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  1. #1
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    Using Paypal instead of a bank for S-corp

    I'm forming an S-corporation in New York with a friend, he mailed all the necessary paperwork yesterday. In trying to keep things simple, I figured that since we'll be using Paypal to receive the payments from our online store, that we did not need to set up a business checking account in the bank. For now, we will use Paypal to store our revenue and link to my friend's personal bank account in case we need to make a transfer. However for some reason, I found out Paypal does not allow a corporation to be listed as an account owner, they still require an owner's name on the account. Is there any reason for such a policy?

    In addition to receiving payments, I'd also like to use the Paypal to pay our expenses, such as wholesale orders, advertising, etc. I would imagine having all the revenue and expenses in one account will make it easier to track profit. I've heard that Paypal offers a debit or credit card, which I assume takes money right out from the account. Would Paypal allow this card to be issued in the corporation name, instead of an individual?

  2. #2
    King of Paralysis by Analysis bronze trophy
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    Keep one important thing in mind...

    Paypal is not a bank, and they go out of the way to state that they are not a bank so that they don't have to follow banking regulations.

    If you're talking any significant amount of money, you'd be much better protected if you used a real bank and a business account doesn't cost that much and you can get a CC through them. A bank can't just freeze your account and decide never to release your funds to you, Paypal can and has done that before.

  3. #3
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Quote Originally Posted by foozballking
    I For now, we will use Paypal to store our revenue and link to my friend's personal bank account in case we need to make a transfer.
    Bad idea. Don't link your corp to a personal account under any circumstances. There are lots of reasons for this.

    Quote Originally Posted by foozballking
    However for some reason, I found out Paypal does not allow a corporation to be listed as an account owner, they still require an owner's name on the account. Is there any reason for such a policy?
    I dont think this is exactly true. We have a corporate Paypal account and while it needs to have my bookkeepers name as a contact, the title and tax-id are from the corp. Most corporate accounts (i.e. credit cards, etc.) will require that some human contact be listed along with the account, but that doesn't make it a personal account.

    Quote Originally Posted by foozballking
    In addition to receiving payments, I'd also like to use the Paypal to pay our expenses, such as wholesale orders, advertising, etc. I would imagine having all the revenue and expenses in one account will make it easier to track profit. I've heard that Paypal offers a debit or credit card, which I assume takes money right out from the account. Would Paypal allow this card to be issued in the corporation name, instead of an individual?
    This is really not a good way to manage your finances. If you are trying to keep it SO simple that you don't even want to open a checking account, perhaps you shoudn't be forming a corp right now. You'll need to handle the various complexities such as tax, annual filings, etc. and opening a bank account should be about the easiest thing you could do. Also, what if you need to write a check? How will you compensate yourself (in what format) and how will it get reported? How will you keep adequate records for the IRS? How will your accountant see the books?

    I would reconsider your motivations for opening the corp, think about how much time/energy you are willing to invest in it, and come up with a better plan. A lazy corp is a liability - only a properly run corp brings the tax/liability advantages.
    The fewer our wants, the nearer we resemble the gods. Socrates

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    bad bad idea.

    Paypal can in any moment and at their discretion "freeze" that is, "eat up" your account

    See www.paypalsucks.com for a nice collecton of horror stories (and ignore their hype to sell their own service)

  5. #5
    SitePoint Wizard Lil_Red's Avatar
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    Quote Originally Posted by frox
    bad bad idea.

    Paypal can in any moment and at their discretion "freeze" that is, "eat up" your account
    Even a regular bank can freeze your assets if they think something suspicious is going on.

  6. #6
    SitePoint Evangelist sysice's Avatar
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    I know 3 local banks in New Jersey that offer free business checking for small businesses. Yeah, you will have to pay for checks and deposit slips, but its a small price to pay to be legit.

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    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by Lil_Red
    Even a regular bank can freeze your assets if they think something suspicious is going on.
    But you at least have some recourse as banks are regulated. Paypal is not.

  8. #8
    Non-Member demosfen's Avatar
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    I know of someone who made a $50k cash deposit so that he could write a check for his house downpayment. Account was frozen, and last I heard he wasn't able to do anything. I hear paypal horror stories much more often though. Whether you go with paypal or bank, I would keep account balance as low as possible.
    I am wondering if IRS has easier access to paypal accounts than bank accounts

  9. #9
    King of Paralysis by Analysis bronze trophy
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    Quote Originally Posted by demosfen
    I know of someone who made a $50k cash deposit so that he could write a check for his house downpayment. Account was frozen, and last I heard he wasn't able to do anything.
    A cash deposit that large is going to raise flags all over the system, it would be reported to the IRS and probably to the Dept of Homeland Security as well. I'm not surprised that the account was frozen. I believe that all deposits over 10k have to be reported to the gov't in the US.

    No one carries 50k in cash around unless they're a terrorist, a drug dealer, involved in money laundering or just plain dumb.

  10. #10
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    The difference between a frozen bank account and a frozen Paypal account is that in the second case "frozen" is just a nicer way to say "forfeited".

    Paypal is NOT a bank, and that's not a small detail...

    They can freeze your account with no obligation to "unfreeze" it. This means that at all effects you have lost your money....

  11. #11
    Follow Me On Twitter: @djg gold trophysilver trophybronze trophy Dan Grossman's Avatar
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    That is completely untrue. They are bound by the same laws as any other company. They also imposed regulations on themselves after the last class action settlement requiring they notify you within a certain time period why an account was suspended, to involve you in the investigation, and to return held funds within a certain time period (I believe it's 6 months, the standard time customers have to charge back payments against a credit card payment through their bank).

    PayPalSucks.com ran out of real 'horror stories' years ago. They still link to stuff from 2004 and earlier on the homepage because there's nothing more recent to talk about.

  12. #12
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    I don't know enough about banking laws to respond to that, but it's probably true. However, this whole 'they can freeze your account' is really missing the point.

    A corp/llc needs a proper bank account, for a variety of reasons. Any account can be frozen, really. I think the original poster needs to reconsider their motivations and alter the plan - a business that only has a paypal acct isn't going to be a well run business.
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  13. #13
    SitePoint Wizard Lil_Red's Avatar
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    I have to agree with Dan on this. It's been years since there have been any real horror stories.

    We've had a Paypal account for nearly 5 years now without a problem and we also have corporate checking and credit card accounts.

  14. #14
    SitePoint Wizard dreamscape's Avatar
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    Quote Originally Posted by demosfen
    I am wondering if IRS has easier access to paypal accounts than bank accounts
    Why would it be? PayPal doesn't keep your money in a safe in their back closet or anything like that. They keep it in banks -- specifically in "pooled accounts" at banks eligible for pass-thru FDIC-insurance, such as Wells Fargo and Bank of America -- which is also how PayPal accounts are able to be FDIC insured (but note here that the FDIC insurance only protects against failure at the bank PayPal puts your money in, not against failure at PayPal). The money doesn't just go You <-> PayPal; they act as an agent between you and the bank(s); it goes You <-> PayPal <-> Bank.

  15. #15
    SitePoint Addict paypalrb's Avatar
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    Quote Originally Posted by foozballking
    I've heard that Paypal offers a debit or credit card, which I assume takes money right out from the account. Would Paypal allow this card to be issued in the corporation name, instead of an individual?
    I'm not sure whether the card would be issued with the Business name, or the Business Owner name on it. However, you should be aware that there are daily spending and ATM withdrawal limits for the PayPal Debit Card, so depending on how much you need to spend in a single payment (or in a single day), this might cause issues if you rely solely on your Debit Card for making purchases and paying vendors. It all depends on what your needs are, so just review your limits before determining how much you would leave in your account and how regularly you would need to withdraw your funds from the account.
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  16. #16
    Not now, I'm kinda busy. pdxi's Avatar
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    I've been thinking about getting a business checking account as well as a merchant account so I can accept CC payments through some other way than PayPal. It's kind of annoying to have to shuffle money through multiple accounts and it's a hassle as far as bookkeeping is concerned.

    I sympathize with the desire to make things simpler, but I'd suggest leaving your money in the hands of much more reputable financial services. Wells Fargo has a better service record than PayPal, I've heard, for example.
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  17. #17
    A Smarter Way to Web! zivo's Avatar
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    Exclamation Regulation is a good thing!

    I know a colleague whose PayPal account was frozen because someone else at the address of his business, a major high-rise in Chicago, had somehow screwed PayPal out of money. It wasn't until they complained to the BBB that their money was unfrozen, several weeks later.

    Banks have greater regulations surrounding frozen assets. That being said, PayPal can be part of a business process, not the focal point of it.

    mp/m

  18. #18
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    I appreciate all the replies, I will go and look for a business account in the bank. At this point, I really only needed a credit card to pay for the wholesale orders, that's why I wasnt too crazy about opening up a bank account.

    Does it matter which bank I get at this point? I'm eventually hoping to upgrade to a merchant account and process payments thru Verisign. Should I inquire if the bank supports a gateway with Verisign beforehand?

    Perhaps someone can recommend a bank in New York as well

  19. #19
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    In my opinion if you are operating a corp or LLC, but you don't have a dedicated checking account for it, you aren't erally operating it properly and are sure to miss out on tax benefits, risk problems with the IRS (for money mixing) , and lose your corp veil. Why not just take the path of least resistance and open an account.

    Also, your business account at the bank has nothing to do with your merchant account. They will be 2 seperate accounts with completely different rules and uses.
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