How to resolve issue with access permissions when sharing folder with person outside of organization?

Dear @David Chun, 

Welcome to the Q&A Community. 

Thank you for sharing your concerns. 

To help me better understand the situation and assist you effectively, could you please share a few details such as:   

1. Could you please confirm whether your account and client’s accounts are organizational (Business or Education accounts provided by a company or educational institution) or personal Microsoft accounts? 
2. If your account is a Business or Education account, are you the account administrator in your organization? 
3. Has your IT administrator added the clients (outside your organization) as guest users in the Entra ID? 

Once we have this information, we can proceed with targeted troubleshooting steps.   

In the meantime, you may find the following information helpful in addressing your concerns. 

The error message you're seeing typically appears when external users haven't been properly added as guest users in your Microsoft Entra admin center. While they may access the shared folder via a link, syncing or accessing it from OneDrive Favorites requires tenant-level guest registration. 

Note: Please coordinate with your Office 365 Global Administrator, as the steps below require admin privileges: 

1/To allow syncing and Favorites access, external users must be added as guests in your Microsoft Entra ID. 

Sign in using an administrator account to access the Microsoft Admin Center > Navigate to Identity (Microsoft Entra ID) 

Navigate to Users > New guest user. 

Enter the external user's email and send the invitation. 

Once the invitation is accepted, the user becomes part of your tenant and can access shared resources more reliably. 

You may find this article helpful for further details: Quickstart: Add a guest user and send an invitation - Microsoft Entra External ID | Microsoft Learn 

Next, ensure external sharing is enabled:  Go to Microsoft 365 Admin Center > SharePoint Admin Center 

Under Policies > Sharing, set sharing to “Anyone” or “New and existing guests” 
Confirm OneDrive also allows external sharing 

On this page, you can adjust the settings according to your specific requirements. 

Additionally, you may explore other settings related to external or guest file sharing through the following link: External or guest sharing in OneDrive, SharePoint, and Lists - Microsoft Support 

After the guest user accepts the invitation, reshare the folder with their registered guest account to apply proper permissions. 

Please note: 

• Anonymous links do not support syncing or Favorites access 
• Personal Microsoft accounts (e.g., @outlook.com) may face limitations unless added as guests 
• Syncing and Favorites require full access and tenant recognition 

While our initial response might not always resolve the issue right away, your input and any additional details you can share will really help us work together toward a solution. Besides, I hope this information helps address your concerns.  

If you need any further assistance or clarification, feel free to reach out. We're here to help. Thank you very much for your understanding and your cooperation.     

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Hello @David Chun,    

I hope you're having a good week so far. 

I'm reaching out again to follow up on your issue and check if everything has been resolved. My goal is to ensure your experience remains smooth and hassle-free. If you're still encountering any problems or have run into new challenges, please let me know which steps you're currently stuck on and happy to provide further help whenever you need it.  

If you have any further questions, feel free to tag me in your reply so I can assist you directly. 

Looking forward to your update.