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To Be or Not to Be – The Legal Entity Debate

Post Author: Joe D365 |

The terms Legal Entity and Company are often used interchangeably within the Dynamics 365 Finance and Operations (F&O) vernacular, but when considering whether to make a company a legal entity or not, there is often a challenge presented with respect to which direction to choose.  Rather than have multiple lengthy discussions, there are several key decision points that can be considered in order to make the distinction and decision a little clearer for users who are less familiar with F&O. In today’s post, we’ll review each of those decision points.

Below are 13 items and descriptions that detail the many considerations one should review when trying to make the best selection for an implementation.

1. Master Data

Legal Entity (LE) – If the organization you are considering will be modeled as a Legal Entity, the Master Data – such as Customers, payment terms, tax authorities, site-specific stock ordering defaults, etc. – has the ability to be different for each LE.  There are options to share the data across LEs as well, but the value of having uniqueness among LEs may be required.

Operating Unit (OU) – If  organization is set up as an OU, all master data is shared.

2. Module Parameters

LE – Parameters within modules like AR/AP/Cash and Bank must be set up for each LE, allowing differences among configurations.

OU – Parameters are shared.

3. Data Security

LE – Out-of-the-box security can be assigned by LE.

OU – Customized data security policies are required.

4. Ledgers

LE – Each LE requires ledger, chart of accounts, currency, etc., and these can be different per LE.

OU – An OU can’t have separate ledgers.

5. Fiscal Calendars

LE – Each LE can have its own fiscal calendar.

OU – The organization must share a fiscal calendar.

6. Consolidation

LE – If separate Legal Entities are used, a consolidating entity must be used as the consolidated company for financial statements.

OU – Organization consolidation is not required as data is already shared.

7. Centralized payments

LE – Organization hierarchies must be set up for child legal entities to allow centralized payments.

OU – Centralized payments are not required because invoices are recorded in single entity.

8. Local tax requirements

LE – The LE can belong to only one country, so in order to do tax reporting on various countries/currencies, multiple LEs are required.

OU – An OU can only report based on the one country designation.

9. Statutory Reporting

LE – At the LE level, this is supported by F&O.

OU – If required at the OU level, the organization must create reports using another application.

10. Currency

LE – The organization and its functional currencies can be set up per legal entity.

OU – The organization must use single currency across the OU.

11. Year-end closing

LE – The organization can have its own unique year-end requirements per LE.

OU – The organization must use the same year-end requirements.

12. Products

LE – The organization product definitions are shared but must be released to each LE.  Not all products have to be released to each LE.  If requiring different products, must be different LE.

OU – The organization shares all the same products.

13. Inquiry and Reporting

LE – The organization must manually change the LE to run reporting and consolidated reporting.

OU – The organization and its use of reporting requires no need to change OU.

As you can see, there are a lot of items to consider.  However, when reviewing the list, you can decide which options are must haves and which might be more adaptable, hopefully making your decision easier.

For more blogs on Dynamics 365 Finance and Operations, please go here.

Happy D’365ing!

By Joe D365
Joe D365 is a Microsoft Dynamics 365 superhero who runs on pure Dynamics adrenaline. As the face of PowerObjects, Joe D365’s mission is to reveal innovative ways to use Dynamics 365 and bring the application to more businesses and organizations around the world.

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