Publicly traded partnerships (PTPs), also known as master limited partnerships, are partnerships in which people can buy interests, known as units. A unitholder is considered a limited partner in the publicly traded partnership, and receives a share of the partnership's income. Publicly traded partnerships are similar in some ways to public corporations, in that they sell shares in themselves on the open market, but in tax terms they are treated very differently from corporations.
In a publicly traded partnership, one or more people act as general partners, supervising the day-to-day operations of the business. They make decisions about how the business is run and which direction to take the business in over time. Limited partners provide capital for this in exchange for a share in the income of the business, but they do not have voting rights or the ability to shape policy. When people can buy interests in a partnership on the open market, as opposed to by private arrangement, it is a publicly traded partnership.
People can buy units in publicly traded partnerships from brokers and other people who specialize in trading these types of securities. People are taxed on the money the partnership pays out, as are the general partners. Unlike a corporation, however, the partnership itself does not pay taxes on its income. In other words, the income is taxed only once, when it is distributed to the general and limited partners, not twice as it is with a corporation.
Publicly traded partnerships benefit from increased liquidity thanks to their unitholders, without the restrictions and liabilities which corporations are subject to. If a publicly traded partnership does not meet certain standards, however, it may be treated as a corporation by tax authorities. The standards vary, depending on the nation, and they may be periodically adjusted in response to changing economic conditions by regulators who are in charge of keeping the business climate competitive, fair, and productive.
The law surrounding businesses like publicly traded partnerships can be tricky, and it is possible to run afoul of the law without realizing it. Publicly traded partnerships retain lawyers and accountants who specialize in this type of partnership and similar businesses in order to sure that they are acting within the law. This includes sending out tax notices to unitholders and complying with other regulations which are designed to protect the limited partners from harm which might be incurred as a result of irresponsible business practices.