Company, Legal entity, Data Area ID--What's the Difference?

You have probably heard all three terms used in various documents or have seen them in the user interface-or maybe not. The bottom line is that fundamentally, they are all the same. (At least in the current version that is true).

By definition, a "legal entity" is an organization that is identified through registration with a legal authority. Legal entities can enter into contracts and are required to prepare statements that report on their performance.

A company is a type of legal entity. In this release of Microsoft Dynamics 365 for Finance and Operations, companies are the only kind of legal entity that you can create, and every legal entity is associated with a company ID.

This association exists because some functional areas in the system use a company ID, or Data Area ID, in their data models. In these functional areas, companies are used as a boundary for data security. Users can access data only for the company that they are currently logged on to and have been granted permissions to.

Organization administration > Organizations > Legal Entities

Five noteworthy features of legal entities:

1. You can mark a company as a Consolidation company. This is the only type of company that allows a consolidation to be run. This type of company cannot have regular transactions.
2. You can mark a company as an Elimination company. This is the only type of company that allows elimination rules to be created and run. This type of company cannot have regular transactions.
3. You can mark a company as both an Elimination and a Consolidation. This allows both consolidations and eliminations to be performed in the same company.
4. The country code that you link to the primary address on the legal entity controls the country specific features that are enabled for each legal entity. This is different than previous versions of Dynamics AX where you had to turn configuration keys on and off and the control is not at a legal entity level.
5. The company ID is what the DataAreaID is. Every transactions that is performed in each legal entity is stamped with the company ID in a column in each table called the DataAreaID. Some tables do not have a data area ID. In that case the data is shared across all the companies.

FAQ: Should I create separate consolidation and elimination companies?

A: Well…I know I keep saying this when I ask questions in my blog, (and literally as I am typing this, I realize that I have a problem…I am asking questions and answering them…hmmm) but--there is no right or wrong answer to this question.

So, with that being said, I generally prefer to combine my consolidation and elimination companies together. Although, I do have clients that separate them for statutory reporting requirements or just because they prefer it that way. You will not fail your implementation no matter which option you select. The business process for month end will just look slightly different.