Shared Mailbox vs Distribution Group vs Microsoft 365 Group: A UK SME Decision Guide

Three entries in the Microsoft 365 admin centre look interchangeable: a shared mailbox, a distribution group and a Microsoft 365 group. Each gives a set of people one email address to work from. They part company the first time a customer replies, someone leaves the business, or a colleague asks where the calendar went.

Choose badly and the cost is quiet. A mailbox nobody signs into still bills a licence every month. A distribution group used as the address printed on your website sends every reply to whichever individual happened to answer, so the conversation lives in one person's inbox and leaves with them. We fix both of those in the same afternoon more often than we would like.

The three options side by side

Those limits come from Microsoft's own documentation on shared mailboxes, group types and Exchange Online limits. They settle most cases in a business under 300 seats.

The licence column is the one that gets ignored. Ten addresses sitting on Business Basic licences at £5.40 per user per month cost £648 a year, excluding VAT. Ten shared mailboxes under 50 GB cost nothing beyond the licences the people reading them already hold. That is the whole commercial case for tidying this up, and the number is usually larger than the business expects.

Shared mailboxes: one address, several people, no licence

A shared mailbox is a mailbox with delegates. You grant Full Access so people can open it, then Send As or Send on Behalf so replies leave from the address rather than from the individual. Nobody signs in as the mailbox itself. Microsoft gives the underlying account a system-generated password that no one is meant to know, and you keep sign-in blocked permanently.

The rules that bite in practice:

• 25 users is the hard ceiling. Microsoft documents a maximum of 25 users per shared mailbox and warns that heavier concurrent access produces connection failures and duplicated messages.
• 50 GB before a licence is needed. When the mailbox fills, sending fails first and delivery stops soon afterwards. Exchange Online Plan 2 lifts the mailbox to 100 GB.
• No access for outsiders. A contractor with a Gmail account cannot be given delegate access. Guest access exists on Microsoft 365 groups only.
• No encrypted mail from the address. A shared mailbox has no security context of its own, so messages sent as the mailbox cannot be encrypted with its own key.
• Anyone with access can delete. There is no setting that stops a delegate removing messages from the shared mailbox.

The 50 GB ceiling arrives earlier than the spreadsheet suggests

Our support clients run shared mailboxes for accounts, orders, reception and enquiries. The ones that hit the limit are almost always the mailboxes carrying scanned attachments: invoices, purchase orders, signed delivery notes. Four years of that at a few megabytes a message is 50 GB gone, and the first symptom is not a warning to users. It is a transport error on send, followed by bounced mail from customers.

There are two honest answers. Clear the mailbox down, which means archiving or deleting the bulk of the attachments, or put an Exchange Online Plan 2 licence on it for 100 GB. Moving to a Microsoft 365 group does not solve the storage problem, because the group mailbox is also 50 GB. Retention policies and legal hold on a shared mailbox need a licence in any case, which surprises businesses that assumed the mailbox was free for compliance purposes as well as for email.

Distribution groups: a megaphone, not a mailbox

A distribution group is a list of recipients and nothing else. There is no mailbox, no storage, no calendar, no sent items and no shared view of anything. A message arrives, it is copied to the members, and the transaction is over.

That makes distribution groups excellent for one job: internal broadcast to a fixed audience. All staff notices, a site or depot list, a policy announcement. The limits reflect it. A distribution group can hold 100,000 members and 100 owners, and once membership reaches 5,000 Microsoft requires delivery management or message approval to be configured before anyone can send to it. Messages to a group that size are capped at 25 MB.

Two behaviours catch people out. A Microsoft 365 group cannot be a member of a distribution group, so the tidy nesting diagram somebody drew in a planning meeting will not work. And a member who replies to a message sent to the group replies to the original sender, not to the group, so the thread scatters into private inboxes with no shared record.

Dynamic distribution groups deserve a mention because they solve a real problem well. Membership is calculated from attributes in the Exchange admin centre each time a message is sent, so "everyone in the Leeds office" stays accurate without anyone maintaining a list. The ceiling is 3,000 dynamic distribution groups per tenant, which is far beyond any SME requirement.

Microsoft 365 groups: when email is only half the job

A Microsoft 365 group is a container rather than an address. Each group comes with its own 50 GB mailbox, a SharePoint site, a shared calendar, a Planner plan and an optional Teams team. Add someone as a member and they get access to all of it at once. Nothing extra is bought for the group itself.

This is the right home for project work, a department, a client account or a committee that needs to keep papers together. Guest access can be enabled so external partners work inside the same site. Membership can be driven by Microsoft Entra ID rules, so people join and leave a department group automatically when their job title changes.

Groups also carry weight that a shared mailbox does not. Deleting a group takes its connected SharePoint site, mailbox, calendar, Planner plan and Teams team with it. Microsoft keeps the whole collection recoverable for 30 days, after which it is gone. Treat group deletion as an information management decision, not a housekeeping click.

The orphaned site problem

Every group creates a SharePoint site, whether the creator wanted one or not. Leave group creation open to all staff and you will accumulate sites called "Team meeting", "Project X new" and "Untitled". We have audited tenants with more sites than employees. The fix is administrative rather than technical: restrict group creation to a named group of people, apply a naming policy that puts a department prefix in front of every site, and set an expiry policy so a group that nobody has used for a year is reviewed.

Our position is that most organisations should switch off user-led group creation before the estate grows any further, which is one of the first changes we make in our Microsoft 365 consultancy work. A short request form through the IT desk costs less than a governance clean-up two years later, and it takes about twenty minutes to configure in the admin centre.

Converting between them, and what Microsoft will not do

Conversion is where assumptions cost time. Some changes are a button. Others are a small project that people plan as a click.

The user to shared mailbox conversion is the one worth getting right, because three details are easy to miss. The account must not be deleted, since it anchors the mailbox. The password should be reset during the process, because if it is left alone the old credentials keep working against the converted mailbox. Inbox rules survive the conversion, which is usually welcome and occasionally not.

On the shared mailbox to group direction, Microsoft states plainly that migration from a shared mailbox to a Microsoft 365 group is not possible. There is no wizard. You build the group, then move the content, which means exporting mail and rebuilding the calendar. Budget for that as a piece of work with a cutover evening attached, not as an admin centre toggle. Our SharePoint consultancy work includes these moves; the mail side is usually two days and the permissions tidy-up is the rest.

Four checks that decide the answer

• Someone has to be able to reply as the address. If anyone does, a distribution group is already wrong, because without a mailbox there is nowhere for the reply to live.
• Access for up to 25 people. A shared mailbox handles that. Beyond 25, build a Microsoft 365 group and put a Teams channel behind it.
• Files or a shared calendar alongside the mail. A shared mailbox has a calendar but no document library. A group brings both.
• Retention, legal hold or eDiscovery against the content. A shared mailbox needs a licence for those features, so price the mailbox and the compliance requirement together.

What we change in most tenants

A 45-person building services company came to us with fourteen mailboxes drawing paid licences for addresses such as info@, accounts@ and jobs@. Nine of them were shared jobs that nobody signed into. Converting those nine to shared mailboxes removed £583 a year from the bill and gave the team a single place to look for each enquiry. The other five were real people and stayed exactly as they were.

Alongside the licence saving, we closed three distribution groups that customers had been emailing for years, replaced them with shared mailboxes, and moved the members across as delegates. That change is the one clients notice. The reply now comes from the company address, and the whole exchange sits in a mailbox that survives someone handing in their notice.

The order of work matters less than doing it before renewal. Start with the licence report, mark every address that has no human signing into it, and classify each one against the four checks above. Then decide whether the mailbox needs a licence for size or compliance, and only then convert anything. A tidy-up finished in the week before renewal has no chance to affect the invoice.

Keep the estate small afterwards. One shared mailbox per customer-facing function, groups for work that needs files, distribution groups for internal broadcast only, and a quarterly review of anything nobody has opened in ninety days. That routine takes about an hour a quarter and prevents the mess from rebuilding itself.