Update on Piercing Corporate Veil, 0319 SCBJ, SC Lawyer, March 2019, #26

AuthorShawn M. Flanagan.
PositionVol. 30 Issue 5 Pg. 26

Update on Piercing the Corporate Veil

Vol. 30 Issue 5 Pg. 26

South Carolina BAR Journal

March, 2019

Shawn M. Flanagan.

In Pertuis v. Front Roe Restaurants, Inc., 423 S.C. 640, 817 S.E.2d 273 (2018), the South Carolina Supreme Court has provided important new guidance in the area of "piercing the veil" of brother-sister corporations. All five judges agreed: "[w] e formally recognize today [the] single business enterprise theory." Id. at 655, 817 S.E.2d at 280. This new precedent will make it more difficult to pierce the veil of brother-sister corporations.

Single business enterprise theory

The single business enterprise theory ("SBE theory") "is an equitable doctrine applied to reflect partnership-type liability principles when corporations integrate their resources and operation to achieve a common business purpose." 1 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations §43 (perm, ed., rev. vol. 2015) (emphasis added). In other words, a court can pierce the corporate veil of two or more affiliated corporations and treat them as one (1) corporation, which can benefit a plaintiff-creditor.

The South Carolina Court of Appeals has considered the "amalgamation" of two or more corporations several times. In Pertuis, the South Carolina Supreme Court recognized the SBE theory for the first time. The SBE theory is comparable to the amalgamation of interest theory ("AOI theory"). However, the new Supreme Court's approach (the SBE theory) is more conservative than the previous Court of Appeals' approach (the AOI theory).

For the SBE theory to apply, there must be "[E]vidence of abuse, or ... injustice and inequity.... '[I]njustice' and 'inequity' ... are used ... as shorthand references for the kinds of abuse, specifically identified, that the corporate structure should not shield—fraud, evasion of existing obligations, circumvention of statutes, monopolization, criminal conduct, and the like. Such abuse is necessary before disregarding the existence of a corporation as a separate entity." Pertuis, 423 S.C. at 654-655, 817 S.E.2d at 280 (quoting SSP Partners v. Gladstrong Inus. (USA) Corp., 275 S.W.3d 444, 455 (Tex. 2008)). The South Carolina Supreme Court stated: "We agree with the reasoning of the Texas Supreme Court." Pertuis, 423 S.C. at 655, 817S.E.2d at 280.

Piercing the corporate veil

"Piercing the corporate veil is a common law doctrine by which courts disregard the separate corporate entity in particular circumstances and impose liability on the participants behind the entity's veil." Robert B. Thompson, Piercing The Veil Within Corporate Groups: Corporate Shareholders As Mere Investors, 13 Conn. J. Int'l L. 379, 383 (1999). See generally Shawn M. Flanagan, Piercing the Corporate Veil in South Carolina, S.C. Law, Nov. 2006, at 35. (discussing piercing the corporate veil in South Carolina); Stephen B. Presser, Piercing the Corporate Veil, (West 2013) (discussing a nationwide study of piercing the corporate veil).

Facts of the case

Mark and Larkin Hammond built and operated three restaurants. The Hammonds hired Kyle Pertuis ("Pertuis") to manage the three restaurants. As part of his compensation, Pertuis acquired minority ownership interests in the corporations that owned the restaurants. The dispute primarily concerns the percentage and valuation of Pertuis's ownership interests in the three corporations. The trial court found the three corporate entities should be amalgamated into one legal entity. The Court of Appeals affirmed. The Supreme Court reversed on the issue of "amalgamation." As a result of the guidance provided by the Supreme Court in Pertuis, this author suggests using "single business enterprise theory" in place of "amalgamation of interests theory" to distinguish the new test from the old test.

Lake Point

In 1998, the Hammonds formed Lake Point Restaurants, Inc. ("Lake Point") in North Carolina. Lake Point purchased a restaurant operated as Larkin's on the Lake. The Hammonds were the initial shareholders with equal ownership in Lake Point. In 2000, the Hammonds hired Pertuis as a manager of the restaurant. As part of Pertuis's compensation package, the parties agreed Pertuis would earn (a) a base salary plus bonuses based on profitability benchmarks and (b) a 10% share in the business over the course of a five-year period at an agreed vesting schedule. The vesting schedule was time-based to incentivize Pertuis to remain with the company for a period of time. In accordance with the vesting schedule, by 2007, Pertuis owned a 10% share in Lake Point.


In 2001, the Hammonds formed Beachfront Foods, Inc. ("Beachfront") in North Carolina. As with Lake Point, the Hammonds were the initial shareholders with equal ownership interests, and the parties agreed upon a five-year vesting schedule for Pertuis to attain a 10% ownership interest. Pertuis' duties included oversight of both restaurants. As with Lake Point, by 2007, Pertuis owned a 10% share in Beachfront. Beachfront first operated a restaurant named MaLarKie's, which was not as successful as Larkin's on the Lake and was eventually sold. Beachfront then began operating a restaurant named Larkin's Carolina Grill, which was the least profitable of the three restaurants at the time of trial, with a negative net income reported each year from 2008-2012.

Front Roe

In 2005, the Hammonds formed Front Roe Restaurants, Inc. ("Front Roe") in South Carolina. As with the other two...

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