There are also tax advantages for investments in MLPs. Limited partners in a MLP are only taxed if they receive distributions. These cash distributions often exceed the partnership`s revenues. If they do, it is considered a return on investment for sponsorships, which means that applicable capital gains taxes will be deferred until MLP shares are sold. Income from real estate, exploration, natural resource transportation and property processing is all considered a skilled income. As a result, a company cannot earn more than 10% of revenues from sources such as CommoditiesCommodities Commodities another asset class, as can stocks and bonds. Most raw materials are products that come from the land, that possess and natural resources. The test limits the areas in which limited partnerships are likely to operate. There are two types of partners in an MLP: general partners and commandos. Komplehs ensures the day-to-day operation of MLP. All other MLP investors are commandos and their mission is to allocate capital funds to MLP.

Therefore, if the quarterly distribution reaches 0.5750 $US (or $2.30 per year), incremental cash flows of $0.5750 per quarter will be distributed to 85 per cent to sponsors and 15 per cent to the general partner (as owner of IDRs). When the quarterly distribution reaches $0.625 (or $2.50 per year), incremental cash flow is distributed to 75 per cent to sponsors and 25 per cent to the general partner (as owner of IDRs) above $0.625 per quarter. When the quarterly distribution reaches 0.75 $US (or $3.00 per year), the total incremental cash flow will then be distributed to 50 per cent to sponsors and 50 per cent to comedian (owner of IDRs). Entering these mathematics is a first step in understanding how to reach the Forbes 400 list as an individual sponsor of an MLP. If you look for answers as to why an MLP is structured in a certain way, you will find that the answer is often ”just because it has always been the case”. It`s a short word: ”We don`t remember the reason, but that`s exactly what investors are waiting for now.” In the case of the two-tier structure (MLP and Operating Company), in the early 1980s, there were very good legal reasons for the requirements of the government for a partnership to reveal changes in the sponsorship stock, but these reasons are now largely irrelevant. Today, for practical reasons, we maintain a two-tiered structure. The first is that the structure allows for ”double-breasted” funding; That is, the ability to settle debts at both the MLP and operating company levels. Debts incurred at the MLP level are then structurally contingent on debt at the operating level. The second reason is that the two-step structure provides for a holding structure in which the assets and liabilities of one activity can be isolated from the assets and liabilities of another activity. In other words, MLP can remain a pure holding company and all different business and asset sectors may be held below the Operating Company in several operating subsidiaries.