Defining Legal Entities Using the Legal Entity Configurator

This chapter covers the following topics:

Overview

The Legal Entity Configurator allows you to define legal entities and establishments in the Oracle system to achieve legal compliance for business activities handled by the Oracle E-Business Suite.

Legal Entities Setup Information

Before setting up legal entities, you must complete the following setup steps:

  1. Complete setup for the E-Business Suite

    Note: E-Business Tax is dependent on Legal Entities setup to complete its setup. Legal Entities setup is not dependent on E-Business Tax setup.

  2. Optionally set up customer flexfields

Legal entities setup includes the following steps:

  1. Define the Default Country profile option.

  2. Define the LE: Generate Legal Entity Identifier profile option. See: Generating the Legal Entity Identifer.

  3. Define the HZ: Generate Party Number profile option.

  4. Define the LE: Change Effectivity profile option.

  5. Define jurisdictions. See: Creating and Updating Jurisdictions

  6. Optionally define authorities See: Creating and Updating Legal Authorities

  7. Define legal entities. See: Creating Legal Entities.

  8. Assign legal entities to ledgers using the Accounting Setup Manager. See: Accounting Setup Manager

  9. Define additional registrations for legal entities if required. See: Creating Registrations.

  10. Define establishments. See: Creating Establishments.

  11. Define additional registrations for establishments if required. See: Creating Registrations.

  12. Optionally define associated business entities. See: Legal Associations

  13. Optionally define balancing segments for establishments.

Legal Entity Reporting

Legal Entity Reporting enhances the reporting capabilities of Oracle Applications products by allowing you to report at the legal entity level. Legal reports filter the data based on the legal entity stamped on the transactions (for example, AP Invoices, AR Transactions, etc.) or based on the ledger/balancing segment value that is associated with a legal entity through the Accounting Setup Manager.

When reporting by the legal entity, you can submit the report for all legal entities even if the MO: Security Profile profile option does not include all operating units.

Legal Entities

A legal entity is a clearly identified entity, which is given rights and responsibilities under commercial law, through registration with the country’s appropriate legal authority. These rights and responsibilities are enforceable through the judicial system. A legal entity generally has the right to own property and trade, and the responsibility to repay debt and comply with labor law. Legal entities are responsible to account for themselves to company regulators, taxation authorities, and owners according to rules specified in the relevant legislation.

The legal entity belongs to the organization’s own corporate legal structure (enterprise). The legal entity is referred to as the internal legal entity and is the initiator and owner of a given transaction.

Establishments

Establishment is the generic term used to refer to the building blocks of legal entities. Each legal entity is made up of at least one establishment. These 100 percent owned and controlled entities can also be referred as branches, divisions, establishments (domestic or foreign), inventory organizations, physical locations (for example, manufacturing plants and warehouses). They can be a physical (address) or logical (specific activity) subdivision of the legal entity.

In many countries, establishments need to be registered with local regulatory bodies and may have their own activity codes (such as the NACE code in Europe or the SIC code in the U.S.). Dun & Bradstreet (D&B) have DUN numbers for them as well. They have significant existence (their own address, often supporting local taxes and regulations, in some countries a threshold of number of employee per site), or significant business autonomy (may have their activity code, their own budget, handle their own bank accounts). They are not liable to the outside world (cannot be sued separately in court). They support or represent local or distant registrations of the legal entity. They also represent autonomous business units.

To fulfill registration requirements in some countries at a local level, a legal entity must register a main establishment. For this reason, the main establishment is created automatically when you create a legal entity. While establishments may or may not be located in the country of the legal entity, the main establishment is always located in the country of the legal entity. It is the main site (location) of a legal entity, which supports specific duties related to coordinating business operations and compliance with legislation and reporting needs for the legal entity.

Registration

Company registration is done in accordance with a particular legislation (commercial law, income tax law, civil law, company law, etc., depending on the country). It is the backbone of all other legal obligations a company must fulfill. This registration confers the status of legal entity and therefore, the right to do business in a territory (often a country). To comply with the law in the territory of its operations, a legal entity may be required to register with different legal authorities depending on its activity. However, company registration is the first registration to gain official recognition to qualify for other registrations. In some countries, additional registrations may be required for establishments of the legal entity. Registration information can be used on financial statements and legal reports.

Note: Create Registration Page

Jurisdictions

All legal entities must be registered against a jurisdiction that is governed by a legal authority. A jurisdiction is a combination of the legislative category (labor law, transaction tax law, income tax laws, Insurance law, Securities law, Ground Transportation law etc.) and the physical territory (group of countries, country, state, county, parish) to which legal rules are grounded. A tax jurisdiction is a geographic area where a tax is levied by a specific tax authority, for example, the tax jurisdiction for Goods and Services tax in Singapore is the country of Singapore.

You need to set up jurisdictions before creating registrations because a jurisdiction is required when creating a registration. For some countries, at least one jurisdiction is seeded: the identifying jurisdiction. Users will have the ability to create additional jurisdictions for other registrations.

The identifying jurisdiction is usually the first jurisdiction that the legal entity must register with, in order to be recognized in its territory. Because registrations to this jurisdiction may not be used in Oracle Applications, the identifying jurisdiction may be another jurisdiction that is commonly used within a country.

The registration to the identifying jurisdiction of the legal entity territory is called the identifying registration.

The jurisdiction can also capture the registration code or the name of the registration number. The registration code can then be used as the prompt for the registration number given the context of the jurisdiction. The jurisdiction will also have a start date and end date to show when the jurisdiction is effective and when you can register against the jurisdiction.

When a legal entity or establishment registers with a jurisdiction, there may be a set of functions that it needs to perform, such as payment or income tax declaration. Legal functions can be pre-defined in the jurisdiction to facilitate the registration process. When a registration is created, the specific functions of the jurisdiction can be assigned to the legal entity or establishment. Legal functions that are defined as required on the jurisdiction are by default assigned to the legal entity or establishment during registration.

Legal Authorities

A legal authority is a governing legal body that operates within a jurisdiction. The legal authority is responsible for enforcing legislation, collecting fees and taxes, and making financial appropriations within a given physical area for a type of law. For example, the Internal Revenue Service is the legal authority for income tax law in the US..

When a legal entity registers under a given jurisdiction, it may be related to a legal authority that is governing in that jurisdiction. Legal authority information is used on legal reports and financial statements in some countries and is determined by the legislation of the jurisdiction. Defining a legal authority is not required for a legal entity to transact and therefore, is not required to create a registration.

A legal authority is associated with a jurisdiction because it has authority over the legal entities that are registered with the jurisdiction. The relationship between the legal authority and the jurisdiction is formed when you create a legal entity registration. Each registration is made to a jurisdiction and each registration can identify an issuing legal authority.

In some countries, the legal authority has executive responsibility over several legislative categories. All of these legislative categories can be assigned to the legal authority. Legal authorities are defined according to your company’s preferences. For example, you can create one authority per office or one authority for multiple offices.

Legal Associations

Legal Associations is a set of components that aims to provide a centralized repository and a common mechanism for maintaining associations between business entities (non-legal constructs) and legal constructs (legal entities, establishments) and between just legal constructs. You can also use Legal Associations to maintain associations between balancing segment values and establishments for some countries.

When dealing with associations with establishments, these components are integrated into the Establishment Details page so that you can create associations between various attributes (such as Operating Unit/ Inventory Organization /Inventory Location / Ship-to and Bill-to Location) to establishments. These associations are mainly used by e-Business Tax as a component for tax calculations.

Associations are based on seeded cardinality rules, so it is possible to associate the same operating unit, inventory organization, and location to different establishments, even if they belong to different legal entities.

E-Business Tax needs the establishment information to determine what the imposed tax will be based on information present at the time of entry/creation of the transaction. Determining the establishment is necessary as it is the connecting entity that would determine tax registration and the other relevant details to determine tax.

Generating the Legal Entity Identifier

Use the XLE: Generate Legal Entity Identifier to set the Legal Entity Configurator to automatically generate the legal entity identifier. If you set this profile option to Yes, the legal entity identifier is generated automatically. If you set it to No, you must enter the legal entity identifier manually. The default is No.

Note: Create Legal Entity Page

Using the Legal Entity Configurator

Use the Legal Entity Configurator to search for existing legal entities, jurisdictions, and legal authorities; create and update legal entities, establishments, registrations, legal addresses, jurisdictions, and legal authorities; and create legal entities from existing organizations.

Using the Legal Entity Home Page

From this page you can:

Searching for a Legal Entity

In the Legal Entities tab, you can use the Legal Entity Simple Search and Advanced Search pages to search for existing legal entities. From these pages you can:

The results table at the bottom of the page includes existing legal entities, their establishments, and existing organizations that are not classified as a legal entity or an establishment. A selected organization can be configured as a legal entity or an establishment by navigating to the Organization Details page and using the Configure as Legal Entity or Configure as Establishment buttons.

Creating a Legal Entity

Create legal entities with minimum required information using the Create Legal Entity page.

If you create a legal entity from an existing organization, the country, organization name, and organization number are defaulted from the organization. In this case, the organization number is not updatable even if the HZ: Generate Party Number profile option is set to No.

When you create a legal entity, the main establishment is created automatically. The legal entity territory, name, address, effective date, and other information are defaulted to the main establishment. The establishment inherits the registration number of the legal entity only if the establishment does not have it own number.

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Some of the key fields are:

Creating Establishments

Create establishments with minimum required information using the Create Establishment page.

If you create an establishment from an existing organization, the organization name and number are defaulted from the organization. The organization number is not updateable in this case, even if the HZ: Generate Party Number profile option is set to No.

If no jurisdictions are set up for the territory selected, the registration information (the registration number and address) is not required and is not displayed. Otherwise, the registration information is required and displayed. Additional establishments are required only in countries where another legal entity location needs to registered with legal authorities (for example, India, Brazil, and Germany). These establishments may or may not be located in the legal entity’s country. Establishments, including main establishments, may follow different sets of rules if they do business in different activities or are located in different areas.

You cannot create a new main establishment from the Create Establishment page. To create a new main establishment, you must create a new establishment, then change the main establishment.

Note: Only the legal entity is stamped on transactions headers. Establishments can instigate, initiate, and control a transaction, but the ownership of a transaction lies with the legal entity. In one transaction, each line can refer to different establishments.

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Key fields are:

Note: Registration, Create Registration Page, and Establishments.

Configuring an Organization as a Legal Entity or Establishment

You can configure an existing organization (party) to be either a legal entity or an establishment. To search for organizations that can be configured as either a legal entity or an establishment:

  1. At the Legal Entities Search page, enter your search criteria and set the Transacting Entity field to No or blank to have all the organizations with Legal Type n/a listed.

  2. View the details of the organization you chose.

  3. At the Organization Details page, click Configure as Legal Entity or Configure as Establishment.

  4. Enter required information. For an establishment, select a legal entity in the parent legal entity.

  5. Optionally add additional details to the legal entity or establishment.

Updating Legal Entities

Use this page to:

Related Topics

Updating Legal Entities Details

Updating Legal Entities Details

Use the Legal Entities Details page to add and update legal entity details.

Selected fields are:

Updating Establishments

Use the Establishments Details page to add and update establishment details

Note: You cannot update the organization number if it was generated automatically.

Use the Establishment Details page to view, add, and update establishment details.

Note: Establishments and Accounting Setup Manager.

Creating Registrations

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To create additional registration(s) for legal entities or establishments, use the Create Registration page.

Key fields are:

Updating Registrations

Use the Update Registration page to update legal entity/establishment registration information.

This page is similar to the Create Registration page, except that the Update Registration page has the Change Effectivity region that becomes available when the LE: Change effectivity profile option is set to Yes.

Note: Profile Options Overview

Key fields are:

Effective From: Enter the effective from date for the updated registration attribute(s). This date is tracked under the History tab of the legal entity/establishment. It is defaulted to the system date. This field is updatable and must not be a future date.All updated attributes of a legal entity/establishment registration are shown under the History tab of the legal entity/establishment.

Note: Creating Registrations

Changing the Main Establishment

The main establishment can be changed from one establishment to another. To move a main establishment you must select a replacement establishment. The registrations on the old main establishment will not be transferred to the new main establishment because registrations typically need to be requested again from the legal authority. For some countries, the registrations on the old and new main establishments will need to be re-classified as a result of this change.

In some countries (for example, the U.S. and France), the legal address is the main establishment address. When the legal entity moves its main establishment from one establishment to another, its registered address is modified. The new main establishment must have been created as an additional establishment before this transfer can apply. You select the establishment that will become the new main establishment and enter the date of transfer. The date can be today’s date, a date in the past, or a date in the future.

To change a main establishment:

  1. From the Legal Entity Details page, navigate to the Establishments subtab and click Change Main Establishment .

  2. Enter a start date and select a replacement establishment in the Establishment table. From the start date, the establishment selected becomes the new main establishment. The start date must be within the new main establishment inception date and end date.

If you set End Date Current Main Establishment to Yes then your current main establishment will be closed and become inactive. If you set End Date Current Main Establishment to No, the establishment will still be active but will no longer be a main establishment.

Setting Up Legal Addresses

Use this page to maintain addresses that can be selected as legal/registered addresses when you create a legal entity.

Searching for a Jurisdiction

In the Setup tab, Jurisdiction subtab, use the Jurisdiction Search page to search for existing jurisdictions.

From this page you can:

Creating and Updating Jurisdictions

To create a jurisdiction:

  1. On the Jurisdiction Search page, choose the legislative category in the drop down box next to Create Jurisdiction: Legislative Category and click Go.

  2. On the Create Jurisdiction page, enter the territory, name, and whether or not the jurisdiction is an identifying jurisdiction.

  3. Optionally enter effective dates.

Key fields are:

General Information region:

Legal functions region:

To update a jurisdiction:

Creating and Updating Legal Authorities

Use the Create Legal Authorities page to create legal authorities with minimum required information.

To create legal authorities:

  1. Enter the organization name and any other identifying information.

  2. Enter address information.

Key fields are:

Identification Information region

Organization Name: The name of the organization.

Organization Number: This field uniquely identifies internally the organization. It is generated automatically or entered manually, depending on the setting of the HZ: Generate Party Number profile option.

Alias (optional): Enter the alternate name of the legal authority. This field can be used to enter the authority name in a different character set.

Pronunciation (optional): For countries where there is a different character set such as Japan, enter the legal authority name phonetically.

Address region:

Use the Address region to enter an address for the legal authority. Click on Save and Add Details to create contact persons and/or create additional addresses for other legal authority offices.

To update a legal authority:

  1. Search for a legal authority and click the update icon and update the legal authority using the same procedure you use to create a legal authority.

  2. Navigate to the General subtab and click the Update button to update identification information or to add/remove a legislative category.

  3. Navigate to the Contact Information subtab. You can create/update/remove a contact person in the Contacts region. You can create/update/remove an authority address in the Address region.