Direct participation program (or direct participation plan or direct investment, abbreviated DPP) is a financial security that enables investors to participate in a business venture's

cash flow Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...

and taxation benefits. The term originates from the

Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and afte ...

and NASD Rule 2810, which addresses the regulation of compensation, fees and expenses in public offerings of DPPs. Direct participation programs are most commonly formed to invest in real estate, energy, futures & options, and equipment leasing projects. A DPP is typically organized as a

limited partnership A limited partnership (LP) is a type of partnership with general partners, who have a right to manage the business, and limited partners, who have no right to manage the business but have only limited liability for its debts. Limited partnership ...

limited liability company A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of ...

, structures that enable the income and losses of the entity to flow-through to the underlying taxpayer on a pre-tax basis. As such, the DPP pays no tax at the corporate level. An investor's stake in the DPP is quantified in units and may be referred to as their interest. A non-listed

real estate investment trust A real estate investment trust (REIT, pronounced "reet") is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of real estate, including office and apartment buildings, studios, warehouses, hos ...

enjoys a special tax-free status if its distribution of income is sufficient, and as such may be organized as a

corporation A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law as ...

without being subject to

double taxation Double taxation is the levying of tax by two or more jurisdictions on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). Double liability may be mitigated ...

. The Investment Program Association is the U.S. trade association dedicated to the advancement of the asset class and the Real Estate Investment Association (www.reisa.org) provides education, networking and advocacy for members. DPPs typically use a much wider, intermediary-dominated distribution network than other alternative investment funds. Broker/dealers have alternative investment platforms that include these funds and are paid commissions for their role in distribution and servicing. The compliance and operational aspects of sponsoring these funds are more complicated due to the involvement of retail investors and the payment of trailing commissions. DPP Transfer Agents provide outsourcing services to support IT and administrative functions. DPP securities are generally not traded publicly, so the value of a DPP product is determined by the performance of the underlying assets rather than by the public markets. DPP products are generally illiquid for their duration, although some limited secondary markets may exist.

References

Equity securities Stock market {{Finance-stub

See also

References