SharePoint Folders vs Document Libraries vs Document Sets: The RIGHT Way to Store Documents

Storing documents in SharePoint can feel more confusing than it should be. Folders are the most common but that doesn't mean they're the best. Let’s break down them all, so you can avoid the pitfalls of mismanaging your documents.

The Problem with Folders

Imagine your building an employee onboarding system to store documents like Resumes and Background Checks. You put everything in folders and add a column called "Hiring status", to track when the employee was hired.

Everything looks fine but when you click into a folder...oh no "Hiring status" is empty:

That's the first pitfall of Folders where information tracked at the folder level, doesn't trickle down to the individual documents.

If you try to Sort on folders, it puts all the folders at the top and doesn't respect the rest of the documents.

Worse still, creating multiple child folders can quickly lead to the frustrating "file or folder name is too long" error.

The Flat Document Library Approach

Instead of creating a mess of folders, some users realize they can just create a flat document library and they group by the person's name. All your documents exist at one level. This simplifies things since you avoid the nightmare of nested folders. Sounds perfect, right?

Well, kind of.

The real headache comes when you try to share multiple documents at once: the moment you select more than one document, you lose the ability to share them all in one go.

This can also get tricky when you're trying to create subgroups. For example, if you want to group employee drive tests or resumes into “folders” under each employee, you're back to needing folders... and once again, all the folder-related problems come up.

Enter Document Sets: The Best of Both Worlds

Document sets in SharePoint solve nearly all the issues you’d face with folders and flat document libraries. One of the best features is it allows you to sync column values from the parent Document Set down to each individual document inside.

If you click inside the document set - the columns are still populated!

It gets even better. You can add a template files that automatically appears inside every new Document Set you create.

Document sets are sorted alongside other documents in a library unlike folders. You can also put Document Sets, inside of Document sets.

Versioning

Documents Sets have the incredible ability to track the history of your columns and document changes over time! If your coworker complains one of the columns or documents changed, you can track down exactly what happened.

Syncing

OneDrive sync with SharePoint works as expected with Folders. However, with Document Sets it can only sync the documents and none of the metadata or versioning. The Document Sets appear as Folders in OneDrive. Thank you to Markus Hanisch for calling this out.

In Dynamics 365 or Dataverse, the out-of-the-box sync does not work with Document Sets and requires folders.

How to enable Document Sets:

• Go to Site Collection features: In the settings of your site

• Activate document sets: If it's not already

• Go back and select Site content types

• Create a new content type, add a name and select Document Set Content Types

• Select Parent category: Document Set Content types and click save

  

• Add the site columns you need or create a new ones

  

  
  

• Activate Content Types:Now you need to go to the library (Not the site) advanced settings and turn on Content Types.

• Now add your document set to the library.

• Now in your library you can click new and there it is!
  

  

Conclusion: Choose Wisely

It might feel tempting at first to fall back on folders, thinking they’re simple and familiar. But as you’ve seen, that simplicity only lasts until your file structure starts to grow and mutate into a tangled mess.

A flat document library can work for smaller, simple setups. But when it comes to real power, document sets are the clear winner — especially when you need to manage tons of related documents for employees, projects, or anything else that requires tracking various details.

To sum it up:

• Folders: Easy to start with, but become a nightmare as your storage needs grow. Syncs better with OneDrive.

• Flat Document Libraries: Good for basic grouping, but has limitations, especially for large, complex systems.

• Document Sets: The perfect blend of flexibility and control. They solve almost all the problems without creating new ones.