What if the future owner of your law firm isn’t another lawyer?
Not long ago, that idea would have seemed preposterous. But the times today are a-changing. In a post earlier this year, I discussed the emerging trend of lawyers assuming investor roles, rather than practicing law, within law firms. And now, there’s another trend on the horizon: Management Services Organizations, or MSOs. This business model has already disrupted other professions such as dental, medicine, and accounting. Some of you reading this are now the targets of these investor-lawyers.
In plain terms, MSOs are entities that handle the non-legal, business side of a firm, while lawyers still technically own the firm and practice law. On one side lies the legal services that only lawyers can provide, including advising clients, appearing in court, and negotiating deals, among others. Under this model, attorneys maintain record ownership of the law firm.
On the other side is the MSO, which is contracted to handle most other non-legal, administrative services, including HR, tech, marketing, intake, bookkeeping, and so on. The private equity (PE) entity owns the MSO and generates revenue from the services provided to the law firm. In effect, the MSO says, “You practice law. We’ll take care of everything else.”
So yes, law is increasingly being treated as a business, not just a profession. For some, that’s unsettling. For others, it’s an opportunity to tap into operational expertise and funding sources to which firms previously had little access. This approach could redefine how solo and small firms are owned, managed, and passed on to future generations. In this post, we’ll look at why MSOs are just starting to gain traction and what they could mean for your future.
Why Are Lawyers Talking About MSOs Now?
We never used to talk about this stuff because of Rule 5.4 of the Rules of Professional Conduct, which prohibits (i) nonlawyer ownership of law firms and (ii) fee-splitting, among other things. As a friendly reminder, the rule serves as a guardrail to prevent a nonlawyer owner from interfering with a lawyer’s independent and professional judgment. The fear underlying the rule is that a nonlawyer would prioritize profits over ethical obligations.
But the Rule 5.4 dam has a slight crack, most notably in Arizona. That state has created a regulatory framework of licensed entities known as Alternative Business Structures (ABSs). ABSs expressly permit nonlawyers who follow a court-approved process to own firms.
The hope was that outside investors would improve access to legal services with their capital to create more innovative law firm business models. There are now more than a hundred regulatory-approved ABSs in Arizona. While some are undoubtedly devoted to improving access to justice, it was only a matter of time before private equity spotted an opportunity and entered the scene.
Private Equity’s Growing Interest in Law Firm Acquisitions
However, hardly any states have followed Arizona’s lead, or seem to have any interest in doing so. And if you’re a private investor, there are only so many law firms in Arizona to create or to gobble up. So not surprisingly, PE folks are looking at states with Rule 5.4 fully intact. Enter the MSO, a carefully engineered backdoor into the legal market.
The approach is still very new. As far as I can tell, only a few deals have occurred nationwide, and they have been under the radar. The strategy, however, is now receiving increasing attention from Wall Street professionals. How do I know that? As one of the few nationwide consultants and brokers in the law firm space, in the past, I was rarely contacted by PE firms wanting to know about my law firm listings or asking for a quick lesson in the realities of buying and selling law firms. Now, I get a few inquiries monthly. I expect to get a few every week by next year.
In addition, I am currently working with some PE folks looking to buy a whole bunch of firms in one specific practice area in a particular state using the MSO model. What is their ultimate goal? I can’t be 100% sure, but it seems that at least for some, it is a common PE goal to “roll them up” into one bigger entity with higher valuations and then hope to sell them to another PE buyer, generating a high return on their initial investments in the smaller firms.
Where the Regulators Stand (Or Don’t)
What do state regulators think about all of this? Who knows? To date, no state regulatory body has formally approved the MSO model or commented on it. A properly structured and maintained MSO may not violate Rule 5.4. The law firm is still officially owned by a licensed attorney, and the MSO only manages the business side. It’s a structure that appears to fit within the existing framework. After all, is an MSO all that different from other outside vendors selling their services to a law firm? For now, it’s the wild west, something with which lawyers are rarely comfortable.
“Rule 5.4 is designed to preserve the professional judgment and independent decision-making of attorneys,” explains Cyrus Abbassi, a partner at Sheppard Mullin who specializes in representing investors and professionals in structuring and effectuating MSO transactions. “In considering whether a business arrangement is compliant with Rule 5.4, regulators may assess the specific facts and circumstances, particularly when analyzing an arrangement that could involve impermissible fee-splitting or one that could jeopardize independent professional judgment. The more indicators of an arm’s-length, back-office services arrangement, the higher the likelihood that the arrangement may be viewed favorably by regulators.”
“For instance, in February 2025, the Texas Commission on Professional Ethics issued Opinion 706, which held that a lawyer may own an interest in a nonlawyer services business that provides services to such lawyer’s law firm. However, such services business may not charge a percentage-based fee because such a payment structure may not be tied to the actual value of services received.”
One question is why it has taken so long for the MSO model to appear on the legal scene. Hundreds of lawyers nationwide have long advised doctors, dentists, and accountants when papering up MSO deals for them. Why the light bulb has seemingly gone on now for their own profession, and not years ago, remains a mystery to me. But trust me, that light bulb is beginning to shine brightly.
What the MSO Trend Could Mean for Your Succession Plan
What does this mean if you’re a solo practitioner or small law firm owner? Potentially, a lot. If you own a solo or small firm and are thinking about retirement, MSOs could represent a new method for how law firms change hands. Although the model is still relatively rare, it has the potential to significantly ease the process of finding buyers.
Put simply, this could open the door to an entirely new and vast pool of buyers who have money, business expertise—and a growing interest in figuring out ways to disrupt our profession. As more buyers enter the market, this should lead to increased demand for well-run firms, resulting in higher valuations.
That said, if an MSO opportunity comes knocking at your law firm’s door, stay grounded and ask the important questions before taking action: Will my staff be taken care of and supported? Will the deal provide enough for retirement? And most importantly, will clients continue to be well-served?
I don’t see how MSOs would suddenly undermine these priorities. However, they will probably have an easier time putting serious money on the table, unlike most traditional lawyer buyers, who are notoriously frugal and risk-averse. That said, it’s still way too early to make any accurate predictions.
MSO or Not, Early Planning Pays Off
Whoever comes knocking to buy your firm, starting your succession planning early sets you up for success. It reduces stress, gives you time to get all your ducks in a row, and makes for a smoother, more confident transition, whether the buyer is an MSO or a more traditional one.
I’ve been helping lawyers successfully exit from and transition their firms for over a decade, brokering deals that protect client relationships, reward years of hard work, and set owners up for the next stage of their lives. Whether you’re a solo practitioner or small law firm owner seeking a succession plan or an MSO looking for high-quality firms to acquire, I’d be happy to have a confidential conversation about your options.
Contact Roy today to explore what’s possible.
