Processes in Microsoft 365 for setting up Office apps, redeeming product keys, and activating licenses.
MS is starting to publish and publicize more "how to" information for business users. As well as hotmail accounts you can use corporate email.
The short, high-level, answer to your problem is that you have to use the "Admin portal" to buy and administer their licenses individually. here are some links for you too look at
Office 365 Small Business Setup Guide
Although it is only 12 pages long, it has links to MANY additional web pages of detailed instructions
Note: at the top of Page 4 there is a broken link "Setup your domain", it should be going to this page; http://office.microsoft.com/en-ca/office365-suite-help/set-up-and-manage-domains-HA102819938.aspx
For your current problem, I suspect your best approach is to contact MS Support. Fight your way past first level support till you find someone who cancel the current product keys and re-issue you with new ones. That way you can setup the user accounts "properly" through the admin portal.
Also download and take a look at the Office 365 Adoption Kit at http://aka.ms/o365kit