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Libraries and Folders
TL;DR; A library holds folders and files inside a department's Knowledge Base. Creating, editing and archiving a library, and managing its folders and files, is all self-service for a Company Administrator or Knowledge Base Manager. Deleting a library — even to the trash — and purging one are not: those are platform-owner actions.
Before you start
See Collections and knowledge bases to find your department's Knowledge Base.
Steps
From the Libraries list, select New Library, give it a Name and an optional Description, and save. That's the whole form — there is no visibility setting; who can see a library is decided by who holds a role on its Knowledge Base. It appears immediately as a card in the list.

Inside a library, New Folder builds structure — folders can nest inside each other. Folder and file names can't use
< > : " / \ | ? *, can't end in a trailing dot or space, and can't be one of the Windows-reserved device names (CON,PRN,AUX,NUL,COM1–9,LPT1–9).
Archive hides a library from the pickers used when building activities, without requiring it to be empty first. Its folders and files are kept but become read-only until you Unarchive it.
Deleting a library moves it to the trash, but only once it's empty and only for a platform owner — a Company Administrator or Knowledge Base Manager archives instead. Folders and files, on the other hand, can be deleted by anyone who manages the library's content; they go to that library's own trash. See Trash, restore and the 30-day window for what happens from there.
What this doesn't do
Archiving and deleting are two separate, non-overlapping actions — archiving doesn't require an empty library, but moving one to the trash does, and only a platform owner can do that. Permanently purging a library (as opposed to trashing it) is also a platform-owner action, not something a Company Administrator or Knowledge Base Manager can do themselves.
A file or folder can only be moved within its own library — there's no moving content across libraries.
Common issues
I can't create a library with a name I just deleted. — You can; a
freed-up name is reusable immediately. If you're restoring something with
that name from the trash instead, Lupo auto-suffixes it — (restored),
then (restored 2) — rather than blocking the restore.