Hi, Nurick.
A few options here.
The 2nd option will give you the NTFS permissions.
The first option will rely on Azure File permissions (separate), if you don't have a domain controller and the Azure File share isn't linked to Active Directory.
Azure AD Domain Services is only needed if you don't have a domain controller (one or the other). Domain Controller for full access, unmanaged service and ADDS for a manged service with restricted permissions.
If you have Azure File Sync - you can have your files (and backups) in Azure, and the servers become a local cache, like OneDrive - [https://learn.microsoft.com/en-us/azure/architecture/hybrid/hybrid-file-services.
Have you considered migrating your file servers to Teams/SharePoint online?