In a federal system in which each state may enact laws providing for the chartering and governance of corporations and in which corporations can and do conduct business in more than one state, several states may claim an interest in regulating the conduct of a given corporation. The enactment of state laws that are intended to restrict hostile corporate takeovers and that purport to extend to foreign corporations is one example of this phenomenon. "Typically, any of a number of jurisdictional links might trigger the application of such an anti-takeover statute: the target's being incorporated in the state, its having a principal office or major operations in the state, or the existence of a significant number of target shareholders in the state." The Supreme Court of Delaware, the state where most large companies incorporate, has held that it may violate the Commerce Clause for a state to regulate a corporation organized under the laws of another state. Other states' extraterritorial efforts to limit the rights of shareholders of Delaware corporations potentially conflict with Delaware law, which allows shareholders, even those who acquire the stock of a company as a result of a hostile takeover, complete control over the acquired corporation. The stage is thus set for a conflict. A principled resolution of this conflict is essential so that the parties to corporate transactions can predict which laws govern their behavior. How is this conflict to be resolved?...
Our proposal incorporates a presumption in favor of the internal affairs doctrine, so that states may not regulate relations among or between foreign corporations and their shareholders, officers, directors, and assets. This presumption could be overcome if the state attempting to assert jurisdiction over foreign corporations recognizes other states' assertions of jurisdiction over its own corporations on similar facts. For example, State A could assert jurisdiction to regulate a foreign corporation based on the presence of a majority of the corporation's assets within State A so long as it recognized State B's power to regulate corporations incorporated in State A with most of their assets in State B. [excerpt]
Gregory S. Sergienko; Maureen B. Callahan, Full Faith and Credit, Choice of Laws, and Extraterritorial Regulation of Corporate Transactions, 18 Hastings Const. L.Q. 325, 370 (1991).