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Is the following setup allowed by Microsoft SharePoint Online licensing:

Domain accounts for external users are created in the corporate Active Directory, but are not assigned any Office 365 license. SharePoint team sites are then shared with these users.

I've verified it works: the external users are able to successfully use the team sites.

I'm wondering, though, if this setup is allowed by Microsoft licensing: are external users still counted as being 'free' external users, when they are in fact using a corporate Office 365 login?

Those external users are not employees of our company. For example: a lot of them are employees of suppliers of our company.

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I am no licensing expert, but I would say this is a violation and that you'd be forced to true up at some point, either with SharePoint Only SKUs or something similar. Talk to your TAM about this to be certain.

Having full understanding of what you are trying to accomplish, I would advise against that. One of the beauties of SharePoint Online is you no longer have to be be in the business of credentialing people who are not affiliated with your organization. Microsoft has given us some tools to prevent rampant sharing by utilizing a domain white list.

Add the domains of your suppliers into the Sharing settings in your Central Admin and then share the desired sites with those users. Creating AD accounts for the sole purpose of getting access to your SPO tenant is no longer necessary, is completely valid, and has no licensing restrictions around it.

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  • Hi Eric, there seems to be some kind of mix up: we certainly don't have 2 separate organizations. Somebody else seems to have added that as a comment, but it does not apply to my question. I've updated my question to exactly describe the situation I'm asking about.
    – Robert Wagenaar
    Commented Nov 21, 2016 at 19:42
  • Your first paragraph is clear to me. I don't completely understand your second paragraph: what do you mean with them being 'corporate' users? That they are working for a large company that probably has it's own Office 365 tenant and licenses? That might be true, but we also have lots of external users that are employees of small companies that might not have their own Office 365 tenant and licenses.
    – Robert Wagenaar
    Commented Nov 21, 2016 at 19:47
  • The way you worded it implied everyone was internal to your organization, meaning if they had email, they would have already had a license to use SharePoint. Updating my answer.
    – Eric Alexander
    Commented Nov 21, 2016 at 19:56
  • sorry about that, English is my second language and I guess sometimes that show, sorry!
    – Robert Wagenaar
    Commented Nov 23, 2016 at 9:03
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You can share your site with whoever you want, while your accounts are corporate (domain, hotmail, passport, etc). You are giving them access to look at the site, to navigate through it. The odd thing would be if they could use O365 features, such as skype for business or Office 365 or Exchange. Consider this as when you share a file via OneDrive with a gmail account.

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You should be perfectly fine to do so. Microsoft even mentions this: https://answers.microsoft.com/en-us/msoffice/forum/all/sharepoint-access-for-internal-users-without/c8eaa6b7-1df1-40c8-b3d5-a807a37e01d0

This youtube video also covers how to achieve this: https://www.youtube.com/watch?v=YbmrnQmSO0k

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