1. Login to CRM
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2. Go to Settings, Advanced settings.
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3. Go to Solutions, Select the solution where you want to create a virtual entity(In my case solution name is virtual entities).
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4. In the entities click on New.
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5. Check the option Virtual Entity.
6. Provide the details of the virtual entity like name, plural name, external name, ownership, etc.
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7. Click on Save and Close.
8. Now virtual entity has been created. Publish the solution by clicking on Publish all customizations.
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Thanks.!!