US tax law question:
I have a "partner" that gets 0% of profit, is responsible for 0% of loss, but does get 5% of sale of the business should that occur.
Am I required to file a K1 for him?
LLCs are presumed flow-through entities, unless they elect otherwise.
It is perfectly possible to have an LLC member or partnership partner who holds an interest without having made a capital contribution: it's called a profits interest, and is routinely used in, e.g., real estate and oil and gas investment. The circumstances under which payments are made to the holders of profits interests can be almost entirely bespoke, so an arrangement like OP describes is totally do-able.
Generally speaking, you must distribute a K-1 to anyone who is a member or partner and who receives allocations of income or losses from a flow-through entity in a tax year; thus, it may not be, strictly speaking, necessary to distribute one to the holder of a profits interest that has no value at any time during the TY. However, this is often done as a courtesy, as it makes it easier for people to tick-and-tie their own taxes, and also provides a paper trail in the event of any future dispute with the IRS.
All that being said, I agree it's not entirely clear from your description that the person you're talking about is truly an LLC member; if you just have a handshake agreement (or even a casual written agreement) with that person to share 5% of the proceeds with them, this would almost certainly not qualify as a profits interest.
I should note that the key benefit of a profits interest is that (coupled with a timely nil-value 83(b) election) it allows the recipient to claim capital gains treatment at the time they receive the payout. Without this, they'll need to pay tax at ordinary income rates (and, depending on the exact situation, you could also wind up paying tax on it, albeit probably at cap gains rates.)
Please ASAP consult a tax lawyer + preparer that are familiar with the structuring and treatment of profits interests!
Your LLC, if filing a 1065 form, should send a K-1 to this "capital-only" partner.
Complete a Schedule K-1 for each partner.
On the line for Capital, enter the percentage share of the capital that the partner would receive if the partnership was liquidated by the distribution of undivided interests in partnership assets and liabilities.