A company is used for consolidation functions in SAP, while the company code is an independent legal accounting unit for which we can prepare a complete set of financial statements. Corporate codes: This is the smallest unit in your organizational structure and is used for internal and external reporting purposes. Enterprise codes are not optional in SAP (applications and system products) and must be defined. Financial transactions are displayed at the company code level. Corporate codes can be created for any business organization, whether national or international. It is recommended that after you define an enterprise code in the configuration with all the necessary settings, other company codes created later are copied from the existing company code. You can then make changes if necessary. This reduces repeated entry of information that does not change from one company code to another and eliminates the possibility of missing data entry. A legal entity is a corporation or organization that has legal rights and obligations, including tax returns. It is a company that can contract as a seller or supplier and can sue or be sued. As you can see, while the meaning of a legal entity does not technically change in different jurisdictions, the form and types of legal entity may be different and have different implications for compliance and governance. An original legal name must be chosen before a business entity can be formed.
This legal name can be changed in the future, but a business entity can only have one legal name at a time. If you do it right from the beginning, you can save significant resources and headaches later. Compliance and legal operations teams must approach the management of these entities from an entity governance perspective. This means keeping a strategic eye on all business requirements and being able to predict the downstream effects of changes in regulations or responsibilities. Company: This is the unit for which your financial statements are created and can be assigned to one or more company codes. A company is your legal business organization. The consolidated financial statements are based on the company`s annual financial statements. Clients are defined in the configuration and assigned to enterprise codes. Each company code must use the same COA (chart of accounts) and the same fiscal year. Also note that the local currency may be different for the business.
There are about 15 types of legal entities in the United States that require different variations of documents for legal entities. However, the most common legal structures to choose from are: If a company has different branches around the world (i.e. the company has different branches in different countries), each entity is called a company code instead of referring to it as a company. Branches in the same country belong to only 1 company code. Schedule a demo to learn how Diligent`s entity and board management software can help you keep your legal entities on the path to compliance. The question “What does a legal entity mean?” varies greatly by location. Although a legal entity is always defined in the same way, i.e. as a corporation or organization with legal rights and obligations, its final form may be different. If the send and receive transaction codes belong to the same company (they have the same company ID), they are considered part of a single legal entity (relationship type 02). “Regulators and market participants have recognized the need to identify the legal forms of companies both nationally and uniformly in global markets and have called for a standard to be developed to address this need. This ISO 20275 standard responds to the need for structured identification of the legal forms of entities in order, among other things, to classify companies according to the nature of their legal incorporation.
In the standard system, SAP assumes that inventory transfers within the organizational unit`s mandate (relationship type 02) are treated as internal transfer entries, and that secondment is performed according to the gross method and internal accounting transaction types. In contrast, intercompany transfers of assets between corporate identifiers (relationship type 01) can be accounted for using the gross, net or replacement value method using the withdrawal and acquisition transaction types. For more information, see Transfer Variants and Internal Asset Transfer Examples. The creation of enterprise codes in SAP is mandatory and at least one enterprise code must be defined in the FI implementation system. The Global Legal Entity Identifier Foundation (GLEIF) publishes the “List of ELF Codes) of Legal Forms of Entities”, which can be downloaded below. The current version, published in October 2021, lists more than 3,250 legal forms in more than 175 jurisdictions. The list contains legal forms/types in their mother tongue, such as limited liability companies (GmbH), limited liability companies (GmbH) or public limited companies (SA). The list of ELF codes assigns a unique code to each legal form of the entity. The ELF code is an alphanumeric code with four characters from the base Latin character set.