Business & farm

This question is way beyond the scope of a forum such as this:

  • The original reply to the original question which used the word "partner" when the entity was an LLC was most likely just used incorrectly; since an LLC has "members".  However, an LLC taxed as a partnership,  follows the same tax regulations as a partnership, and as such, the terminology is sometimes used interchangeably when discussing questions.
  • The reason you are not able to get a definitive answer is because you would need to consult with an attorney who understand the NJ LLC statute.  
  • While some state LLC statutes may allow for a zero interest ownership, the next question is whether this zero interest member would be deemed a member for federal income tax purposes.  Including a zero percent member on an LLC form 1065 would more likely than not invite an audit inquiry.
  • Without going into the historical and technical aspects, there is an unwritten "understanding" that the IRS would not accept anything less than a 1% interest.  This is based on revenue procedures related to partnerships.  There may be some general partners in a partnership who own less than 1%, but those are most likely drafted by $1,000 an hour attorneys.
  • I also believe you should be able to accomplish what you need to accomplish without adding a zero percent interest member.  A simple letter drafted on company letterhead indicating John Doe has the authority to contract and bind the LLC in matters related to the company.
  • In summary, I would not be comfortable taking the position with a zero percent member, but as noted previously, you need to have a one on one with a NJ attorney who understands the NJ LLC statute AND understands federal subchapter K (the partnership rules). 
  • As an additional comment, your operating agreement WILL need to be updated should you add another member.  The NJ revised LLC statute (effective for NJ LLC's formed on or after 3/18/2013) has a provision that states "Under RULLCA, each member of an LLC is entitled to an equal share of the profits or losses, regardless of capital contributions or percentage ownership interests."  If you don't amend and update your LLC operating agreement, this could come back to haunt the LLC.  Yes all things may appear rosy now, but things change and can become ugly quickly.
  • As a second additional comment, I don't believe the response you received from the professor was pitiful at all.  They provided a response, but indicated they have not reviewed the NJ LLC statute.  That's a fair response.  You get what you pay for in most cases.  The exception to that rule is this forum, where you get way more than you pay for !!! 😁
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.