Does the non-inherited state get inherited to sub-folders?

No, folder inheritance has to be set on each folder. Usually, when you turn off inheritance for a folder and give that folder permissions, you want the users with access to also have access to the sub-folders.

For example, when you turn off inheritance to a folder /Shared/Finance/budget its sub-folder /Shared/Finance/budget/Q2 will inherit permissions from the budget folder. If you want to, you could disable inheritance for the Q2 folder as well.

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