A master limited partnership also known as MLP is a publicly traded limited partnership. MLP is not considered to be a separate entity, but a group of its partners. Due to be considered an aggregate, MLPs receives the tax advantages of a partnership as well as the liquidity of a publicly traded stock. As this kind of partnership is not subject to corporate income taxes, all owners are responsible for paying taxes of their portions of the master limited partnership. As MLPs are allowed for a pass-through income, double taxation can easily be eliminated and a lot of money saved. However, investing in MLPs will not only bring you specific benefits but also many risks. If you want to avoid facing these risks, it is best to hire an MLP lawyer, a professional that will come to your aid in recovering financial losses caused by all forms of investment fraud and negligence.
If you have invested in MLPs, you should protect yourself and your units before it’s too late. Let’s take a closer look at the biggest risks to MLPs that people are ignoring.
What are the Special Risks Facing MLPs?
Master limited partnership can also face the usual risks associated with running a business in the energy industry such as management changes, loss of key contracts, environmental and regulatory changes, commodity prices and so on. However, there are also several perils that could unfavorably affect MLPs beyond the usual risks associated with their businesses.
Let’s start by discussing the fact that MLPs must pay out most of their income. If they have to do this, how can they grow? It doesn’t matter if you own a share of a company if it has a million owners because you will always own only your share or one millionth of the enterprise. And as the management gets secondary offering and issues more shares, your part will become more and more diluted. This dilution will significantly affect the price of your share. A second issue that is important to mention is access to credit markets. Master limited partnership must issue bonds for new capital and growth, but the interest rates are at all-time lows which will inevitably result in MLPs having to pay more in interest. By having to pay this, the net of the new income will always reduce a sum of money regularly paid to the investors. That is why most MLPs have lots a debt.
Lastly, think about the competition. If everyone invests in MLP or forms a master limited partnership, you will have to deal with a lot of competitors. There are limited oil, natural gas, and natural gas liquids reserves you can move to and from the refinery. As the competition grows, your income and dividends will significantly reduce as contracts come up for renewal. To conclude, this means MLPs are actually one of the few investments where you can lose over 100% of your investment. If you suspect you have been a victim of investment fraud or negligence, please contact us today to come to your aid.