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California Court of Appeal holds small non-managerial interest in LLC does not constitute doing business in state

On Jan. 12, 2017, the California Court of Appeal held that an out-of-state corporation whose sole connection with the state was a passive 0.2% ownership interest in a manager-managed California limited liability company (LLC) did not constitute doing business for purposes of the California corporation franchise (income) tax. The corporation’s interest in the LLC closely resembled a limited partnership interest because it had no ability to participate in the management and control of the LLC. Because a partnership’s business activities cannot be attributed to a limited partner, the corporation could not be deemed to be doing business in California solely by virtue of its ownership interest in the LLC.