8.6.2. For Direct Participation Programs
A direct participation program (DPP) is a company set up to carry out a capital-heavy venture such as oil exploration or real estate development. DPPs vary considerably in risk. High-risk DPPs rarely make money in the beginning but may have a high payout later. Low-risk DPPs may pay income now but don’t have much potential for higher returns in the future.
A DPP will have an organizational structure that allows pass-through taxation, most commonly that of a limited partnership. DPPs that are intended to be publicly traded are typically organized as master limited partnerships. (Pass-through taxation, LPs, and MLPs are discussed in Chapter 2.) FINRA sets out the conditions under which a member or associated person may participate in a public offering of a DPP:
• Suitability. All sales must observe FINRA’s suitability rules (discussed in Chapter 2). In addition, a DPP must establish standards of suitability and fully disclose them in its prospectus. A member or associat