In most of the United States, private equity cannot own a law firm. ABA Model Rule 5.4, adopted in some form by nearly every state, bars lawyers from sharing legal fees with nonlawyers. It also bars them from practising in a for-profit firm that a nonlawyer owns part of or directs. The exceptions are narrow. Arizona allows licensed Alternative Business Structures. Puerto Rico now lets nonlawyers own up to 49 per cent. The District of Columbia permits nonlawyer partners who work in the firm. Utah runs a restricted sandbox. Everywhere else, investors come in through a management services organisation (MSO). The investor owns a company that sells services to the firm, and the firm itself stays 100 per cent lawyer-owned.
That structure has moved from the fringe to the Am Law 100 in about a year. This piece sets out what the rules allow, where the lines are, and what 2026 has changed. It covers the MSO deals, California’s two new laws and Arizona’s tightening. It ends with a comparison to England and Wales, where outside ownership has been legal for more than a decade.
Key points
- Rule 5.4 still governs almost every US state. The ABA reaffirmed it in Resolution 402 in August 2022.
- Arizona’s Supreme Court directory listed 181 Alternative Business Structures in September 2026, including KPMG Law US, approved in February 2025.
- MSO deals keep the law firm lawyer-owned and sell it services. McDermott Will & Schulte confirmed plans for a PE-funded MSO in February 2026.
- In Texas, Ethics Opinion 706 says MSO fees generally cannot be a percentage of the firm’s revenue.
- California’s AB 931 limits fee sharing with out-of-state ABSs from 1 January 2026. AB 2305, signed in September 2026, bars funders from influencing litigation decisions from 1 January 2027.
What does ABA Model Rule 5.4 prohibit?
Model Rule 5.4 protects a lawyer’s professional independence in three main ways:
- 5.4(a): a lawyer or firm shall not share legal fees with a nonlawyer, subject to narrow exceptions such as retirement payments and compensation plans for nonlawyer staff.
- 5.4(b): a lawyer shall not form a partnership with a nonlawyer if any of the partnership’s activities consist of practising law.
- 5.4(d): a lawyer shall not practise in a for-profit entity if a nonlawyer owns any interest in it, is a director or officer, or can direct or control the lawyer’s professional judgment.
The ABA has not moved on this. In August 2022 its House of Delegates adopted Resolution 402. It said the rule against sharing fees with nonlawyers “should not be revised”, and called that kind of fee sharing “inconsistent with the core values of the legal profession”. A floor amendment kept the ABA’s earlier support for regulatory innovation in Resolution 115. We found no new ABA formal opinion or resolution on MSOs in 2026. The ABA’s own publications have covered the trend at length, for example in Law Practice magazine in early 2026.
Which US jurisdictions allow nonlawyer ownership?
| Jurisdiction | What is allowed | Key source |
|---|---|---|
| Arizona | Licensed ABSs with nonlawyer owners. ER 5.4 eliminated from 1 January 2021. | Order R-20-0034 |
| Utah | Regulatory sandbox, narrowed in 2024. New entrants must serve underserved Utahns. Authorised to 14 August 2027. | Utah Office of Legal Services Innovation |
| Puerto Rico | Nonlawyers may own up to 49 per cent, as capital investors only, with disclosure to clients. Adopted 19 June 2025. | LawSites report |
| District of Columbia | Nonlawyer partners who perform professional services that help the firm serve clients. Passive investors are not allowed. | DC Rule 5.4(b) |
| Everywhere else | No nonlawyer ownership. MSO structures used instead. | State versions of Rule 5.4 |
How does Arizona’s ABS programme work?
Arizona’s Supreme Court eliminated its version of Rule 5.4 by Order R-20-0034, dated 27 August 2020 and effective 1 January 2021. It kept only a provision on fees and compensation plans. The same order created ABS licensing under Rule 31.1, which requires at least one compliance lawyer. The detailed rules sit in section 7-209 of the Arizona Code of Judicial Administration.
The court’s ABS directory listed 181 entities when we checked on 23 September 2026. The page carries no date, and the list may include entities that are no longer active, so treat 181 as an upper figure. The best known licensee is KPMG Law US. It was approved on 27 February 2025 and became the first Big Four subsidiary licensed to practise law in the United States, as the ABA Journal reported.
Arizona tightened the programme in 2026. Administrative Order No. 2026-31, dated 18 March 2026, amended section 7-209. Practitioners summarise the effect as two new requirements. ABS lawyers must provide at least some legal services to people. Licensing must also at least partly further the court’s regulatory objectives for people in Arizona. The target is ABSs that exist only to take referral fees, or that serve clients almost entirely outside the state.
What is a law firm MSO?
A management services organisation is a separate company, owned wholly or partly by investors, that provides a law firm with non-legal services. Those services can include technology, premises, marketing, intake, billing, HR and finance staff. The firm pays the MSO a fee. The firm itself remains owned entirely by lawyers, and lawyers keep control of every legal decision.
The ethics question is the fee. If the MSO takes a percentage of the firm’s revenue, it can look like fee sharing under Rule 5.4(a). Texas has given the clearest answer. Its Professional Ethics Committee issued Opinion 706 in February 2025. As Holland & Knight reads it, MSO fees generally cannot be a percentage of revenue under Texas Rule 5.04(a). They should be flat, cost-plus or otherwise not tied to legal fees. Other states have been slower to say anything. A February 2026 Law360 report, republished by Holland & Knight, said ethics guidance was lagging behind investor interest, with Texas the exception.
Who has done MSO deals?
- McDermott Will & Schulte. In February 2026 the firm confirmed plans to take outside investment through a PE-funded MSO, with the law firm staying lawyer-owned. Chair Ira Coleman said the firm was “fielding inbound interest”, according to the ABA Journal.
- Uplift Investors and Orion Legal. On 27 July 2026 Uplift’s Orion Legal MSO partnered with Bottaro Injury Lawyers in Rhode Island and Massachusetts. The firm remains “100 percent lawyer-owned”. Holland & Knight, which advised Uplift, said it was the firm’s 18th legal MSO deal of 2026.
- Burford Capital. In August 2025 Burford said it wants passive minority stakes in US firms through MSO or ABS models. “The question is not whether these transactions will happen, it is how quickly and with whom,” its chief development officer told Bloomberg Law.
Law360 reported in April 2026 that around 70 MSO transactions were in the pipeline. Reports of larger deals, including at plaintiff firms, keep appearing, but several rest on anonymous sourcing, and we have left them out until they are confirmed. On the deal side, Legal Desire has covered adjacent professional services investment such as KKR’s investment in the accounting firm Crowe.
What did California change?
AB 931 (2025). California responded to Arizona’s ABSs by limiting fee sharing with them. As Holland & Knight explains, the law bars California lawyers from sharing fees with out-of-state ABSs, subject to exemptions, for contracts entered on or after 1 January 2026. MSO-type fees remain allowed if they are flat, not paid for referrals, and do not scale with recoveries. Violations carry a minimum penalty of $10,000. The provisions sunset on 1 January 2030. The law firm Wisner Baum, which operates an Arizona ABS called Eleos Law, sued in November 2025 to block it.
AB 2305 (2026). Governor Newsom signed a second bill in September 2026. According to the Metropolitan News-Enterprise, AB 2305 makes it the unauthorised practice of law for corporate legal funders to “attempt to influence” an attorney or litigant on any substantive litigation decision. That covers client selection, financial terms, settlement and strategy. Clients get a civil claim for $10,000 per violation or three times actual damages, whichever is greater. California lawyers who take part face State Bar discipline. It takes effect on 1 January 2027.
Together these laws set the practical boundary for investors in California: they may fund and supply a firm, but they may not steer its cases.
How does this compare with England and Wales?
The contrast is sharp. Part 5 of the Legal Services Act 2007 created licensed bodies, known as ABSs, which may have nonlawyer owners. According to the SRA’s authorisation data for 2023/24, there were 1,257 licensed bodies on 31 October 2024. That is 14 per cent of the firms it regulates, up from 791 (8 per cent) in 2017/18. The UK market has also seen listings and buyouts:
- Gateley became an ABS in 2014 and listed on AIM in 2015, the first UK law firm to float.
- DWF was taken private by the private equity firm Inflexion and delisted on 4 October 2023.
What the UK experience shows is that outside capital did not turn the whole profession into investor-owned businesses. Most firms remain traditional partnerships. Investment went where it had a clear use: volume work, technology, consolidation and succession. The US MSO wave looks to be heading down the same path, with a structure designed to fit inside Rule 5.4 rather than replace it.
What should a firm considering an MSO check?
- The fee structure. Avoid percentage-of-revenue fees in any state that follows the Texas reasoning. Flat or cost-plus fees are safer.
- Control of legal judgment. Contracts must leave every legal decision, including client intake, staffing on matters, strategy and settlement, with lawyers. In California, AB 2305 now backs this with damages from 2027.
- Confidentiality and data. MSO staff handling client data must be bound by confidentiality duties the firm can enforce.
- Exit terms. What happens to technology, staff and leases if the firm ends the MSO relationship.
- Multi-state practice. A structure that works in Texas may not work in a state with stricter guidance, and a firm with offices in several states must satisfy all of them.
For how capital is reshaping legal technology suppliers, see our analysis of legal AI funding in 2026.
Frequently asked questions
Can private equity own a law firm in the US?
Not directly in most states. Rule 5.4 bars nonlawyer ownership. Arizona allows licensed Alternative Business Structures, and Puerto Rico allows nonlawyer ownership up to 49 per cent. Elsewhere investors use management services organisations that sell services to a firm the lawyers still own.
What is a law firm MSO?
A management services organisation is a separate company, often investor-owned, that provides a law firm with non-legal services such as technology, staff, premises and marketing for a fee. The law firm remains lawyer-owned and controls all legal work.
Are MSOs legal under Rule 5.4?
They can be, if the structure avoids fee sharing and nonlawyer control. Texas Ethics Opinion 706 says MSO fees generally should not be a percentage of the firm’s revenue.
How many ABSs are there in Arizona?
The Arizona Supreme Court’s ABS directory listed 181 entities in September 2026. The directory is undated and may include inactive entities.
How is the UK different?
England and Wales has allowed nonlawyer ownership through licensed bodies since the Legal Services Act 2007 took effect. The SRA reported 1,257 licensed bodies in October 2024, about 14 per cent of firms.
Sources
- ABA Model Rule 5.4
- Arizona Supreme Court, ABS directory
- Texas Professional Ethics Committee, Opinion 706
- ABA Journal on McDermott Will & Schulte’s MSO plan
- Metropolitan News-Enterprise on AB 2305
- SRA authorisation data 2023/24
Legal Desire Insider covers law firm business every week. Subscribe here.
Where the legal industry reads first.
Enjoyed this article? Get the biggest legal industry updates, deals, appointments, insights and expert interviews in your inbox, free.
No spam. Unsubscribe anytime.From Legal Desire
Is your firm the one being cited, or the one being skipped?
We ran the test. On several everyday legal questions, software companies are answering and law firms are not. We help firms fix that, and we build the technology behind the practice.
