Ban or Buyout: How TikTok Shook Up Corporate Law

Introduction

In April 2024, Congress enacted the Protecting Americans from Foreign Adversary Controlled Applications Act (“PAFACA”), which requires ByteDance, Ltd., the Chinese parent company of TikTok, to divest its U.S. operations or face a nationwide ban of the app.¹ The statute reflects growing concerns over national security, foreign investment, and data privacy. In January 2025, the U.S. Supreme Court upheld PAFACA, emphasizing the President’s broad discretion in regulating platforms owned by foreign adversaries.²

This controversy raises pressing corporate law questions: How does foreign investment review reshape mergers and acquisitions (M&A)? What happens when the government pressures or forces a sale? And what does this mean for the future of big tech deals?

The TikTok case is not an isolated event. It sits at the intersection of corporate law, constitutional law, and international business. As regulators assert more control over global technology companies, traditional dealmaking increasingly collides with national security priorities. This post explores how TikTok’s forced sale illuminates broader corporate law challenges surrounding foreign investment review, government-pressured M&A, and the evolving landscape of big tech transactions.

Foreign Investment Review and National Security

The Committee on Foreign Investment in the United States (CFIUS) reviews foreign acquisitions that might pose national security risks.³ Congress strengthened this role through the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expanded CFIUS’s jurisdiction.⁴

Historically, CFIUS has resolved security concerns through mitigation agreements—for example, limiting foreign access to sensitive data or requiring localized data storage.⁵ But PAFACA reflects a more aggressive model: outright divestiture mandated by statute.⁶ This signals that national security concerns can override traditional deal protections, forcing corporations to rethink cross-border investment structures.

From a corporate governance standpoint, this shift creates significant uncertainty for boards and shareholders. Regulatory risk can no longer be fully hedged by contractual provisions. If governments can compel divestiture after a deal closes, valuation models for foreign acquisitions must incorporate political and regulatory uncertainty.⁷ The likely chilling effect on foreign direct investment may discourage cross-border innovation deals and reshape how multinational firms approach U.S. markets.⁸

Government-Pressured M&A and Shareholder Rights

Forced divestiture operates as a government-pressured M&A transaction. Unlike a typical merger, where parties negotiate voluntarily, PAFACA requires ByteDance to sell TikTok within a fixed timeline.⁹

This raises difficult shareholder questions: Are ByteDance’s investors receiving fair market value? Who determines valuation when the government compels the sale? In ordinary M&A, boards must maximize shareholder value under their fiduciary duties.¹⁰ In a forced sale, however, government priorities may dictate outcomes that diverge from these private fiduciary norms.¹¹

The mechanics of divestiture also complicate matters. TikTok’s value largely derives from its proprietary recommendation algorithm, which Chinese export-control laws restrict from transfer.¹² Even if ByteDance sells TikTok’s U.S. operations, the resulting entity may not resemble the platform that exists today.¹³ For corporate lawyers, this raises difficult questions about what counts as a “sale” and whether intangible assets can be severed from global enterprises.¹⁴

Commentators caution that forced divestitures risk setting dangerous precedents. If governments can compel sales on national security grounds, what prevents them from targeting other companies for political or economic reasons?¹⁵ While courts often defer to political branches on foreign affairs, unchecked government discretion risks eroding investor confidence and destabilizing global capital markets.¹⁶

Implications for Big Tech Deals

The TikTok dispute foreshadows risks for other big tech transactions. Regulators may scrutinize foreign-owned platforms with large U.S. user bases, potentially compelling restructuring.¹⁷ Platforms like WeChat, CapCut, and even lesser-known applications could become targets if perceived as security threats.¹⁸

Private equity funds and multinational corporations must now weigh whether certain acquisitions are too politically vulnerable. Transactional lawyers may respond by drafting more robust “national security risk” provisions, including walk-away rights triggered by CFIUS or congressional intervention.¹⁹ Lawyers may also recommend contingency structures—such as spinning off U.S. subsidiaries or creating joint ventures with domestic partners—to mitigate divestiture risks.²⁰

Beyond TikTok, foreign investment in U.S. technology is no longer evaluated solely under antitrust or governance principles but also through a geopolitical lens. Corporate law now overlaps with foreign policy, requiring dealmakers to consider not only Delaware corporate law and SEC regulations but also whether a transaction can withstand shifting national security priorities.²¹

First Amendment and Corporate Governance

TikTok and its users argued that banning or forcing a sale implicated free speech rights. The courts, however, applied rational basis review, emphasizing judicial deference to measures involving foreign affairs.²²

For corporate lawyers, the First Amendment litigation underscores another dimension of regulatory risk: a company’s business model may become entangled with constitutional debates, complicating compliance and litigation strategy.²³

Corporate governance issues also loom large. Boards must decide whether to resist government-pressured deals—risking confrontation with regulators—or cooperate and risk shareholder suits for failing to maximize value. Directors are placed in a precarious position, balancing fiduciary duties with compliance mandates in ways traditional corporate law doctrines never contemplated.²⁴

Conclusion

The TikTok sale-or-ban controversy is more than a policy dispute; it is a turning point in corporate law. It demonstrates how foreign investment review can reshape M&A, how government-pressured divestitures challenge shareholder rights, and how the future of big tech deals may be dictated as much by geopolitics as by market logic.

Corporate lawyers, investors, and companies must now adapt to a world where regulatory and political risks are not peripheral concerns, but central to corporate dealmaking.

Footnotes

1. Protecting Americans from Foreign Adversary Controlled Applications Act, Pub. L. No. 118-50, Div. H, § 2, 138 Stat. 895 (2024).
2. TikTok Inc. v. Garland, 604 U.S. 56, 80 (2025).
3. 50 U.S.C. § 4565(b) (2020).
4. Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, 132 Stat. 2173 (2018).
5. TikTok: Frequently Asked Questions & Issues for Congress, Cong. Res. Serv. Rep. R48023, at 9, 11 (2024).
6. Id.
7. U.S. Appeals Court Upholds TikTok Law Forcing Its Sale, Reuters (Dec. 6, 2024).
8. Id.
9. Protecting Americans from Foreign Adversary Controlled Applications Act, supra note 1.
10. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 179 (Del. 1986).
11. Id.
12. TikTok Ban and the Algorithm Question, Lawfare (Apr. 2024).
13. Id.
14. Id.
15. Paul Schiff Berman, National Security and Corporate Law: Emerging Conflicts, 98 Va. L. Rev. 1123, 1140 (2023).
16. Id.
17. The TikTok Case, National Security, and Foreign Investment, Marubeni Report (2024).
18. Id.
19. Note, Legal Black Hole: CFIUS & Implications of Trump’s Executive Order Against TikTok, 106 Cornell L. Rev. 845 (2021).
20. Id.
21. Id.
22. TikTok Inc. v. Garland, supra note 2, at 82; see also The D.C. Circuit Court’s TikTok Ban Decision, Explained, Lawfare (Dec. 2024).
23. Id.
24. Revlon, 506 A.2d at 179.