FORTUNE Small Business:

Can a sole proprietor take on equity partners?

Sharing your equity requires a corporate reorganization.

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(FORTUNE Small Business) -- Dear FSB: If I own my business as a sole proprietorship, is it possible to give an equity stake in that business? Or is that only possible in a corporation or LLC?

- Joshua Gribschaw-Beck, Tempe, Ariz.

Dear Joshua: According to Walter Robinson from Walter Robinson & Associates LLC, a Chicago firm that provides tax and accounting services to small businesses, if someone other than the proprietor takes on equity in the business, the sole proprietorship will need to be reorganized as another business entity such as a partnership, LLC or corporation.

The first thing to consider when doing this is where you want to organize, as corporate rules vary widely state to state.

"A lot of major corporations organize in Delaware because corporate governance there is favorable," Robinson says. "But that means that if there is a lawsuit involving your company, it will have to be heard in Delaware. It's generally simpler to organize in the state in which your business is resident."

For Arizona, details on registering as any one of a number of business entities can be found at the Secretary of State's website: http://www.azsos.gov/business_services/filings.htm and at the website of the Arizona Corporation Commission: http://www.azcc.gov/.  To top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.