In the past our small firm has been file sharing via a Windows Workgroup with a mix of <10 XP, Vista and Win7 machines.
I understand the basic concept of a Workgroup vs Domain and the advantages of switching over to a Domain, but at this moment we unfortunately don't have the resources to migrate to a domain.
Instead, I would like to upgrade our system so that we have a machine that acts as a central file server, with several (I assume local) accounts set up on that file server. When users want to access files on that file server, they would type in the server path e.g.
\\FileServer\SharedFolder\ and should be prompted to enter the credential of the local account that belongs to them. On that file server, I would be able to manage the permissions of the different accounts.
How should this be set up? Do I need to install some version of Windows Server on the 'file server'? What's the minimal configuration to get this working?