Explore use cases for legal entities

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Creating a legal entity and preparing it for financial management is the first phase of implementation.

A legal entity is an organization that has a registered or legislated legal structure. Legal entities can enter into legal contracts and are required to prepare statements that report on their performance. The country or region that you select for the primary address of the legal entity controls the country-specific and region-specific features available for the legal entity.

Before choosing the country/region for the new legal entity, you need to understand the significance of localization in finance and operations apps.

Some regulatory requirements of certain countries/regions require that finance and operations apps enable or disable certain functionality and features, and even some forms, fields, reports, and inquiries.

A company is a type of legal entity. In Dynamics 365 Finance, companies are the only kind of legal entity you can create, and every legal entity is associated with a Company ID.

The Company ID field is limited to four alphanumeric characters. Once it is created, it cannot be changed. So, be sure to properly plan for and consider a naming convention prior to creating legal entities in the production environment. Users can access data only for the company that they are currently signed in to and have security access for the roles they belong to.

A search name is an alternate name that can be used to search for this legal entity. One of the best ways to learn about finance and operations apps and be able to successfully implement them is by listening to the story of a customer’s day-to-day operations. You need to be able to gather and convert the customer requirements into test cases and try to match the functionality and configuration of finance and operations apps with the customer’s business processes.

Example

Contoso is an organization that has at least one company or legal entity and has registered its international companies in multiple countries, such as Germany, United States, and France.

Therefore, Contoso is an organization that is a group of people who are working together to carry out a business process or achieve a goal. Organizational hierarchies represent the relationships between the organizations that make up your business. This organization has decided to acquire a business named Adventure Works Cycles. You can create a new legal entity by navigating to the Legal entities page.

Registration IDs

Many countries and regions have different regulations and requirements for recording registration numbers or IDs.

For different countries/regions, there are various location-specific functionalities related to registration numbers provided by different government offices. Examples of registration numbers include employer identification number (EIN), tax identification number (TIN), and European value added tax (VAT) identification (EU VAT ID). This feature provides a unified framework for all countries and regions with consideration of country-specific and region-specific requirements of some European countries.

The Registration category is a country/region registration identifier approved for use in a country/region for tax, customs, and other purposes.

After you create the legal entity, the next step is to configure number sequences for the newly created company. Number sequences are used to generate and manage unique identifiers for the master and transaction data required to manage uniqueness.

Move on to the next section to learn how to handle regional tax reporting requirements.