative, providing exposure to essential infrastructure projects across various industries, such as water, wastewater, and telecommunications. The trend toward investing in these niche areas is expected to continue as more investors seek out stable and diverse income streams.
3. Growing Interest from Institutional Investors
MLPs have long been popular among individual investors but are increasingly gaining traction with institutional investors, such as pension funds and endowments. Institutional investors can offer significant advantages, including larger investment sizes and long-term commitments, potentially benefiting MLPs by providing a more stable investor base and improving their overall financial position.
Future Developments:
1. Regulatory Changes
MLPs face ongoing regulatory challenges as the industry continues to evolve. Possible changes include modifications to tax rules, disclosure requirements, and securities regulations. Keeping an eye on these developments is essential for understanding how they may impact the future of MLPs and the opportunities they present for investors.
2. Technological Innovations
Technological advancements are transforming many industries and could potentially revolutionize the way MLPs operate. For instance, blockchain technology has the potential to streamline transactions, improve transparency, and enhance security. Similarly, machine learning and artificial intelligence may help in analyzing data, optimizing operations, and making more informed investment decisions.
3. Increased Focus on Environmental, Social, and Governance (ESG) Factors
Environmental, social, and governance (ESG) concerns are becoming increasingly important to investors. MLPs will need to adapt to this trend by addressing ESG issues within their own operations and providing more transparency regarding their environmental impact and corporate governance practices. As a result, the industry may see an increase in demand for green energy MLPs, as well as a greater emphasis on sustainable business practices across all sectors.
In conclusion, master limited partnerships (MLPs) have proven to be attractive investment vehicles, offering tax benefits and stable cash distributions in various sectors like energy and real estate. Recent developments, including the Tax Cuts and Jobs Act (TCJA) and the emergence of infrastructure MLPs, have brought renewed interest from both individual and institutional investors. As the industry continues to evolve, it is essential for investors to stay informed about regulatory changes, technological advancements, and other trends that could impact the future of MLPs.
Conclusion: Considering Master Limited Partnerships (MLPs) as a Potential Investment Vehicle
In the investment world, Master Limited Partnerships (MLPs) offer a unique combination of tax efficiency and stable income streams. As we have learned throughout this article, MLPs provide investors with several distinct advantages over traditional corporate structures, such as tax deferral and a pass-through tax structure. However, it’s essential to weigh these benefits against the potential disadvantages, like complex filing requirements and limited upside potential.
So, is investing in an MLP right for you? Here are some factors to consider before making your decision:
1. Investment objectives: If you seek stable, predictable income without worrying about short-term gains or capital appreciation, MLPs might align with your goals. Their structure and tax benefits cater primarily to those who prefer a consistent cash flow for long-term financial planning.
2. Risk tolerance: As mentioned earlier, MLPs are known for their low risk due to slow but steady growth. This makes them an excellent choice for investors who can’t afford significant volatility in their portfolio.
3. Tax implications: For tax-conscious investors, MLPs offer significant advantages through the pass-through structure and tax deferral. However, you should be prepared for complex filing requirements that may require professional assistance.
4. Diversification: Including an MLP within your investment portfolio can help you diversify across different asset classes, as they are often found in sectors like real estate, infrastructure, and natural resources. This diversification might help to reduce overall risk.
5. Liquidity: The liquidity of MLPs makes them more accessible to a wider range of investors compared to traditional partnerships. Their units can be bought and sold easily on national stock exchanges.
In conclusion, Master Limited Partnerships (MLPs) offer a unique investment opportunity for professional and institutional investors seeking stable income streams and tax efficiency. Understanding their structure, advantages, and disadvantages is crucial when deciding whether they align with your investment objectives and risk tolerance. If you’re considering investing in an MLP, consult a financial advisor to help you assess the potential benefits and drawbacks for your personal situation.
Frequently Asked Questions (FAQ)
**What is a Master Limited Partnership (MLP)?**
A master limited partnership (MLP) is a unique business structure that combines the tax benefits of a private partnership with the liquidity of a publicly-traded company. MLPs are organized as limited partnerships and trade on national stock exchanges, offering investors units rather than shares.
**How does an MLP avoid double taxation?**
MLPs do not pay federal income taxes since they are considered pass-through entities for tax purposes. Instead, partners, or unitholders, pay taxes only on their allocated portion of the partnership’s income. This eliminates the double taxation that corporations face.
**Who are the two types of partners in an MLP?**
MLPs have two types of partners: general partners and limited partners. General partners manage the day-to-day operations, while limited partners invest in the MLP and receive periodic distributions from it. The partnership agreement dictates their respective roles and responsibilities.
**What are the main advantages of investing in an MLP?**
MLPs provide a consistent income stream with slow but steady growth. They offer tax efficiency by reducing the taxable income for limited partners, and they come with limited liability for investors since their personal assets are protected against debts and obligations of the partnership. Additionally, investors can benefit from attractive income yields due to tax-deferred cash distributions and potential deductions on their federal taxes.
**What is considered qualifying income for an MLP?**
To qualify as a master limited partnership, a company must generate at least 90% of its revenues from natural resources or real estate activities. The pass-through status of an MLP requires that its profits are derived primarily from such sources.
**What industries commonly use MLP structures?**
MLPs are most often found in capital-intensive industries, including energy, real estate, and infrastructure sectors, due to their potential tax advantages and the need for large amounts of capital to invest.
**Are there any disadvantages to investing in an MLP?**
The main drawbacks to investing in an MLP include the complex filing requirements, such as the K-1 form, which can lead to additional work for investors or their tax professionals. Another disadvantage is state income taxation, as investors are required to pay taxes on their allocated portion of income in each state where the partnership operates.
**How do MLP distributions differ from stock dividends?**
MLP distributions may include both a return of capital and cash distributed as income. The return of capital component reduces the cost basis and is not taxed until the units are sold, while the income portion is subject to ordinary income tax rates. This can lead to tax deferral and potentially lower overall tax liability for investors.
**What is the difference between a traditional partnership and an MLP?**
A traditional partnership and an MLP share some similarities in terms of their structure as legal entities, but MLPs are unique because they combine the features of a publicly-traded company with those of a private partnership. This results in increased liquidity for investors while retaining the tax benefits of a partnership. In contrast, traditional partnerships do not have the same level of liquidity and do not offer the same tax advantages to their partners.