How to Manage External Sharing in Microsoft 365 SharePoint Online

How to Manage External Sharing in Microsoft 365 SharePoint Online is one of the most important skills for IT admins, governance officers, and compliance managers.

Organizations today collaborate not only with internal users but also with vendors, clients, and contractors who require access to SharePoint sites, OneDrive files, and Microsoft Teams content. Managing this external collaboration securely requires configuring external sharing settings, applying governance policies, and aligning permissions with compliance requirements.

In this guide, you’ll learn step by step how to manage external sharing in Microsoft 365 SharePoint Online, from organization-level settings to site-level controls, as well as advanced options like PowerShell and sensitivity labels. By the end, you’ll be equipped to provide secure collaboration while protecting sensitive information and meeting regulatory needs.

Step 1: Understand External Sharing in Microsoft 365

Before diving into settings, it’s essential to understand what external sharing means in the Microsoft 365 ecosystem.

• External users are people outside your company who access content through a Microsoft account, a business or school account in Microsoft Entra, or a one-time passcode.
• Guest users are added to your Microsoft 365 tenant with limited rights to access SharePoint content, OneDrive files, or team sites.
• External access enables collaboration across organizational boundaries while retaining control over permissions and sharing options.

When you use SharePoint for projects involving external partners, you can share files, share documents, or even entire site collections. But every external sharing option should be governed by clear rules to avoid data leaks.

Step 2: Configure Organization-Level Settings

The first step in how to manage external sharing is defining organization-level settings in the Microsoft 365 admin center and SharePoint admin center. These settings determine whether external sharing is enabled across your environment.

1. Go to the Microsoft 365 admin center → Settings → Org Settings.
2. Navigate to Services & add-ins → Sites.
3. Select External sharing settings.
4. Choose one of the following sharing options:
   • Anyone (least secure).
   • New and existing external users (recommended for most organizations).
   • Existing external users only.
   • Only people in your organization (most restrictive).

Tip: Apply the organization-level setting conservatively and allow more flexibility at the site level if required.

Step 3: Control Site-Level Settings

Once organization-wide defaults are in place, the next step in how to manage external sharing is configuring site-level policies. This is crucial because different SharePoint sites have different collaboration needs.

• Open the SharePoint admin center.
• Go to Active sites.
• Select the site collection you want to manage.
• Under Policies, adjust the external sharing settings.

For example:

• A team site for contractors may allow guest access.
• An internal intranet site should restrict external users entirely.

Site owners also play a role by managing site permissions and assigning the correct permission level (view, edit, or full control).

Step 4: Manage Permissions and Access

Effective permission management is central to how to manage external sharing. Instead of granting broad access, leverage Microsoft 365 features:

• Use security groups and Microsoft 365 groups to assign roles.
• Limit edit permissions where view-only is sufficient.
• Ensure that site owners periodically review site permissions to identify unused or over-permissioned guest users.
• Define default link settings to control whether users generate sharing links with edit or view rights.

This structured approach avoids accidental overexposure of sensitive information.

Step 5: Apply Sensitivity Labels and DLP Policies

Security doesn’t stop at permissions. A best practice in how to manage external sharing is to use compliance tools built into Microsoft 365:

• Sensitivity labels: Tag documents and SharePoint content to control how they are shared. For example, a “Confidential” label can block sharing outside the organization.
• Data Loss Prevention (DLP): Prevents SharePoint administrators and users from accidentally sharing restricted data (like credit card numbers).

Both are managed centrally in the Microsoft 365 compliance center, ensuring that external collaboration aligns with regulations.

Step 6: Manage Sharing Options in OneDrive and Microsoft Teams

Since OneDrive and Microsoft Teams rely on SharePoint Online, external sharing settings extend to these platforms.

• In OneDrive, users can share items or OneDrive files with specific people or external users. IT can restrict this using advanced settings in the SharePoint admin center.
• In Microsoft Teams, adding an external user as a guest automatically creates a guest account in Microsoft Entra and provides access to associated team sites.

This integrated design simplifies secure collaboration but requires consistent policies across all apps.

Step 7: Monitor and Audit External Users

Another key step in how to manage external sharing is ongoing monitoring. IT admins should:

• Review the list of guest users in the Microsoft 365 admin center.
• Audit external access reports to check when external users last signed in.
• Track shared content through logs in the SharePoint admin center.

Using PowerShell cmdlets, administrators can automate reports on SharePoint sites, site collections, or even expired sharing links.

Step 8: Use PowerShell for Advanced Management

For organizations with many SharePoint sites or thousands of external users, PowerShell provides automation capabilities:

• Run cmdlets to bulk-update external sharing settings across multiple site collections.
• Generate reports on SharePoint content, share items, or document library access.
• Adjust the number of days for link expiration via scripting.

By learning PowerShell, SharePoint administrators can automate governance and improve scalability.

Step 9: Align with Security Best Practices

Every guide on how to manage external sharing should emphasize security best practices. Recommended actions include:

• Enforce authentication with multifactor verification for all external users.
• Regularly review site collection permissions and disable inactive guest accounts.
• Limit sharing links by setting folder links and site-level defaults.
• Educate internal users on when and how to share files or share documents safely.

By applying these measures, IT teams maintain compliance while enabling productivity.

Step 10: Governance and Compliance Policies

Finally, how to manage external sharing also means integrating governance at scale. Consider:

• Applying organization-level settings that prevent sharing with non-approved domains.
• Using Microsoft 365 groups to standardize site permissions across related SharePoint sites.
• Reviewing policies for handling sensitive information and training site owners on their responsibilities.

When aligned with corporate compliance goals, external sharing supports business needs without compromising data protection.

Common Scenarios for External Collaboration

1. Client projects: Create a dedicated site collection for project collaboration, granting guest access only to client stakeholders.
2. Vendor contracts: Store agreements in a document library with view-only permissions.
3. Cross-organization Teams: Enable guest users in Microsoft Teams, ensuring SharePoint Online external sharing rules match the organization-level defaults.

By structuring SharePoint settings to match these scenarios, admins make external sharing predictable and secure.

Conclusion

Mastering how to manage external sharing in Microsoft 365 SharePoint Online is essential for enabling productivity without sacrificing compliance or security. By starting with organization-level settings, refining controls at the site level, and applying governance tools like sensitivity labels and DLP, organizations can create a secure framework for external collaboration.

Features like OneDrive sharing, guest access in Microsoft Teams, and automation with PowerShell make it easier for IT teams to balance accessibility with protection. Ultimately, the key is to maintain consistent governance across all SharePoint sites and align policies with business requirements.

For organizations looking to simplify and secure external collaboration, the right partner can help design governance strategies and streamline management.

Explore how ne Digital can support your Microsoft 365 governance needs with Managed Services for Microsoft 365.