Master limited partnership
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Master limited partnership (MLP) is a limited partnership that is publicly traded on a securities exchange. It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.
MLPs are limited by United States Code to only apply to enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. To qualify for MLP status, a partnership must generate at least 90 percent of its income from what the Internal Revenue Service (IRS) deems "qualifying" sources. For many MLPs, these include all manner of activities related to the production, processing or transportation of oil, natural gas and coal.
Some real estate enterprises qualify for a similar tax treatment as a real estate investment trust. Other publicly traded partnerships, such as Blackstone Group or Cedar Fair, do not qualify for pass-thru tax status and must pay federal corporate income taxes.
In practice, MLPs pay their investors through quarterly required distributions, the amount of which is stated in the contract between the limited partners (the investors) and the general partner (the managers or GP). Typically, the higher the quarterly distributions paid to limited partners, the higher the management fee paid to the general partner. This provides the general partner with an incentive to maximize distributions through pursuing income-accretive acquisitions and organic growth projects. Failure to pay the quarterly required distributions may constitute an event of default.
Because MLPs are classified as partnerships, they avoid corporate income tax at both a state and federal levels. Additionally, limited partners may also record a pro-rated share of the MLP's depreciation on their own tax forms to reduce liability. This is the primary benefit of MLPs and gives MLPs relatively cheap funding.
The tax implications of MLPs for individual investors are complex. While distributions from MLPs are taxed at the marginal rate of the limited partner, there may be no tax advantage to claiming the pro-rated share of the MLP's depreciation when the investments is held in a tax deferred account. To encourage tax-deferred investors, many MLPs set up corporation holding companies of limited partner claims which can issue common equity.
A general partner in an MLP often begins with a small stake of about 2% in the partnership, but is given incentive distributions from net income after the quarterly required distributions. Since these distributions are usually paid in the form of increased equity claims the general partner may attain an increased share of the partnership's ownership.
In May 2010, the first ever MLP mutual fund was launched, with a stated goal of providing "a high level of inflation-protected income currently through a 7.8 percent distribution yield, which is higher than equity alternatives such as REITs and Utilities." The fund is a part of the SteelPath Mutual Fund Family (now OppenheimerFunds).
On August 25, 2010, the first MLP exchange traded fund (ETF) was launched by Alerian, the company that manages the benchmark MLP index (NYSE: ^AMZ). This fund was similarly designed to the above mentioned mutual fund in that it avails a new level of diversification to investors and, according to Alerian President Kenny Feng, "provides a single Form 1099, no K-1s, and allows investors to potentially benefit from return of capital and qualified dividend tax treatment of distributions." The fund is known as the Alerian MLP ETF (NYSE: AMLP).
On April 19, 2012, ETF provider Global X Funds launched the Global X MLP ETF with ticker symbol (NYSE: MLPA). This ETF is based on the Solactive MLP Composite Index and has an expense ratio of 0.45% versus an industry average of 0.85%. 
Energy MLPs 
Because of such stringent provisions on MLPs, and the nature of the QRD, the vast majority of MLPs are pipeline businesses, which earn very stable income from the transport of oil, gasoline or natural gas. Energy MLPs are defined as owning energy infrastructure in the U.S., including pipelines, natural gas, gasoline, oil, storage, terminals, and processing plants. They are integral to run the energy infrastructure to the U.S., therefore providing a very basic, stable business, which have consistently performed for investors.
Advantages of investing in energy infrastructure MLPs not only provide tax benefits flowing to investors but also low commodity exposure.
See also 
- , Master Limited Partnerships and Taxation InvestingDaily.com, April 1, 2010.
- , SteelPath Launches MLP Income Mutual Fund Forbes.com, May 12, 2010.
- , Alerian Benchmarks First-Ever MLP ETF Yahoo Finance, August 25, 2010.
- , An MLP ETF from Global X Barron's, April 19, 2012.