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:

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

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

regulatory developments:

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, most comprehensive program³
utah: regulatory sandbox (contracted from 39 to 11 entities by 2025)¹⁰
washington dc: longest-standing framework (since 1991)¹¹
puerto rico: newest adopter (effective january 2026, up to 49% ownership)⁹

international frameworks

united kingdom: liberalized 15+ years ago via legal services act 2007⁴
european union: pending ecj decision could force member state liberalization
other jurisdictions: australia, canada with varying mds 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
california: legislature considering bills to prevent fee sharing with nonlawyer-owned firms

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.