What is the difference between an LP and a MLP?

LP vs. MLP: What’s the Difference?

When it comes to investment structures, not all partnerships are created equal. Two common models—Limited Partnerships (LPs) and Master Limited Partnerships (MLPs)—often get confused, but they serve different purposes and come with distinct advantages and requirements.

A limited partnership (LP) is a traditional business structure made up of at least one general partner and one or more limited partners. The general partner runs the day-to-day operations and carries full liability, while the limited partners contribute capital but have little to no management role and enjoy limited liability. This setup is common in real estate ventures, private equity, and family businesses.

On the other hand, a Master Limited Partnership (MLP) takes the basic LP model and adds a major twist: it’s publicly traded on stock exchanges. This means investors can buy and sell MLP units like stocks, offering much greater liquidity than traditional LPs. MLPs are especially popular in the energy sector—think pipelines and storage facilities—because they combine the tax efficiency of a partnership (no corporate income tax) with the accessibility of public markets.

However, there’s a catch: to maintain their special tax status, MLPs must earn at least 90% of their income from qualifying sources, primarily natural resources like oil, gas, and minerals. This revenue requirement limits their use to specific industries, unlike LPs, which can operate in nearly any sector.

In short, while both LPs and MLPs offer partnership tax benefits, MLPs stand out by being publicly traded and heavily tied to the energy infrastructure space. For investors, MLPs can offer steady income through distributions, but with added complexity around tax reporting and sector concentration.