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Analyzing the Differences: MLPs versus C Corporations

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Apr. 10 2015, Updated 11:06 p.m. ET

MLPs vs. c-corporations

Now, we’re familiar with MLPs’ (master limited partnerships) business. Let’s see how MLPs are different from normal C Corporations, or C Corps.

MLPs’ tax structure is the major difference that separates them from C Corps. MLPs’ earnings aren’t taxed at the partnership level. However, the taxes are passed to the unitholders. They’re responsible for paying taxes at their own marginal tax rate. MLP owners must file a K-1 form. The Schedule K-1 is a tax document that reports partnership interests.

For more information on MLPs’ tax structure, refer to Part 6 in this series.

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General partner and limited partner relationship

While a corporation is owned 100% by its shareholders, MLPs have two classes of owners—GP (general partner) and LP (limited partner):

  • The GP usually has a 2% economic stake in the partnership—LP unitholders have the other 98%. The GP handles the company’s management and operations.
  • The LP unitholders provide capital. They aren’t involved in the day-to-day activities.
  • In some cases, the GP may also hold some LP units.

Sometimes, both GP and LP are publicly listed. For example, Targa Resources (TRGP)—the GP of Targa Resources Partners LP (NGLS)—is registered as a publicly traded Delaware corporation. NGLS is registered as a publicly traded limited partnership.

In certain cases, general partners have IDRs (incentive distribution rights). We’ll discuss IDRs in the next part of this series. Some MLPs that have IDRs include Energy Transfer Partners LP (ETP), Enbridge Energy Partners LP (EEP), and EQT Midstream Partners LP (EQM). These three securities account for ~14.2% of the Alerian MLP ETF (AMLP).

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