current issue of the Economist has two interesting pieces (here
detailing forms of business that are acquiring prominence in the US markets and
posing a challenge to the dominance of corporations (or companies) as the main
form of business vehicle. Referring to this phenomenon as “distorporation”, it primarily
alludes to the master limited partnership (MLP).
details are described as follows:
combines the limited liability of a corporation, the tax advantages of a
partnership and the governance of a private firm. MLPs do not pay corporate
taxes so long as profits are passed on to investors each year. They also pay
less attention to shareholder rights. A tidal wave of capital is washing
towards these and other, similar “pass-through” structures … Together, they
represent a mere 9% of the number of listed companies in America, but in 2012
they took in 28% of the equity raised on public markets and paid one-third of
Wall Street fees.
are two key drivers behind the emergence of these types of vehicles. First,
they minimize the tax burden. Second, they do not fall within the purview of
details rules regarding corporate law and governance. While this facilitates
the establishment of businesses more efficiently, there could be issues regarding
loss of revenue and limited protection to minority investors.
The Economist adopts the position that such distortions in business vehicles
can be avoided if taxes are streamlined and regulatory aspects of governance
are loosened. However, it is not clear if the regulatory response would be on
similar lines. In any event, such occurrences seem to have triggered a race to
the bottom when it comes to competition between different business forms as far
as governance and minority protection are concerned.