FORTUNE Small Business:

Can a sole proprietor take on equity partners?

Sharing your equity requires a corporate reorganization.

Subscribe to Top Stories
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

pen_and_paper.03.jpg
Ask FSB
Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.
Your name:
* Your e-mail address:
* Your city:
* Your state:
* Your daytime phone #:
* Your questions:

(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

How did you organize your business? Join our discussion.

What an LLC protects you from
Photo Galleries
7 quirky luxury products for the super rich Take a look at some of the most unusual luxury products being marketed to the top 1% in Monaco, including a rotating sunbed, hand-made wooden skis and fur coats for dogs. More
Five things to know about Putin's Russia An economic crisis, Western sanctions and a comeback currency: What's going on in Russia? More
9 up-and-coming collectible cars They're relatively cheap now but these models have already caught collectors' eyes and are expected to increase in value in years to come More
Sponsors