Quick question: is php able to create new directories (folders) above the webroot? If not, is there any way to automate the task (like when a user signs up, an upload directory for that user is created above the webroot)
The apache instance running php can write anywhere on the server so long as write permissions have been granted. Normally when on a shared host write permissions will be restricted to that of the home directory. Normally that is the parent of the web root though it could differ based on vendor.
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