By: Jake Bonafede
Chandler Law, LLC
In Georgia and forty-six other states, non-lawyers are prohibited from owning law firms[1], though Arizona has eliminated this restriction entirely[2]. Despite this near-universal ban, a workaround has emerged: Management Services Organizations (“MSOs”), entities that contract with law firms to handle non-legal operations[3]. Early partnerships suggest non-lawyer capital and management expertise may be a viable, compliant option, though the model remains relatively untested.
Rule 5.4 and the Prohibition
ABA Model Rule of Professional Conduct 5.4(b) prohibits a lawyer from co-owning or jointly operating a law practice with a non-lawyer where any part of that business involves the practice of law[4]. Rule 5.4(d) goes further, barring a lawyer from practicing in a professional corporation or association if a non-lawyer holds a director, officer, or similarly authoritative position within it[5]. Georgia’s version, GRPC 5.4(d)(2), omits part of the ABA language, leaving open whether a non-lawyer in an equivalent managerial role at a non-corporate entity (like an LLC or LLP) falls under the prohibition[6].
Critics of Rule 5.4 argue it starves smaller firms of capital needed to compete with larger rivals, potentially forcing price increases that hurt access to justice for lower- and middle-income clients[7]. They also argue the rule discourages hiring, since many employees are drawn to jobs offering equity compensation[8]. Supporters counter that non-lawyer owners could pressure attorneys to prioritize profitable clients over ethical duties, that non-lawyers escape the disciplinary accountability lawyers face, and that non-lawyer ownership would likely concentrate in the most profitable practice areas, worsening rather than improving access to justice[9].
Reform experiments: Arizona eliminated Rule 5.4 in 2021 through its Alternative Business Structure (ABS) licensing system[10]; only two of over 150 licensed entities have faced public discipline[11], though the closure of Axiom Global’s Arizona affiliate amid a lawsuit over private-equity influence shows the model isn’t risk-free[12]. Utah instead adopted a regulatory sandbox (Rule 5.4B) requiring case-by-case approval from a Legal Services Innovation Committee and the state supreme court[13]; as of late 2025 it had generated only twenty consumer complaints against roughly 117,000 services delivered, far below the complaint rate against traditional attorneys[14][15], while reaching low-income populations[16]. Washington State’s newer program (October 2025) requires applicants to test a specific hypothesis, designate a compliance officer, and have all “controlling” and “financing” persons undergo a Character and Fitness review[17][18]; it’s too new for complaint data.
The Rise of MSOs
MSOs originated in medicine in the 1990s as physician practice management companies (PPMCs)[19], which often owned—rather than merely served—medical practices. Many PPMCs failed due to conflicts between physicians’ clinical duties and investors’ profit motives, and from unmanageable scale; PhyCor, once managing over 100 physician groups, went bankrupt in 2002. Later medical MSOs narrowed their scope to administrative support only.
The legal industry adopted MSOs in 2019[20], with Rimon PC creating NovaLaw as its back-office entity, later capitalized by private equity firm Alpine Investors[21]. Rimon partners retain roughly 70% of revenue, paying NovaLaw a flat (not percentage-based) fee for IT, marketing, and payroll[22]. Dozens of firms have completed MSO deals, with hundreds more in development[23].
A typical MSO arrangement involves a law firm (often one earning $10 million or more in EBITDA) signing a management services agreement lasting 20 years or longer[24]. The firm keeps legal practice; the MSO takes over everything else, including brand, intellectual property, technology, marketing, and staffing, with non-attorney employees working for the MSO (often with stock options) rather than the firm. The firm operates under license from the MSO, which discourages attorneys from walking away.
MSOs as a Workaround to Rule 5.4
MSOs avoid Rule 5.4 because lawyers retain ownership and control of the practice while the MSO owns only the business operations, typically compensated via flat fees rather than a percentage of revenue (percentage fees would look like a profit share, triggering Rule 5.4)[25].
Risks include: loss of control over technology (since MSOs often standardize platforms across multiple client firms)[26], possible loss of control over staffing and hiring, MSO ownership of firm branding and IP (creating rebuilding costs if the relationship ends)[27], and conflicts of interest when an MSO serves multiple firms[28].
Contractual safeguards commonly include: flat-fee (not percentage-based) compensation; retention of attorney control over hiring, supervision, and legal judgment[29]; compliance with ABA Rule 5.6’s ban on non-compete provisions[30]; an “Agency Characterization Clause” designating the MSO as the firm’s agent to preserve attorney-client privilege[31], since courts weigh whether a third party’s involvement was necessary (not merely convenient) to render legal aid[32]; role-based information access restricting MSO employees’ data access; confidentiality obligations binding MSO personnel to the firm’s standards; a bar on the MSO offering legal analysis or influencing case decisions; and survival clauses extending confidentiality obligations past termination[33].
Recent legislation: Illinois’s HB 5487 (2026) bars MSOs from hiring/firing attorneys or conducting performance evaluations, imposes a zero-tolerance policy on client-data disclosure (minimum $10,000 penalty), and bans profit-linked fees[34]. California’s AB 931 (2025) closed a loophole that let California attorneys partner with out-of-state ABS firms for percentage-based fees, while explicitly permitting flat-fee MSO arrangements—making California the first state to directly authorize MSOs by statute[35]. Colorado’s HB 26-1421 (June 2026) bans ABS relationships outright, regardless of compensation structure, while still permitting fixed-fee MSOs that don’t touch legal work[36].
Only the Texas State Bar has issued an ethics opinion directly on MSOs (2025’s Opinion 706), finding them not inherently unethical so long as compensation isn’t tied to firm revenue[37]. Older opinions from several state bars addressed Professional Employer Organizations (PEOs), a narrower HR/payroll outsourcing model with no long-term commitment and no impact on client matters[38]—too different from MSOs to serve as direct authority, though they suggest the same core principles: no revenue-linked compensation, no influence over attorney conduct, and no control over legal practice[39].
Conclusion
MSOs show early signs of success. Rimon PC hired 50 new attorneys in 2023 alone—its highest ever[40]—with its growth attributed to back-office investment that didn’t require sacrificing partner equity, though Rimon has not disclosed financial details of its MSA[41]. Holland & Knight, acting as a deal facilitator, closed 15 MSO deals in six months with over 100 more in development[42]. As demand grows, MSOs—when paired with strong contractual safeguards—appear positioned to reshape how law firms operate. Georgia attorneys considering these arrangements should carefully weigh how Rule 5.4 applies to their own practice, given the disciplinary risk of getting the structure wrong.
[1]LegalClarity, Who Can Own an ABS Law Firm? Eligibility and Rules (2026).
[2]Id.
[3]Clio, MSO Law Firm Deals: Is One Right for Your Practice? (May 25, 2026), https://www.clio.com/blog/mso-law-firm-structure/
[4]Model Rules of Pro. Conduct r. 5.4 (A.B.A. 2026).
[5]Model Rules of Pro. Conduct r. 5.4(d)(2) (A.B.A. 2026).
[6]Ga. Rules of Pro. Conduct r. 5.4(d)(2) (2024).
[7]Friedman Vartolo LLP, The Case for Rule 5.4 Reform – Non-Attorney Ownership for Law Firms and Employee Stock Options (n.d.).
[8]Ledgy, Equity Compensation Strategies in 2025 (2025).
[9]Model Rules of Pro. Conduct r. 5.4 cmt. [1]–[2] (A.B.A. 2026).
[10]Arizona Judicial Branch, Alternative Business Structure (ABS).
[11]Arizona Supreme Court, Alternative Business Structures: 2022 Annual Report (2022).
[12]Mike Scarcella, Lawyer Outsourcing Company Axiom Shutters Arizona Law Firm, Reuters (2026).
[13]Utah Supreme Court, Standing Order No. 15: Utah Office of Legal Services Innovation (2020).
[14]Caden Rosenbaum, Increase Access to Affordable Legal Services, Libertas Institute (Sept. 26, 2025).
[15]Utah State Bar, Office of Professional Conduct Annual Report (various years).
[16]Utah Office of Legal Services Innovation, Sandbox Phase 2 (n.d.).
[17]Robert Ambrogi, Seeking to Expand Access to Justice, Washington State Pilot Will Allow Non-Lawyer Entities to Practice Law, LawSites (Dec. 19, 2024).
[18]Washington State Bar Association, Entity Regulation Pilot Project: Character & Fitness Application Forms (2025).
[19]Barbara Bridgman Perkins, Capital Markets and Medical Care: How Wall Street Invented Physician Management Companies in the 1990s, 26 Enterprise & Society 818 (2025).
[20]How Private Equity, ABS, and MSO Models Rewrote the U.S. Legal Market in 2025, Alternative Business Structure ABS Law (Dec. 17, 2025).
[21]Rimon Law, Rimon Featured in Law.com on the Resurgence of Private Equity and MSO Models in Legal News (Jan. 22, 2026).
[22]Roy Strom, Virtual Law Firms Evolve So Fast They Risk Their Own Destruction, Bloomberg Law (Apr. 4, 2024).
[23]How Private Equity, ABS, and MSO Models Rewrote the U.S. Legal Market in 2025, Alternative Business Structure ABS Law (Dec. 17, 2025).
[24]Holland & Knight LLP, From Practice to Platform: A Practical Guide to Structuring the Modern Law Firm MSO—From LOI to Post-Transaction Integration (2024).
[25]LegalClarity, ABS Eligibility and Rules, supra note 1.
[26]Dorothy Lund & Eric Talley, Private Equity–Big Law Tie-Ups Could Disrupt Associate Careers, Bloomberg Law (Nov. 20, 2025).
[27]Strom, supra note 22.
[28]Lund & Talley, Private Equity–Big Law Tie-Ups, supra note 26.
[29]LegalClarity, ABS Eligibility and Rules, supra note 1.
[30]Holland & Knight LLP, Why Lawyers and Law Firms Should Be Paying Attention to MSO Partnerships, Holland & Knight Insights (Oct. 2025).
[31]McGuireWoods LLP, S.D.N.Y. Takes a Demanding View of the “Functional Equivalent” Doctrine (2023).
[32]Reed Smith LLP, Third Parties and Attorney-Client Privilege: Unravelling an E-Discovery Enigma, Lexology (Apr. 20, 2023).
[33]Restatement (Third) of the Law Governing Lawyers § 60 cmt. c (2000).
[34]Illinois General Assembly, Bill Status of H.B. 5487, 104th Gen. Assemb. (2025–2026) (amending 705 ILCS 205/13).
[35]California Senate Health Committee, Analysis of Assemb. B. 931, 2025–2026 Reg. Sess. (June 19, 2025).
[36]Colorado General Assembly, HB 26-1421: Fee Sharing with Nonlawyers in Legal Practice, 2026 Reg. Sess.
[37]Professional Ethics Committee for the State Bar of Texas, Opinion No. 706 (Feb. 2025).
[38]Holland & Knight LLP, Everything Old Is New Again: PEOs, MSOs, and the Return of Nonlawyer Ownership Debates, JD Supra (Dec. 2025).
[39]Paychex, What Is a PEO? Definition & How It Works in HR (Oct. 9, 2025).
[40]Strom, supra note 22.
[41]Xiumei Dong, Is a Boom in Remote Work Tempering Virtual Firms’ Growth?, Law360 Pulse (Jan. 24, 2024).
[42]Ben Thomson, Private Equity MSO Deal Lawyers – The Holland & Knight Lawyers Closing 15+ Law Firm Transactions in Six Months, LawFuel (Apr. 28, 2026).