On a windows 2012 server which has been registered on a domain, I want to create a user. However it gives me an error which says user doesn't exist!!! I know that. Who is going to create that?!!

Please see the picture below

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As you can see, you are on an add user to this computer wizard. This means you are adding a local user profile, while your server is joined on a domain. That would be adding a profile for an existing domain user, and that's why it performs this lookup.

Instead, you should be adding a user to your Active Directory (Users and Computers).

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