Acting as a business entity within an enterprise, a Legal Entity can be composed of one or more business units that operate within a particular region that is governed by certain reporting requirements. Each Legal Entity established within the ERP represents a real company; for example, a single Legal Entity may be set up to represent one business unit within a reporting region (i.e., country or province) or it may represent a series of business units operating together within the same region (e.g., Italy, East Coast USA, etc.). For all intents and purposes, a Legal Entity is a body responsible for owning assets, paying debts, entering contracts, reporting, paying taxes and complying with all legal requirements pertaining to it. In EBS Tax, a Legal Entity is the configuration owner.The main purpose of the Legal Entity in Payables and Receivables is to serve as the custodian of banking relationships.The LE may be assigned to a tax regime, and rules and setups may be defined by the configuration owner. Payables transactions use the customer taxpayer ID to select the Legal Entity, and the default LE may be defined on the supplier site setup. Oracle Payments uses the bank account owner to identify the LE.The Legal Entity administers transaction level rules in compliance with national laws. To allow the Legal Entity to have access to configure bank information requires assigning a Legal Entity to a responsibility.
Legal Entity Architecture Developments
In Oracle E-Business Suite R11i and earlier releases, a Legal Entity was required by the program’s HR configuration, and it was created by using the Human Resources Management System (HRMS) Organizations form. Each Legal Entity (LE) was associated with a set of books and assigned a one-to-one relationship with an operating unit (OU). The direct connection between the OU and LE meant that an operating unit acted almost as a surrogate for its Legal Entity. Not only did such a redundant structure leave the purpose of the Legal Entity unclear, but it also caused problems with regulatory compliance, accounting and transaction flow whenever the business operations were more complex than a straight, top-down approach.
Oracle changed the architecture of the Legal Entity in R12 to allow each ledger to have one or more Legal Entities, and one or more Balancing Segment Values (BSVs). The Legal Entities may be used across many operating units. Since an operating unit is mapped to the ledger, Legal Entities and operating units do not directly associate, but rather share an indirect connection via the ledger. This frees up the OU to focus on its primary function of managing user access, while the LE remains responsible for regulatory compliance. Another configuration challenge was addressed by assigning bank accounts to the Legal Entity instead of as they were previously defined at the operating unit level.
The Legal Entity architecture of Release 12 drastically improved flexibility and control over regulatory reporting, as it better reflects the corporate structure of a company. If a user wants to report on multiple Legal Entities at once by using a single operating unit, then multiple Legal Entities can be assigned to the ledger to which the OU is mapped. Moreover, each Legal Entity and ledger can be configured to best comply with local legal requirements, while operating units can be used to provide users a holistic view of the enterprise’s performance. Another added benefit of the structure is the ease at which intercompany accounting can be completed. Because the Legal Entity is directly related to the BSVs, transactions among Legal Entities can be easily tracked and balanced within the ledger. Also, thanks to subledger accounting functionality, a user can account for single Legal Entity or a group of them, and even just a part of an entity if necessary.
Legal Entities can play an important role in your company management and business systems structure. The LE architecture improves operational efficiency by streamlining reporting and taxes and segregating the legal, tax, and compliance requirements for a company. Legal Entities also provide transparency for intercompany activities.Legal Entities facilitate statutory and regulatory reporting and disclosures made to shareholders or other investors, and reporting in local and international Generally Accepted Accounting Procedures (GAAP).