By Brian Hall on September 8, 2025

Private equity has entered legal services with force. Investors now see law firms not as untouchable guilds but as scalable businesses. Alternative Business Structures (ABS) and Managed Services Organizations (MSOs) open the gates to a whole different world of delivery of legal services to clients. These models dismantle the ban on outside ownership and create new pathways for capital. In particular, ABA Model Rule 5.4, which is adopted in some form by all states, has historically prohibited lawyers from sharing legal fees with nonlawyers, forming partnerships with nonlawyers, or having nonlawyers own or control a law firm to protect the lawyer’s independent professional judgment and the client’s interests.  Some states are creating exceptions, with more change on the horizon. 

Law firms that resist this change risk surrendering market share to competitors willing to rewire their structure. 

Alternative Business Structures (ABS): A New Ownership Frontier 

ABS redefines who controls a law firm. For the first time in the United States, non-lawyers can hold ownership or decision-making stakes. Arizona and Utah have led the charge. Arizona abolished Rule 5.4 in 2021, and Utah launched its sandbox program in 2020. Together, they now count more than one hundred authorized ABS entities. 

The data tells a clear story. IAALS reports minimal evidence of consumer harm, even as ABS models expand service delivery. Complaints remain statistically insignificant compared to traditional firms. More important: ABS firms introduce technology, attract capital, and diversify ownership. They bring lawyers, technologists, and investors into the same operating entity. This shift empowers firms to scale in ways the old partnership model could never support.  The question becomes: is this better for clients? 

How Private Equity Gains Access to Law Firms 

Direct Investment via ABS 

ABS creates the first legal gateway for direct private equity ownership. Arizona leads: fifteen approved ABS entities already include private equity or litigation finance investors. These firms attract capital that fuels technology adoption, national expansion, and operational scale. 

The model also tempts global giants. KPMG, one of the Big Four, launched its own ABS firm in Arizona. That move signals a convergence of accounting, consulting, and legal services under a single roof. With ABS authorization, investors gain a sanctioned path into law firm equity, transforming legal practice into an asset class. 

Indirect Investment via Managed Services Organizations (MSOs) 

In states where ABS remains prohibited, investors turn to MSOs. The model splits the business: licensed lawyers control the law firm, while the investor-owned MSO manages staffing, marketing, and technology. This structure delivers the financial backing without breaching ethics rules. 

Burford Capital exemplifies this trend. Known for litigation finance, it now deploys capital through MSOs. The goal is to fund AI integration, data-driven pricing, and non-hourly billing models. By controlling operations rather than equity, private equity firms still secure influence, while law firms preserve the appearance of lawyer-only ownership. 

Case Studies of Disruption 

Eudia Counsel: AI Meets ABS 

Eudia Counsel shows how fast the model can scale. Formed under Arizona’s ABS rules, the firm combines venture-backed technology with licensed legal practice. Its client roster already includes DHL, Stripe, and Cargill. The firm deploys AI to automate contract analysis, streamline compliance, and accelerate dispute resolution. 

This is not a law firm tinkering with tech; it is a technology company wielding a law license. Outside capital makes that shift possible. Venture investors and private equity back the infrastructure, giving lawyers tools and reach that a traditional partnership could never fund. 

Burford Capital: From Litigation Finance to Equity Stakes 

Burford Capital built its name financing lawsuits. Now it pursues equity stakes in firms using MSO structures. The play is simple: inject capital into operations, modernize billing, and position firms to compete on scale rather than hours. 

Through MSOs, Burford steers investment into artificial intelligence, data-driven forecasting, and client-service platforms. Instead of merely funding litigation, it shapes how firms deliver every service. By moving from case-by-case financing to ownership influence, Burford positions itself as a market architect rather than a passive funder. 

Regulatory Flashpoints and Backlash 

California has drawn a red line. Assembly Bill 931 seeks to block fee-sharing between California lawyers and out-of-state ABS firms. If enacted, it would choke the flow of capital into the nation’s largest legal market. The bill reflects a broader resistance: regulators and bar associations wary of outside ownership reshaping client relationships. 

The ethical divide is clear. Critics argue that profit-driven investors will pressure lawyers to prioritize returns over advocacy. Proponents counter that fresh capital enables better service, broader reach, and more affordable pricing. The debate pits professional duty against commercial scale. 

Inside firms, another tension brews. Senior partners worry that selling equity dilutes control and reduces payouts. The partnership model has long rewarded loyalty and tenure. Private equity demands growth, reporting, and reinvestment. For many lawyers, that feels like surrendering autonomy to financiers. 

Attorney Brian A. Hall at Traverse says: “Leave it to the client to decide what is in its best interests.  Rather than forcing clients to compare traditional law firms, this inflection point provides an alternative option to clients in need of legal services.” 

Strategic Imperatives for Law Firms 

The landscape has shifted. Law firms cannot wait for perfect clarity before acting. Those who position early will dictate terms of competition. 

First, explore ABS or MSO structures. These vehicles unlock capital that fuels national expansion, technology upgrades, and new pricing models.  

Second, channel private equity investment into systems that compound efficiency: AI research tools, automated workflows, and client-facing platforms. 

Third, safeguard client trust. Transparency in governance and clear boundaries between investor influence and legal judgment will preserve credibility.  

Finally, lobby actively. Firms must shape regulatory frameworks that balance innovation with accountability, instead of letting opponents define the rules. 

Private Equity Has Entered Law: Is Your Firm Ready? 

Private equity is no longer a future risk. It directs the next phase of legal services. Firms that cling to the old partnership model will watch competitors outpace them in scale, technology, and client reach. 

The choice is stark: evolve or fade. ABS and MSO structures grant access to capital, operational leverage, and investor discipline. First movers secure the advantage. Everyone else plays catch-up.   

Traverse Legal advises firms and investors on how to seize this opening. We can help structure ABS entities, design MSO models, and guide private equity partnerships.  Connect with Traverse Legal today and position your firm to lead, not follow. 

The post Law Firms Better Be Ready for Private Equity  first appeared on Traverse Legal.