Using existing PayPal and Amazon accounts for new LLC


1

I'm going to start out by providing a bit of background info here. My actual question is in bold, below.

So my wife and I run a website for digital artists that sells download subscriptions. This site started off as a hobby, and is growing into a business. I just filed for an LLC formation, and am in the process of figuring out what I need to do as part of the change from sole proprietorship to LLC.

I will be opening a separate bank account for the LLC, but there are other financially-relevant accounts that will need to be separated, such as:

  1. PayPal (most of our business payments are received through PayPal)
  2. Amazon Web Services (AWS) -- this involves us paying Amazon --not them paying
    us.

The PayPal account has been used in the past to send and receive personal payments, as well as to receive our "business" payments (as I said, started out as a hobby).

The AWS account is attached to my personal Amazon account which has been used for all kinds of personal transactions and payments in the past (buying books, kindle account, etc.), but moving forward it will be a key account for our business, as a significant portion of our monthly business expenses are Amazon Web Services fees (they host all of the files that we serve for download).

As far as I understand (correct me if I'm wrong), I don't have a legal obligation to use my PayPal or Amazon accounts only for business--even if I continued to use them for personal and business purposes, it would be possible to go through and separate out the business and personal transactions with some time and effort based on various indicators. HOWEVER, I also understand that the more separated things are, the more legal protection the LLC can provide, so I definitely want to keep our business and personal transactions separated moving forward.

My question is this: for maximum legal protection, do I need to create NEW PayPal and Amazon accounts from scratch to be used for my business from this point forward, or is it acceptable to move all of my personal stuff out of those existing accounts, and just use them for business transactions starting now? In other words, does the presence of personal transactions within an account in the past (say, before 2014), hurt the account's status as a business-only account in the future (e.g. after 2014)?

The reason I'm bothering to ask is that these accounts are already mostly just business accounts at this point, and it will take some significant time and effort to move all of my Amazon Web Services stuff to a new Amazon account, should that be required... if possible, I'd prefer to avoid that hassle--but not at the expense of future legal protection.

LLC Finance Legal Financial Accounting

asked Nov 15 '13 at 09:55
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Jordan Magnuson
8 points
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1 Answer


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I think the main concern is that the IRS or some other such entity might look at your accounts and see personal transactions co-mingled with business ones. PayPal is probably more of an issue than AWS, but as long as you don't comingle your transactions, you're probably OK.

However, since it's very easy to open a new business PayPal account, maybe you could go ahead and do that just for a clean break? Since the AWS services are more difficult to move, just leave those as-is. Sometime in the future you'll end up making changes to your hosting infrastructure, and you can set up a new account at that time. And, like I said, PayPal probably matters more anyway.

answered Nov 15 '13 at 10:29
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Contrazoom
186 points
  • The IRS is not an issue. Commingling business and personal financing removes the limited liability protection of the LLC and in effect renders it useless. – Littleadv 5 years ago
  • We're talking about the same thing. It's often referred to as "piercing the corporate veil". If it is found that your business transactions are not sufficiently separated from your personal ones, the authorities can "pierce the veil" and go after your personal assets to satisfy business liabilities. IANAL (I am not a lawyer) but from what I've read that is most likely to happen if the IRS is pursuing a back tax debt, if you lose a lawsuit, or in the event of bankruptcy. My advice stands: sign up for a separate business PayPal account, and deal with AWS the next time you change web hosting. – Contrazoom 5 years ago
  • The difficulty in terms of PayPal is that we have a lot of subscriptions (recurring payments) already set up there, and as far as I know, those cannot be transferred to a new account. – Jordan Magnuson 5 years ago
  • I'm somewhat aware of the issues in terms of "piercing the corporate veil" if business and personal transactions are commingled. But my question is, what if this commingling IS ONLY IN THE PAST? Let's say, two years from now we are sued or something, and our accounts have been BUSINESS ONLY for two years, but were commingled before that... problem, or no? I suppose I should probably ask a lawyer :(... – Jordan Magnuson 5 years ago

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