TYPES OF MULTIPLE LIMITED PARTNERSHIPS

A master limited partnership is a business partnership that is owned and managed like a corporation, but often taxed like a partnership. It is mainly used for real estate, oil and gas ventures or natural resources and is also often referred to as public traded partnership. Public traded partnership or multiple limited partnerships is the principal or sole owner of multiple assets or partnerships which themselves may be structured as tax shelters.



A partnership can only be classified as a multiple limited partnership when the partnership derives most of its cash flow (around 90%) through activities or interest and dividend payments relating to real estates, natural resources and public traded company.



The first multiple limited partnership was created for Apache Petroleum in 1981, converted 33 oil and gas limited partnerships into one tradable entity. The partnerships interests are issued to the master limited partner, who then arranges for the sale of the units to the public. It is considered to be the aggregate of its partners rather than a separate entity.



Multiple limited partnerships are exposed to interest rate risk because they are highly leveraged, so higher interest rates outcome in a higher cost of capital. Additionally, higher interest rates diminish the attractiveness of MLPs as a yield play.



A multiple limited partnership comprises of general partners and limited partners. Businesses owned by multiple limited partnerships pay no income taxes, instead the profits are arranged for each limited partner and he is responsible for paying taxes that are incurred on his portion of the earnings.



There are three essential types of multiple limited partnerships:



1.Roll-up: Multiple assets or small limited partnerships consolidated into a large single multiple limited partnerships.



2.Roll-out: A large, single MLP which like a corporation spins off some of its assets into a separate multiple limited partnerships.



3.Roll-in: new assets set into a multiple limited partnership with an assurance to combine more assets in the future.



The benefit of MLP is that, it combines the tax benefits of a limited partnership with the liquidity of a public traded company. It has a profit of ownership interests that are more marketable than individual limited partnerships. Profits from multiple limited partnerships were reported as personal income because of which multiple limited partnerships thus avoided the double taxation paid on corporate income but it has really high quarterly dividends. MLPs should also profit from increased demand for natural resources and increased spending on energy infrastructure.



A multiple limited partnership increases the arduousness of complying with the fresh partnership allocation rules because of the big number of investors and invariable trading of partnership interests. It makes a solid alternative for income-oriented investors. The fact that MLPs are not field to income tax means that more money is accessible for allocation which would not have been available had the company been incorporated. The amount of taxes due in a noted year is the contrariety between net income and any taxable deductions. Depreciation is the largest and most general tax deduction for MLPs.



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