62
Alternatively, the MLP may be a state law limited liability company or
even a state law trust, such as a Delaware statutory trust. Although the
governance structure may differ among these entity types, any of these
entities may be treated as partnerships for federal income tax purposes.
Second, the MLP must be publicly traded. Owners of MLP units can
buy and sell interests in the MLP. The publicly traded element of an
MLP simply provides for the same type of liquidity (or float) that a public
corporation enjoys — although for the most part MLPs’ float and trading
volume are relatively small compared to publicly traded corporations.
This is largely because of the nature of MLP unitholders; retail investors
seeking yield hold the majority of MLP units. Moreover, given certain tax
limitations, these investors are typically domestic, rather than foreign.
Institutional ownership of MLPs has been limited (although growing
in recent years), mainly because MLPs generate income that is not
conducive to tax-exempt investors’ ownership.
Third, the MLP must be listed on one of the major exchanges. Today, the
most common securities exchange for MLPs is the NYSE, although quite
a few MLPs are listed on the NASDAQ.
Finally, in order for an MLP to be treated as a pass-through entity for US
federal income tax purposes, rather than a corporation, the MLP must
meet the “qualifying income” test, which requires at least 90% of an
eligible entity’s gross income to be Qualifying Income.
For further discussion of MLPs, see Latham & Watkins’ The Book of
Jargon: MLPs.
Master Services Agreement (MSA): a contract that facilitates an ongoing
relationship between a service provider and a customer by detailing
each party’s ongoing duties and obligations. Usually the parties will
agree upon a simplified work order for each project, with the work order
containing the applicable details of the requested individual service.
Each work order is subject to the general terms and conditions of the
relationship that are set forth in the body of the MSA.
Material Adverse Effect (MAE) / Material Adverse Change (MAC): in
the context of mergers and acquisitions agreements, a Material Adverse
Effect is a change, fact, condition, event and/or circumstance occurring
before the Closing that, individually or in the aggregate, is materially
adverse to (i) the ownership, operation, or value of the asset(s) or
business subject to the agreement, as the asset(s) or business is operated
or expected to be operated as of the agreement’s execution date; or
(ii) the seller’s ability to consummate the transactions or perform its
obligations under the agreement. The term is frequently subject to heavy
negotiation. With respect to mergers and acquisitions in the oil and gas
industry, some events that are commonly excluded from the definition of
MAE are events resulting from: (a) entering into or publicly announcing
the subject agreement; (b) any action taken by the seller in accordance