Can I enter zero for ownership percentage for an LLC member who had no involvement, zero investment, zero income?

Forum|Forum|7 years ago
June 1, 2019
16 replies
120 views

My daughter and I formed an LLC this year. I sell online wedding supplies, gifts, she was going to photograph weddings. For personal reasons she was not able to become involved this year at all. The LLC had income and expenses on my part, but she had zero investment, zero income in either the photography or gift section. Can I enter her as having 0 ownership percentage?

TurboTax Business Windows

AlanT222

Level 15

Yes, you can have a partner with 0% interest. There are no federal guidelines for the establishment of partnerships and therefore no minimum interest amount that a partner can have in a company.

However, I would suggest that if your daughter is no longer going to be a part of the business, you prepare the final 1065 and become a single member LLC. Then you can report the business on Schedule C of your personal return, thus eliminating the need to file two income tax returns.

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Doug_L

Level 2

Hi AlanT,

You wrote: Yes, you can have a partner with 0% interest.

Did you mean partner here as interchangeable with member?

If so, does this apply to all states in the United States or would each state have individual rules?

This is my very question I've been searching for an answer for months with no one seeming to be able to help.

We are in New Jersey and are looking to have three members, adding a third to the two who currently own 50% of the LLC but wanting the third to be a member because the other institutions we're dealing with want only members to be able to act on behalf of the LLC. The way the original operating agreement is worded, the LLC is member managed which is why we don't want to make the third a manager as we believe it would entail more work to change the structure of the LLC to allow for management to be by managers who are not members. Hoping you're still receiving notifications of responses to this thread.

Thanks,

Doug_L

Critter-3

Level 15

I HIGHLY recommend you seek local professional assistance for this issue since it also involves state rules on top of federal ones. Adding and removing partners can be tricky especially with tracking the partner's basis.

Carl

Level 11

IRS rules/guidance for multi-member LLCs/Partnerships is covered in IRS Publication 541 at https://www.irs.gov/pub/irs-pdf/p541.pdf

I didn't dig into it. But I can't find anything that specifies an ownership/interest percentage requirement. Seems rather odd to me.

Doug_L

Level 2

Hi Carl,

I agree; I also couldn't find anthing dictating a minimum. I was just hoping someone could definitively answer if it is okay and doesn't break any rules.

Anonymous_

Level 15

New Jersey has adopted both the Revised Uniform Limited Liability Company Act and the Uniform Partnership Act.

Both of these Acts provide:

(d) A person may become a member [partner] without:
(1) acquiring a transferable interest; or
(2) making or being obligated to make a contribution to the limited liability
company [partnership]

See https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=0a06fb33-7fa0-0e41-f494-ba174e5dc9c7&forceDialog=0