What is a solopreneur, and what kind of business can a solopreneur form or develop? The term “solopreneur” is often used interchangeably with the terms “entrepreneur,” “freelancer,” “self-employed,” or “small business owner,” perhaps since all of them will likely have to pay self-employment taxes and file 1099 forms. While any of these terms may be simultaneously true for your business, there are distinctions between them:
- Small Business Owner– An individual who attempts to profit by successfully operating a company. They get the first right of profit and make decisions. They have brick-and-mortar locations or work online. They sell specific products or services for which customers come to them. They often have employees and, while they may customize, they don’t usually tailor their services to whatever the customer wants.
- Self-Employed – One who earns a living based on their own business or profession instead of a wage or salary from an employer. They are technically a business owner and their own boss. However, they may not operate with a formal structure that includes others.
- Freelancer – One who, through short-term, one-off, and multiple commitments, pursues a profession. Freelancers do not make long-term commitments to any one employer. They may work remotely or travel and usually tailor skills and services to match the needs of a variety of clients.
Entrepreneurs and Solopreneurs
Instead of offering established products and services, entrepreneurs and solopreneurs develop new or innovative services or solutions while assuming all the risks of their enterprise. Differences between them:
- Entrepreneur– Working alone initially, they usually grow their business, become managers of others, and then leave them in charge. They usually aspire to sell their business to a larger entity for a profit and then start over. They have many irons in the fire. They make money by developing a profitable business and then selling it.
- Solopreneur – They tend to focus on one passion at a time, perhaps for the rest of their lives. They may network but usually continue working alongside other workers or investors they may bring in. Their goal is to build and stick with that company.
Business Entity Choices for Solopreneurs
If you call yourself a solopreneur, even if one or more of the other terms also apply, the two most frequently used business structures are:
- Sole Proprietorship – Not being a formal business entity, it is the easiest to set up. You automatically engage in business using your own surname or a DBA (doing business as) fictional company name. This name is not reserved and can be taken by any LLC or other registered entity. Your tax liabilities are reflected on individual tax returns under your social security number for ID, leaving your personal assets at risk if the company is sued.
- Limited Liability Company (LLC) – LLCs have become extremely popular since they provide the liability protection of a corporation with a company tax ID while allowing the owner to choose and reserve the company name. Owners also choose how the entity is taxed depending on the type of management they select.
The type of business you call yourself indicates who you are to your potential customers or clients. In contrast, the business structure you chose has serious tax and legal implications. Myrick CPAs can help you sort through all the details and questions that arise when setting up your business either as a solopreneur or LLC. Get it right the first time by contacting our professionals to guide you through the process.