alternative legal structures guide

research notes compiled august 2025 for informational and educational purposes only. caveat lector.

overview

even in 2022, before ai, the legal profession was already experiencing significant structural transformation. maybe because of secular demographic trends, maybe because of the “global financial crisis,” or maybe because of prior liberalization in litigation finance and marketing - we’ll never know.

the point is, traditional restrictions on non-lawyer ownership - codified in model rule 5.4¹ and related concepts like champerty - are increasingly being challenged through innovative business structures and targeted regulatory liberalization.

three distinct approaches have emerged:

Legal Service Delivery Models

Rendering diagram...

Three distinct approaches to structuring legal services: traditional partnerships, MSO structures, and alternative business structures

fundamental approaches

traditional law firm ownership

the baseline: lawyer-only ownership with partnership structures governed by professional conduct rules.

traditional ownership models - partnership structures, model rule 5.4, historical context, and current restrictions

management service organizations

the workaround: splitting firms into lawyer-owned practice entities and non-lawyer-owned management companies.

mso framework - core concepts, two-entity structures, and operational requirements
texas ethics opinion 706 - detailed analysis of first state guidance on mso structures for law firms (february 2025)²

alternative business structures

the direct approach: eliminating restrictions entirely through regulatory reform.

abs overview - direct ownership models, regulatory frameworks, and business model analysis
arizona abs program - detailed case study of the most comprehensive abs program (136+ entities as of april 2025)³

international frameworks

global approaches - uk legal services act 2007⁴, eu halmer case implications⁵, and comparative analysis

advanced structure mechanisms

sophisticated financial engineering techniques enabling non-professional investment while preserving professional independence through innovative capital arrangements.

financial engineering approaches

financial engineering - debt-to-equity conversions, revenue participation rights, contingent value rights, and convertible preferred structures
governance and control mechanisms - management rights without ownership, call/put options, synthetic equity arrangements, and economic interests

strategic optimization frameworks

regulatory arbitrage - cross-jurisdictional optimization, cross-border structures, IP licensing models, and international framework exploitation
collaborative and hybrid models - joint ventures, litigation finance hybrids, management carve-outs, and strategic partnerships

complex transaction structures

complex transaction structures - partnership interest purchases with earn-outs, sophisticated deal mechanics, and performance-based acquisitions
advanced case studies - comprehensive analysis of Burford Capital/PCB, KMPG Arizona ABS, healthcare MSO precedents, and implementation lessons

market developments

recent examples by approach

mso structures:

mcdermott will & schulte: first am law 50 firm publicly pursuing pe investment (november 2025) - $2.8b revenue, top-20 global firm considering mso structure; chairman ira coleman acknowledged “fielding inbound interest” from investors³²
cohen & gresser: in talks for $40m convertible note converting to equity (november 2025) - global managing partner lawrence gresser stated firm has been “preparing for the entry of modern finance into the legal sector for over a decade”³²
burford capital: announced plans to acquire minority stakes in us law firms via mso structures (august 2025) - expanding beyond traditional litigation finance¹⁵
burford capital: 32% stake in pcb litigation (uk, june 2020) - first litigation funder to take law firm equity⁶
alvarez & marsal: created broadfield law firm using mso structure (july 2024)⁷
alpinex: portfolio approach to law firm investment (us and canada)
fortress investment group: equity stake in arizona law firm esquire law through cf esq holdco (2025)¹⁶
personal injury firms exploring pe: multiple pi firms pursuing private equity investment via mso structure (november 2025) - dudley debosier (louisiana), rafi law group (arizona), the dominguez firm (los angeles), mike morse law firm (michigan) all actively exploring deals with investment banks kbw stifel and capstone partners advising³⁰

abs entities:

eudia counsel: first ai-native law firm under arizona abs (september 2025) - $105m venture-backed ai-augmented legal services¹⁴
legalzoom: arizona abs license (october 2021) - first major technology platform⁸
rocket lawyer: arizona abs approval
136+ entities: approved in arizona as of april 2025³

hybrid ai law firms (non-abs structures):

norm law: launched with $50m blackstone investment (november 2025) - ai-native law firm operating under ny traditional rules via technology licensing model with norm ai; former sec/cftc officials on advisory board³¹
crosby: raised $20m series a (october 2025) - cooley, index ventures, bcv invest in ai-powered contract review firm²⁰
covenant: launched covenant 2.0 data intelligence platform (september 2025) - hybrid ai law firm for private market investors led by jen berrent²¹
eve: raised $103m series b at $1b valuation (september 2025) - ai platform for plaintiff law firms achieving unicorn status²²

venture capital and institutional investment:

general catalyst ($27b+ aum): leading legal tech investor with ai-enabled roll-up strategy - $105m series a led in eudia (february 2025), $80m series b co-led in legora (may 2025), $150m series c participation in legora (october 2025, $1.8b valuation); $750m earmarked for roll-up strategies across service industries including legal³⁵

regulatory developments:

november 2025: tennessee supreme court solicits public comments on eliminating non-lawyer ownership restrictions²⁹
october 2025: harvey raises €50m from eqt growth for international expansion after hitting $100m arr in august²³
october 2025: legora in talks to raise $100m+ at $1.7b valuation; browne jacobson adopts platform²⁴
september 2025: linklaters announces firmwide rollout of legora across 30 offices²⁵
september 2025: legora partners with deloitte legal for in-house ai push²⁶
september 2025: burford capital invests in kindleworth law firm consultancy expanding beyond litigation finance²⁷
september 2025: kpmg law us six months into operations coordinating multi-jurisdictional services²⁸
september 2025: cartiga completes $540m spac deal with alchemy investments for nasdaq listing¹⁷
august 2025: thomson reuters launches cocounsel legal with agentic ai capabilities¹⁸
august 2025: thomson reuters/ncsc consortium publishes upl reform white paper for ai tools¹³
august 2025: kpmg law us expands nationally through co-counsel relationships from arizona base¹⁹
february 2025: texas professional ethics opinion 706 provides first state guidance on mso compliance²
june 2025: puerto rico becomes fourth us jurisdiction to allow non-lawyer ownership⁹
december 2024: ecj decided halmer case upholding restrictions on purely financial investors in law firms⁵

implementation landscape

Implementation Considerations

Rendering diagram...

Key factors for implementing alternative legal structures: compliance, liability, tax implications, and jurisdictional variations

practical guidance

implementation guide - professional liability insurance, tax implications, compliance frameworks, and enforcement patterns

regulatory landscape by jurisdiction

permissive jurisdictions (abs allowed)

arizona: 136+ approved entities as of april 2025, most comprehensive program; 59% of newly licensed 2024 entities wholly owned by nonlawyers³
utah: regulatory sandbox (contracted from 39 entities in 2022 to 11 entities by april 2025 after tightening eligibility to require service to underserved populations)¹⁰
washington dc: longest-standing framework (since 1991)¹¹
puerto rico: newest adopter (effective january 2026, up to 49% ownership)⁹

jurisdictions considering reform

tennessee: supreme court soliciting public comments through march 16, 2026 on seven regulatory reform questions including non-lawyer ownership; first state without income tax to consider abs; 1.2m tennesseans qualify for legal aid highlighting access to justice focus²⁹

jurisdictions restricting abs

california ab 931 (october 2025): four-year freeze on fee-sharing with out-of-state abs attorneys (january 1, 2026 through january 1, 2030) - prohibits california attorneys from sharing fees with arizona/utah/puerto rico abs firms; $10,000 per violation or 3x damages; explicitly permits properly structured msos with flat-fee arrangements³³

international frameworks

united kingdom abs performance: 15+ years of data (2012-2025) - 1,000+ abs firms representing 12% of market, 33% of personal injury market by turnover, 2-3x innovation rates vs traditional firms, but significant regulatory failures including axiom ince (£60m client fund shortage) and ssb law (£200m debts) highlighting oversight challenges³⁴
european union: ecj decided halmer case (december 2024) upholding restrictions on purely financial investors⁵
other jurisdictions: australia, canada with varying approaches

opposition and restrictions

american bar association: reaffirmed opposition in resolution 402 (august 2022)¹²
most us states: maintain traditional model rule 5.4 restrictions¹

market trends and dynamics

consolidation and m&a activity

the legal services market experienced unprecedented consolidation in 2025:

merger acceleration:

law firm mergers up 21% in h1 2025 vs h1 2024 (35 total mergers)³⁶
major deals: herbert smith freehills-kramer levin (2,700+ lawyers), troutman pepper-locke lord (1,600 attorneys)
q1 2025 saw 22 completed mergers—5% increase over q1 2024

alternative legal service providers (alsps):

$28.5 billion market with 18% cagr projected through 2030
80% of law firms now use alsps for some functions
fragmented market creating consolidation opportunities: “vast majority of u.s. lawyers in solo or small firms”

driving forces:

technology investment requirements exceeding traditional partnership capital
talent competition requiring national platforms and sophisticated benefits
client demands for geographic coverage and specialized capabilities
midsize firm pressure: technology gaps and scale requirements driving closures (burns & levinson, lavin cedrone as 2024-2025 examples)

[sources: law.com, legal.io, inside practice]³⁶

legal technology investment boom

2025 marked record investment levels in legal technology:

record funding:

$2.4b-4.3b total 2025 legal tech funding (44-54% growth over 2024)³⁷
79% of investment ($2.2b) to ai-focused companies
highest annual total on record through september 2025

major rounds and valuations:

harvey ai: $8b valuation (october 2025) after three rounds totaling ~$750m
legora: $1.8b valuation with $150m series c (october 2025) - europe’s largest legal tech vc round
eve: $1b valuation with $103m series b (september 2025) - ai platform for plaintiff firms
filevine: joined unicorn club (september 2025) with $400m disclosed funding
eudia: up to $105m series a led by general catalyst (february 2025)

market drivers:

goldman sachs estimate: 44% of legal work could eventually be automated
genai adoption surge: 90% of uk top 100 firms implemented or trialled genai tools (2024)
corporate legal departments: 73% plan to increase ai investment

adoption metrics:

31% of legal professionals personally using genai (up from 27%)
315% increase in ai use by law firm professionals (2023-2024)
68% of law firm professionals use genai at least once weekly

[sources: crunchbase, fortune, pitchbook, bloomberg]³⁷

cross-sector comparison: accounting leads legal

professional services pe investment shows stark contrast between accounting and legal sectors:

accounting sector (far ahead):

83 pe deals projected for 2025 vs 22 in 2024—representing 70% of all activity since 2020³⁸
over $10 billion invested since 2020, creating ~$30b in post-deal valuations
over half of top 30 us accounting firms expected to have pe ownership by end of 2025
deal velocity: “one deal per day” through november 2025
major exits: citrin cooperman pe-to-pe sale ($2b) confirms viable exit pathway
baker tilly + moss adams merger: $7b valuation (june 2025)

legal sector (emerging):

mcdermott will & schulte: first am law 50 firm exploring pe via mso (november 2025)
personal injury firms: multiple firms pursuing pe through mso structures
abs programs: 136+ entities in arizona, but mostly smaller operations
regulatory barriers: most states maintain rule 5.4 prohibitions

key regulatory difference: accounting firms require only majority cpa ownership in most states vs law firms’ 100% lawyer ownership requirement, enabling faster pe penetration despite professional restrictions

market dynamics:

both sectors: fragmented markets (40,000 accounting firms, thousands of small law firms)
both sectors: technology investment pressures exceeding partnership capital
accounting advantage: established pe-to-pe exit pathways demonstrate liquidity
legal challenge: regulatory uncertainty limiting institutional capital deployment

[source: cpa trendlines, bloomberg tax, sidley austin]³⁸

key tensions and considerations

the regulatory landscape reflects fundamental tensions:

access to justice vs professional independence

capital infusion could improve service accessibility
non-lawyer influence raises ethical boundary questions

innovation vs consumer protection

technology platforms promise efficiency gains
regulatory oversight varies significantly by jurisdiction

market dynamics vs professional values

multitrillion-dollar legal services market attracts investor interest
traditional professional model emphasizes independence over efficiency

ai and upl reform

parallel to ownership structure reforms, ai-driven legal tools present similar regulatory challenges. the thomson reuters institute/ncsc ai policy consortium published a white paper in august 2025¹³ proposing three approaches to upl reform.

the consortium - formed 2024, combining thomson reuters (westlaw, cocounsel) with the national center for state courts - approaches upl from both technology and judicial perspectives.

three pathways

path 1: statutory revision

permit vetted ai tools with registration requirements
mandate disclosure of ai-powered services
require accuracy testing mechanisms

path 2: regulatory sandboxes

controlled testing for ai-driven legal services
extends existing utah, washington, minnesota models
data collection on consumer outcomes

path 3: narrow upl definitions

regulate only those claiming attorney status
allow ai assistance without attorney representation claims
focus enforcement on misrepresentation

relationship to alternative structures

both ai/upl and ownership reforms challenge the same premise: that only lawyers can deliver legal services. utah and arizona already test both ownership and technology innovations within their programs. colorado’s pending upl revisions address both domains simultaneously.

the white paper notes state bar associations and supreme courts have limited time to lead these reforms - similar urgency appears in abs debates.