20. Is this state statute constitutional?

In recent years, several large corporations incorporated and headquartered in a particular state have suddenly been acquired by out-of-state corporations that have moved all of their operations out of this state. Other corporations incorporated and headquartered in this particular state have successfully resisted such attempts at acquisition. In an effort to preserve jobs in the state and to protect its domestic corporations against their sudden acquisition by out-of-state purchasers, the state legislature enacts a statute governing acquisitions of shares in all corporations incorporated in the state. This statute requires that any acquisition of more than 25% of the voting shares of a corporation incorporated in the state that occurs over a period of less than one year must be approved by the holders of record of a majority of the shares of the corporation as of the day before the commencement of the acquisition of those shares. The statute expressly applies to acquisitions of the state's corporations by both in-state and out-of-state entities. Assume that no federal statute applies.

No, because one of the purposes of the statute is to prevent out-of-state entities from acquiring corporations incorporated and headquartered in the state
No, because the effect of the statute will necessarily be to hinder the acquisition of the state's corporations by other corporations, many of whose shareholders are not residents of the state and, therefore, it will adversely affect the interstate sale of securities
Yes, because the statute imposes the same burden on both in-state and out-of-state entities wishing to acquire one of the state's corporations, it regulates only the acquisition of the state's corporations, and it does not create an impermissible risk of inconsistent regulation on this subject by different states
Yes, because corporations exist only by virtue of state law and, therefore, the negative implications of the commerce clause do not apply to state regulations governing their creation and acquisition

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The mere existence of the federal commerce power restricts the states from discriminating against, or unduly burdening, interstate commerce. This restriction is called the Dormant Commerce Clause. When a state regulation affects interstate commerce (and is not otherwise authorized by a federal law), it must satisfy each of these three elements to avoid violating the Dormant Commerce Clause: (i) the regulation must pursue a legitimate state end; (ii) the regulation must be rationally related to that legitimate state end; and (iii) the regulatory burden imposed by the state on interstate commerce must be outweighed by the state's interest in enforcing its regulation.

Courts especially frown on intentional discrimination against out-of-staters. A discriminatory state or local law may be valid, however, if it: (i) furthers an important, non-economic state interest (e.g., health or safety); and (ii) there are no reasonable alternatives available.

Article IV, Section 2, the Interstate Privileges and Immunities Clause, provides that «[t]he Citizens of each state shall be entitled to all Privileges and Immunities of citizens in the several states.» Thus, it prohibits discrimination by a state against non-residents.

C is correct. The state statute is constitutional because it does not run afoul of the Dormant Commerce Clause in that it does not discriminate against out-of-state entities in favor of local economic interests. Rather, it only regulates the acquisition of in-state corporations. It also does not violate the Privileges and Immunities Clause of Article IV because it does not discriminate against non-residents by denying any rights available to residents. Additionally, because corporations are created by state law, this statute does not create an impermissible risk of inconsistent regulation on this subject by different states. No other state can regulate how the state's corporations can be acquired.

A is incorrect. Regardless of what the goal of the statute is, the law does not treat out-of-state entities any differently than in-state entities; it only seeks to regulate the manner that in-state corporations are acquired.

B is incorrect. There is no reason why out-of-state corporations seeking to acquire in-state corporations will have a harder time doing so than other in-state corporations seeking to do the same. Subsequently, any burden on interstate commerce will be incidental and does not render the statute unconstitutional on these grounds.

D is incorrect. This answer reaches the correct answer with the wrong reasoning. Although the statute is constitutional, it is not because the negative implications of the Commerce Clause do not apply to state regulations governing corporations' creation and acquisition. In fact, if the creation and/or acquisition of corporations were regulated by a state in a way that discriminated against out-of-state entities, it would violate the Dormant Commerce Clause.

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20. Is this state statute constitutional?

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