Alternative Business Structure (ABS) Law Firms

An Alternative Business Structure or “ABS” is a type of law firm ownership structure that includes both practicing attorneys, as well as non-lawyers. In 2021 the Arizona Supreme Court modified Arizona’s Rules of Professional Conduct, to permit such ABS law firms, under a licensing program.

Law firms established under the alternative business structure first began in England, Wales, and Australia and were designed to give flexibility in law firm ownership structures to permit partnering with other professionals, provide incentives for retention of key personnel, and to expand law firm funding options. The ABS structure was also seen as a way of expanding access to legal services, particularly in underserved communities, by having lawyers collaborate with technologists and innovators.

ABS law firms also may offer non-legal services to their clients. For instance, a real estate law firm may offer mortgages, while an estate planning firm may wish to offer insurance products or retirement accounts.

While Alternative Business Structure firms have operated in England and Wales since 2011, they are relatively new to the United States because most U.S. jurisdictions have some form of ABA Model Rule 5.4, which prohibits lawyers from sharing legal fees with nonlawyers or giving a law firm ownership interest to a nonlawyer. The District of Columbia has a modified version of Rule 5.4, which only permits a DC law firm to partner with individual professionals who provide professional services that assist the law firm in providing legal services to clients. Passive investment by companies or individuals is not permitted in DC law firms. In 2020, Utah was the first state to launch a pilot program for ABS firms, while Arizona approved the Arizona ABS law firm licensing program in 2021.

In Arizona, where Klinedinst counsels clients on these types of law firm ownership structures, ABS law firms are regulated by the Arizona Supreme Court. Applicants must complete detailed licensing application forms that require disclosures of ownership interests, who will make decisions for the law firm, funding for the firm, background information for the companies and individuals who will have decision-making authority or more than a 9% ownership interest in the applicant law firm, and policies and procedures to assure ethics observance. It is important to note that rule changes in Arizona do not permit nonlawyers to practice law. The licensing program also requires explaining how each applicant law firm will support the regulatory objectives of the ABS program, as set forth in the Arizona Code.

Klinedinst attorneys advise applicants on how to comply with the regulatory application disclosures, as well as assisting with drafting policies, procedures, and training modules. Our experience with the Arizona ABS law firm program also can help train all authorized persons, employees, agents, and service providers in such firms on how to comply with the legal ethical obligations of confidentiality, conflict checking, trust accounting, competent representation of clients, avoiding the unauthorized practice of law by nonlawyers, representation of clients consistent with the lawyers’ obligations to use their independent professional judgment on behalf of the clients, and adherence to the Arizona Supreme Court’s ABS law firm Code of Conduct. Klinedinst attorneys also counsel ABS law firms in reviewing advertising campaigns and marketing efforts for compliance with the Rules of Professional Conduct.

Klinedinst attorneys also consult on ABS law firm compliance audits and creating firm programs to assure conformity with the ABS Code of Conduct as set forth in ACJA §7-209. Our team also advises lawyers admitted in other jurisdictions about how they might invest in or co-counsel with Arizona ABS law firms, even if their jurisdictions do not permit non-lawyer investment in law firms.