What is an MLP? A master limited partnership is more accurately called a publicly traded partnership; it is a limited partnership or LLC taxed as a partnership. Its interests are called units and trade on the New York and American Stock Exchanges and NASDAQ, just like corporate stocks. An investor who buys units in an MLP becomes a limited partner.
What kinds of companies are MLPs? Because of constraints imposed by the tax code, most MLPs today are in energy-related businesses. There are also MLPs in coal and timber, as well as some in other industries.
Why are MLPs considered tax advantaged? Unlike corporations, MLPs and other partnerships are not considered separate entities for tax purposes. A partnership for tax purposes is referred to as a “pass-through” entity. No tax is paid at the partnership level. Partnership income is only taxed at one level, that of the individual partner. Since the MLP itself does not pay tax, it is able to pass along more of its earnings to investors than a corporation.