We are all familiar with publically held firms which are called "C" corporations. They raise funds by issuing shares to shareholders whose rights are overseen by boards of directors. They are also extensively regulated by government and their profits are subject to taxation. A share of their earnings are distributed to shareholders by dividend payouts, but a large share of their earnings are retained for future investments. Consequently, they are not dependent upon the financial markets for investment capital. This article describes a rapidly rising form of business organization that have several advantages. They have the advantage of limited liability that "C" corporations possess, but they are also less regulated by government and they do not pay corporate taxes. The profits from these firms are distributed to investors in the form of dividends, and the master partners are compensated like hedge fund managers. They receive a fee and a share of the profits in addition to the dividends on shares that they might own. Since they do not retain their earnings they must be able to consistently raise capital from investors. Therefore, they must provide high yields in order to raise capital on an annual basis.
There has not been a lot of publicity about this new form of capitalism despite the rapid rise in the use of the various styles of limited partnerships that have been created. For example, the number of "C" corporations that Vanguard has available for its index fund of publically held corporations has been almost halved over the last few years. Since these new organizations are not available to mutual funds, and many pension funds, they attract a different type of investor who is willing to take the risk associated with them. Consequently, to the extent that they remain as profitable as they have been in recent years, and produce high yields to investors, income inequality will be even greater than it has been in the past. Furthermore, corporate taxes will continue decrease as a share of government revenues and income taxes will also fall because dividends are taxed at a lower rate than ordinary income.