California Appellate Court Affirms that an Out-of-State Corporation with
a Passive Investment in a California Limited Liability Company
is Not "Doing Business" in California
On January 12, 2017, the California Court of Appeal, Fifth District, held that Swart Enterprises, Inc. (“Swart”) was not “doing business” in California by virtue of owning a 0.2% non-managing interest in a Limited Liability Company (“LLC”) that was doing business in California. The Court of Appeal ruled that Swart’s LLC interest was a passive interest.
In 2007, Swart purchased a 0.2 percent non-managing interest in an LLC, which was doing business in California. The LLC was formed in 2005 and was designated as a manager-managed limited liability company. Swart had no physical presence in California, did not sell or market products or services in California, and was not registered with the California Secretary of State to transact business within the state. Swart’s only connection to California was its ownership interest in the LLC doing business in the state. To read the rest of the article, please click here.