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How do I define my Legal Entities?

Posted on November 21, 2007 by David Haimes

In the real world a Legal Entity (LE) can enter into contracts, own cash (bank accounts), employ people, pay taxes,
be sued and simlar. In Oracle Financials Release 12, a whole new product; Legal Entity Configurator, was created to
manage them. We allow you to define your real world Legal Entities and then map them to the E-Business Suite
objects and structures. Transactions are stamped with an owning (first party) Legal Entity and that will be used to
drive tax, accounting, intercompany and Legal Reporting.
So lets look at the relationships LE have to other E-Business suite objects.
1- Accounting Structures
In the General Ledger Set Up a Legal Entity can be mapped to

A Single Ledger

One or more Balancing Segment Values (aka Company Code) within a ledger.

2 Operating Unit
There is no explicit mapping of Legal Entity to an OU, the relationship is derived from the ledger assigned to the OU
and the Legal Entity mappings to ledgers as detailed above.
So how might you set up your LE in relation to your other set up in financials? There are two implementation models

LE are mapped to the Balancing Segment Value (BSV, aka Company code) within a Ledger, so multiple LE
are accounted for in a ledger.

An OU will have one Ledger assigned so transactions for many LE are processed and accounted in a single


A single LE is mapped to a Ledger

An OU will have one Ledger assigned

Therefore an OU only has one LE (that meas it is easy to derive the LE given the OU)

So what model should you use?

That depends where the LE are registered.
The 1:M model is recommended and preferred in the US, the 1:1:1 model is recommended for most non US regions.
related post: Can I assign an Operating Unit to Multiple Legal Entities ?

Can I assign an Operating Unit to Multiple Legal Entities?

Posted on December 11, 2007 by David Haimes

The short answer is sort of. Which is not much help to anyone, hopefully you will have a few moments to read on and
I can explain myself. This post assumes that you understand the relationship between Legal Entities and Ledgers
which I discussed in an earlier post.

In R12, a new Legal Entity Configurator was introduced in financials and Legal Entities defined here are are assigned
to Ledgers and/or Balancing Segments (Company Codes). However it is not possible to assign a Financials Legal
Entity to an Operating Unit, you can only define a Default Legal Context (DLC) to an Operating Unit. This assignment
can cause confusion as it is only possible to assign
one DLC, but I can use more than one LE in that
Operating Unit. The key word in DLC is default.
When I am in Payables or Receivables the LE is
stamped on the transactions and used to identify the
Legal Owner for Legal reporting as well as Tax
calculation. The invoice exists within an OU and that OU has a ledger which will account the transactions, if that has
more than one LE associated with it then a hierarchy of LE derivation is used to default an LE, the last resort being
the DLC.
For example in AR the Legal Entity derivation hierarchy for transactions is

Transaction Type


Batch Source

Assigning a LE to a transaction type or batch source is optional and only the LEs mapped to the Ledger associated
with the OU are available to assign.
So in R12 we have much better support for many LE accounted in a single OU as we clearly mark the LE on the
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