Master limited partnership overview

A Master Limited Partnership (“MLP”) is a state law entity that can be treated as “pass through” for tax purposes and that has publicly traded equity securities
–
Common units are listed on major exchanges
–
Public unitholders are generally retail (not institutional)
•
Most MLPs are limited partnerships, but they can also be limited liability companies or business trusts
•
The tax code restricts the benefits of the MLP structure to businesses that generate “qualifying income” under section 7704 of the Internal Revenue Code

Apache Corp. formed the first MLP in 1981 to consolidate 33 oil and gas drilling program limited partnerships
•
MLPs became extremely popular in the mid-1980s, but their use waned after 1987 federal tax legislation restricted the MLP structure to businesses generating “qualifying income”
•
Growth of the modern MLP structure was driven by the interaction between (i) tax requirements, (ii) Delaware partnership and LLC law, (iii) market expectations based on precedent transactions and (iv) the unique business characteristics of issuers utilizing the structure