An alternative business structure (ABS) is a business structure that allows non-lawyers to hold an ownership interest or managerial role in a legal practice. This type of entity can improve access to legal services as well as provide firms with additional funding and service expansion opportunities.
In this blog, we share what attorneys need to know about ABS so they can understand potential opportunities for their law practices.
What is an alternative business structure (ABS)?
An alternative business structure (ABS) is an entity that provides legal services and incorporates non-lawyer ownership, managers, or decision-makers in the business. According to the Task Force on the Delivery of Legal Services, the purpose of the ABS program is “rooted in the idea that entrepreneurial lawyers and non-lawyers would pilot a range of different business forms” that ultimately expands access to legal services, particularly in underserved communities.
What are the advantages of forming an ABS?
An ABS provides three main advantages:
- Allows law firms to accept non-lawyer funding
- Allows law firms to provide non-legal services
- Allows collaboration that can improve management and efficiency
For many attorneys, the ability to attract additional capital investment is a significant advantage of obtaining an ABS license. The ability to expand the practice by providing non-legal offerings like consulting and financial services is another large draw. For example, a law firm that specializes in real estate law may also offer mortgages.
Additional advantages include helping firms attract and retain top-tier non-legal talent. In the same way that lawyers want to be firm partners, non-legal staff may also desire equity in a firm. Since some standard rules for sole proprietorships and partnerships don’t apply to non-legal staff in an ABS, these types of firms can similarly reward both legal and non-legal teams.
What led to the creation of ABSs?
In the United States., law firms must be owned by, and invested in, only by lawyers, leading to criticism that the legal profession has been restricted from progressing and evolving. While ABS firms have operated in the United Kingdom and Australia for years, they are still new to the U.S. This is largely based on ABA Model Rule 5.4, which prohibits lawyers in most U.S. jurisdictions from splitting fees with non-lawyers or giving law firm ownership interest to a non-lawyer. The rationale behind Rule 5.4 is that a client’s access to justice may be impacted if a lawyer is influenced by the agenda of non-lawyer investors. However, considerations put into place to manage and monitor ABSs have helped advocates for the structure gain momentum.
Where in the U.S. can law firms currently form an ABS?
There are currently three areas of the country where law firms can form an ABS. Currently this is:
- Arizona
- Utah
- Washington D.C.
In 2020, the Arizona Supreme Court abolished their state’s version of ABA Model Rule 5.4, creating a licensing system that allows non-lawyers to invest in law firms. Starting in 2020, the Utah Supreme Court allowed a two-year “regulatory sandbox” pilot program to allow non-lawyers to own or invest in firms, recently extending it to seven years. The District of Columbia has permitted a limited form of non-lawyer ownership of law firms since 1991.
NALFA, the National ABS Law Firm Association, acts as a national trade association for the U.S. ABS model law firms and promotes the positive impact the model can provide for affordable and quality legal services. Through advocacy and a demonstration of success in Arizona, the District of Columbia and Utah, it is possible that the ABS business model could expand to additional states in the future.
What do ABSs need to be careful about?
Firms operating under the ABS model may face additional scrutiny regarding compliance and ethics. In Arizona, advertising and intake require strict adherence to rules of ethics and compliance including Arizona Rule 5.3 and Rule 7.2(c), for all firms, but perhaps even more so for those under an ABS. Without a clear strategy to navigate the rules, ABS law firms may face serious risks including:
- Loss of reputation
- Loss of revenue
- Loss of bar card
- Jeopardized ABS status
In May 2024, Legal Help Partners, PLLC, an Arizona ABS, faced sanctions due to advertising and intake issues:
“Respondent was negligent in running television and web advertisements that conflated corporate names and did not properly notify consumers of the co-counsel arrangement under which their cases would be handled. Respondent was also negligent in failing to make the required division of responsibility disclosures in the underlying written co-counsel and client agreements.”
As a result, the firm received a formal reprimand, one year of probation (with possible extension), and was ordered to pay costs to the State Bar.
How does Broughton Partners help ABS firms?
Compliance is crucial to protecting ABS status, reputation, and bottom line. Broughton Partners specializes in guiding ABS firms through these complex rules so they can avoid pitfalls and focus on growing their practices confidently.
At Broughton Partners, our collaboration with The Goldwater Law Firm brings an unparalleled level of integrity and expertise to the table. With this partnership, we go beyond standard compliance measures to offer your firm a structured, ethically-driven approach that you can trust.
The Broughton Partners Difference
- Our integration with The Goldwater Law Firm as our originating firm establishes clear roles and responsibilities, and also ensures that every process aligns with rigorous ethical standards.
- We adhere to a single baseline criteria vetted by top litigating firms, ensuring that only high-quality cases are taken on.
- Our set price per verified signed retainer model provides transparency, so you can better forecast and manage expenses.
- To give you peace of mind, our processes are thoroughly documented, and we’re certified TCPA-safe harbor by a third party.
Ready to learn more? Call us at (844) 206-4644 or complete our online contact form today.