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The external sharing features of SharePoint Online let users in your organization share content with people outside the organization (such as partners, vendors, clients, or customers). You can also use external sharing to share between licensed users on multiple Office 365 subscriptions if your organization has more than one subscription.

This option is best if your organization shares broadly internally and rarely shares externally. Anyone with the link - This option is available only if your external sharing setting is set to "Anyone." Forwarded links will work internally or externally, but you won't be able to track who has access to shared items or who has accessed shared items.

File shares include centralized file hosting on a network server or a network drive or shared files or disks on a local computer. Often referred to as a “Z drive” on networked computers, it is a shared drive somewhere on the network. ... Files or folders exceeding current SharePoint Online restrictions and limitations:

Learn to create, manage, and delete groups in SharePoint and SharePoint Online, including adding, removing, and updating users from groups, and setting permissions for users and groups. ... In the Share dialog, type the name of the SharePoint group that you want to give access to.

What's even more confusing is, it seems like if the external user you share with has a microsoft account of some sort, e.g. an, it does base the access on that user being logged into their microsoft account but the person sharing the folder originally has no way to know if the external user is using a microsoft account.

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