Editor’s Note: Legal innovation in the United States is reaching a critical juncture, as reflected in the November 2025 panel session, The Future of ABS and Regulatory Reform, held during the TLTF Summit in Austin, Texas. Featuring Natalie Knowlton of Stanford Law School, Taylor Bell of Arizona ABS Law, and Lee Minkoff of Renovus Capital Partners, and moderated by Anudeep Sethee of LegalZoom, the session explored the evolution and national impact of Arizona’s alternative business structure (ABS) model. The conversation addressed how this model is enabling capital investment and technology-driven service delivery while facing increasing regulatory opposition from states such as California, Texas, and Maryland.

For cybersecurity, information governance, and eDiscovery professionals, the relevance is direct and growing. ABS and Managed Services Organization (MSO) frameworks offer a foundation for scalable, multidisciplinary, and tech-enabled legal practices. These models support investment in infrastructure-intensive operations, such as eDiscovery and cyber incident response, while introducing new layers of regulatory complexity due to divergent state-level approaches. As the legal sector confronts structural and operational change, understanding how business model reform interacts with compliance demands will be vital for assessing opportunities and risks in law and adjacent technology markets.


Content Assessment: From Arizona to California: TLTF Summit Panel Explores ABS Impact

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Industry News – Technology Beat

From Arizona to California: TLTF Summit Panel Explores ABS Impact

ComplexDiscovery Staff

Arizona’s bold experiment in transforming how law firms raise capital and operate is colliding with fierce resistance across state lines, creating an uncertain future for one of the legal profession’s most contentious reforms. As alternative business structures (ABS) attract major players like KPMG while drawing restrictive legislation from California and ethics opinions from Texas and Maryland, the path forward for non-lawyer ownership of law firms has become anything but clear.​​

The November 13, 2025, panel discussion, “The Future of ABS and Regulatory Reform,” at the TLTF Summit in Austin laid bare the tensions shaping this regulatory battlefield. What began as speculative conversations in 2024 has crystallized into operational reality in 2025, with over 150 licensed alternative business structures now operating in Arizona and dozens more applications pending. Yet even as the model gains traction in its home jurisdiction, legislative and regulatory pushback threatens to constrain its national reach.​

An alternative business structure, commonly known as ABS, represents a fundamental departure from traditional legal practice rules. These entities allow non-lawyers to hold ownership stakes in law firms and enable outside investment—arrangements that have been prohibited across most of the United States for decades under ethics rules designed to protect attorney independence. The Arizona Supreme Court eliminated these restrictions in 2020, betting that entrepreneurial innovation and fresh capital could expand access to justice and modernize legal service delivery.​

The gamble initially appeared to pay off. Natalie Knowlton, Associate Director of Legal Innovation at Stanford Law School’s Deborah L. Rhode Center on the Legal Profession, described how Arizona’s framework creates unprecedented compliance oversight. Every ABS must designate a compliance lawyer licensed in Arizona who bears personal responsibility for ensuring ethical standards are met. These firms face biannual audits, mandatory ethics training for all personnel, and license renewals every two years, during which the Arizona Supreme Court Committee on Alternative Business Structures scrutinizes whether they continue to serve the program’s regulatory objectives.​​

“This is way more protective than any other law firm,” noted Taylor Bell, founder of Arizona ABS Law and the newest member of the Arizona ABS committee. Far from the unregulated free-for-all critics feared, Arizona’s program subjects participating firms to regulatory intensity that traditional partnerships never face. Compliance lawyers must audit everything from client trust accounts to advertising practices, with their own law licenses on the line if violations occur.​​



The regulatory rigor has shown results. Through 2025, complaints against ABS firms in Arizona have remained at investigatory stages, with none advancing to formal disciplinary proceedings beyond procedural issues that were quickly corrected. This track record stands in contrast to warnings that private equity ownership would compromise professional standards and harm consumers.​​

Still, the model’s evolution reveals growing pains. Early applications heavily featured personal injury and mass tort firms seeking investment to scale referral networks and co-counsel arrangements. Over the past twelve months, however, the Arizona committee has pushed back against firms that function primarily as referral engines, leading to a notable shift in the types of entities seeking licensure. The current wave emphasizes legal technology platforms where lawyers support innovative tools rather than the other way around, multidisciplinary practices bundling legal services with wealth management or tax advice, and high-volume consumer practices leveraging technology to serve immigration, estate planning, and employment law needs at scale.​

“We’re entering year five of the Arizona framework,” Bell observed during the TLTF panel. Rather than a slowdown, applications are surging. With 55 pending applications representing a potential 33 percent increase in licensed entities, momentum appears strong. The early 2025 approval of KPMG Law U.S.—making one of the Big Four accounting firms the first to operate a U.S. law practice through an ABS structure—sent a powerful signal that the program has matured beyond startups and solo practitioners.​​

But California’s response to that maturation has cast a shadow over expansion prospects. Assembly Bill 931, signed into law in October 2025, effectively blocks California-licensed attorneys from sharing legal fees with lawyers associated with out-of-state ABS firms unless they meet narrow criteria. The restrictions specifically target contingency fee arrangements and referral fees—the economic backbone of many personal injury practices that had embraced the ABS model. Violations carry $10,000 fines per incident or trebled actual damages, plus mandatory State Bar discipline.​

Knowlton expressed no surprise at California’s hostility. She recounted how California legislators killed not just reform proposals but even the research efforts to study alternatives to traditional practice restrictions. “In 2020, an assemblyman and a senator decided that they didn’t even want the California bar spending any time pursuing this,” she explained. The pattern mirrors national resistance at the American Bar Association, where resolutions opposing non-lawyer ownership have consistently blocked even modest regulatory experiments.​



The California legislation includes exceptions that reveal its strategic intent. Nonprofit organizations remain exempt. Fee-sharing arrangements using flat fees rather than contingency structures can proceed. The restrictions sunset after four years, creating a temporary freeze rather than permanent prohibition. Most tellingly, properly structured managed services organizations—the MSO model that separates business operations from legal practice—should remain viable under the new rules.​

Lee Minkoff, Managing Director at Renovus Capital Partners, walked TLTF attendees through how MSOs work as alternative investment vehicles. The structure splits law firms into two entities: attorneys remain employed by a lawyer-owned practice that receives client fees, while all non-lawyer personnel move into a management services organization that provides back-office functions like HR, IT, marketing, and compliance. Through transfer pricing studies, these services get leased back to the law firm on a cost-plus or per-attorney basis. Private equity investors own the MSO, extracting economics through service fees rather than direct participation in legal fees.​​

The MSO approach sidesteps Rule 5.4 restrictions on fee-sharing with non-lawyers, but at a cost. “The beauty of the ABS is as a private equity investor, you have one-to-one economics,” Minkoff explained. “Through an MSO, you are actually just extracting the economics through a servicing arrangement.” The indirection matters for returns and exit strategies. Still, with ABS available in only a handful of jurisdictions while MSOs potentially work nationwide, many investors pursue both structures simultaneously—placing an ABS in Arizona while wrapping broader operations in an MSO framework to maintain compliance across other states.​​

Texas and Maryland have added to the compliance calculus by issuing ethics opinions declaring that attorneys licensed in their states cannot work for out-of-state ABS firms while practicing local law within their borders. The opinions stop short of California’s legislative approach but send unmistakable signals about regulatory attitudes. For firms contemplating national growth strategies, each state’s position requires careful navigation and potentially different operational structures.​​

Utah’s retreat from its own regulatory sandbox offers a cautionary tale about political vulnerability. The Utah Supreme Court launched its sandbox program in 2020 alongside Arizona’s ABS initiative, creating a controlled environment for experimenting with non-lawyer ownership and innovative service delivery. Initially celebrated as a model for testing regulatory reforms, the program attracted about 60 entities at its peak.​​



Within two years, however, the Utah State Bar began pushing back hard against what members perceived as non-lawyers delivering legal services and owning law firms without serving predominantly low-income Utah residents. Court officials imposed new innovation requirements, then narrowed the program’s scope, and by early 2025 had terminated approximately 45 participants. Only about a dozen entities remain, most now focused on free or low-cost services for underserved populations. Entities with existing unauthorized practice of law waivers can operate through 2027, but the future of non-lawyer ownership in Utah has become deeply uncertain.​​

“It just seemed to be a victim to politics,” Knowlton said of Utah’s reversal, noting that no evidence of consumer harm emerged from the sandbox experience. The collapse underscores how judicial reform efforts remain subject to bar association pressure even when courts hold regulatory authority. She emphasized that reform advocates must stay vigilant across all jurisdictions. “What’s happening in New Jersey might seem far away if you’re in California, but that is incredibly influential when it comes to opposition to these types of reforms,” she warned.​

Against this backdrop of resistance, a handful of states are moving forward with their own experiments. Washington, Tennessee, and Puerto Rico have all launched or announced pilot programs exploring ABS models during 2025. Puerto Rico’s approach may prove particularly attractive to investors by potentially allowing majority non-lawyer ownership rather than capping stakes at 49 percent as Arizona does—a threshold that complicates traditional private equity control structures.​​

For investors, the regulatory patchwork creates complex due diligence requirements. Minkoff outlined the key factors his firm evaluates: regulatory compliance reviews by specialized attorneys, end-market assessments for practice areas such as mass torts or personal injury, the firm’s value proposition for originating and litigating cases effectively, and intensive team vetting. Without enforceable noncompete agreements in the legal space, preventing attorney departures requires careful structural incentives. Every deal also demands anecdotal intelligence on how state bars view Arizona’s ABS program and whether co-counseling relationships with ABS firms might draw scrutiny.​

The compliance burden extends beyond initial licensing. Bell emphasized that finding qualified compliance lawyers has become one of the trickiest challenges for ABS applicants. Arizona requires compliance attorneys to be licensed in the state and to serve as leaders within the firm with fiduciary-like duties. They must report ethical violations to the bar, conduct comprehensive twice-yearly audits, ensure annual ethics training for everyone in the organization, and stake their own law licenses on the firm’s compliance. The role’s intensity and personal risk make recruitment difficult.​



Yet proponents argue this rigorous oversight actually strengthens the case for ABS structures over less transparent alternatives. Arizona’s framework creates accountability mechanisms that traditional partnerships lack. The Supreme Court can revoke an ABS license at renewal for good cause or even lesser reasons, providing enforcement leverage unavailable against conventional firms. When opponents raise concerns about private equity destroying legal professionalism, supporters point to this oversight gap. Healthcare critics decry private equity’s role in that sector partly because regulatory frameworks haven’t kept pace with ownership changes. Arizona designed its system to frontload compliance rather than chase problems after they emerge.​​

The arrival of generative artificial intelligence adds another dimension to the regulatory evolution. Panel participants viewed AI as fundamentally positive for both investors and attorneys, enabling firms to work faster, serve clients better, and achieve superior outcomes. “AI enables law firms to become tech-enabled services businesses, which is a much different valuation profile than just investing in a professional services firm,” Minkoff noted. Rather than displacing attorneys—still required to provide legal services under unauthorized practice of law restrictions—AI tools promise to make practices more efficient and valuable.​

Bell has observed an uptick in ABS applications positioning themselves as AI-enabled operations. These firms argue that generative AI drives innovation and technology deployment, which directly serves Arizona’s policy goals of expanding access to justice. For rural communities and legal deserts where attorney supply falls short of demand, AI-powered platforms can deliver affordable services that were previously uneconomical. The confluence of outside capital through ABS structures and AI capabilities through technological investment creates potential for genuine service delivery transformation.​​

Whether regulation will keep pace with that technological change remains uncertain. Knowlton suggested that generative AI will create new legal service environments regardless of whether rules adapt, particularly around unauthorized practice of law boundaries. The question becomes whether regulators proactively shape that evolution or reactively respond after established patterns emerge.​

For cybersecurity, information governance, and eDiscovery professionals, these regulatory developments carry direct implications. Law firms operating in these practice areas increasingly compete with multidisciplinary providers combining legal, technological, and consulting expertise. ABS structures enable integrated service delivery that traditional firm partnerships struggle to match. Data breach response might bundle legal counsel, forensic investigation, and crisis communications under a single ownership structure. Information governance programs could unify records management, eDiscovery technology, privacy compliance, and legal advice within a single ABS entity rather than coordinating across separate vendors and law firms.



The capital access that ABS structures provide also matters for technology-intensive practices. eDiscovery platforms require substantial investment in infrastructure, software development, and data security—exactly the kind of capital-intensive operations that benefit from outside investment. Managed services organizations and alternative business structures both offer paths to secure that capital, with different tradeoffs in ownership control and regulatory complexity. As litigation technology continues advancing and cybersecurity threats grow more sophisticated, the firms best positioned to invest in cutting-edge capabilities may be those that have accessed nontraditional funding sources.

Large professional services firms like KPMG entering the legal market through ABS structures will reshape competitive dynamics. These organizations bring existing client relationships, technological capabilities, and operational scale that traditional law firms cannot easily replicate. For specialized practices in cyber incident response, information governance consulting, or eDiscovery management, the arrival of Big Four competitors operating through ABS frameworks may accelerate consolidation and force smaller players to differentiate through either deep specialization or their own alternative structures.

At the same time, the regulatory uncertainty creates risk. Firms building national practices in information governance or eDiscovery must navigate different rules across jurisdictions. An ABS licensed in Arizona faces restrictions in California, ethics opinion barriers in Texas and Maryland, and evolving standards in states just beginning to explore the model. Meanwhile, MSO structures operating nationwide face their own gray areas regarding how much economic integration between the management organization and law practice crosses the line into impermissible fee-sharing. As Minkoff acknowledged, “No one’s had anyone say it’s really okay” with MSOs—they simply haven’t been definitively prohibited in most places.​

Looking ahead, panel participants identified developments that would increase confidence in ABS viability. Bell pointed to other states adopting or seriously exploring the model, noting that multiple state bars have recently reached out to learn about Arizona’s experience. Knowlton emphasized unauthorized practice of law reform as essential to allow technology platforms delivering legal guidance to operate legally, which, combined with ABS capital, could transform access to services. Minkoff highlighted major jurisdictions like New York and Texas creating ABS programs as game-changing, though he acknowledged California’s passage made that unlikely in the near term.​



The panel’s consensus advice centered on demonstrating excellence. With 150 Arizona ABS firms now operating, every complaint and disciplinary action gets tracked and reported publicly. “Don’t be the bad actor because it doesn’t take very many for people to get really up in arms,” Bell cautioned. Maintaining Arizona’s clean compliance record provides the strongest argument for other states to follow suit. Conversely, a few high-profile failures could set the entire movement back.​

Proponents also urged alignment on policy positions and messaging. When California’s AB 931 was moving through the legislature, LegalZoom and other ABS advocates mounted substantial lobbying efforts to secure exceptions and the four-year sunset provision. That reactive approach consumed resources that might have been better spent on proactive advocacy before bills get introduced. “We should align on what our messages or what we think the right proposed legislation is so that if we are approached or we have a seat at that table, we have kind of a message ready to go that’s aligned and represents our interests,” suggested Anudeep Sethee, LegalZoom’s VP of Legal Practice Leadership, who moderated the discussion.​

Perhaps most importantly, advocates emphasized sustained attention across all jurisdictions. Bar association activities in New Jersey, New York, Pennsylvania, and Illinois influence national conversations even when specific states seem distant from reform efforts. Public comment periods like Tennessee’s window open through March 2026 offer opportunities to shape programs before they launch. Understanding that legal regulation operates as an interconnected system rather than isolated state experiments can help reform supporters engage strategically rather than fighting battles one jurisdiction at a time.​

For cybersecurity, information governance, and eDiscovery professionals evaluating practice structures and service delivery models, this regulatory evolution demands continuous monitoring. The field’s technical complexity and capital requirements make alternative funding structures attractive, but the legal and ethical frameworks remain in flux. Firms must balance innovation against compliance risk, weigh Arizona’s regulatory clarity against market access limitations, and assess whether MSO structures offer sufficient flexibility without crossing ethical lines.

The fourth annual National ABS Law Firm Association conference, held in Scottsdale in November 2025, brought together stakeholders navigating these questions, demonstrating that a community of practice has coalesced around alternative structures despite regulatory uncertainty. Whether that community expands into a nationwide movement or remains confined to Arizona and a handful of other jurisdictions will depend on political dynamics playing out over the next several years.​

What remains clear is that the traditional model of lawyer-only ownership faces genuine challenges. The legal profession’s regulatory structure, largely unchanged since the early twentieth century, struggles to accommodate technology platforms, multidisciplinary service delivery, and capital-intensive operations that define modern practice in areas like eDiscovery and cybersecurity. Alternative business structures and managed services organizations represent different approaches to that accommodation, each with distinct tradeoffs.

As Arizona’s experiment matures and other states make their own regulatory choices, professionals working at the intersection of law and technology should track which structures enable innovation without compromising professional standards. The answer may determine not just how law firms are owned but how legal services evolve to address the complex information governance and cybersecurity challenges that organizations face. Can the profession modernize its business structures while maintaining independence and ethical obligations? The next few years will provide crucial evidence as Arizona’s five-year track record gets tested by California’s resistance, Utah’s retreat, and other states’ tentative steps forward.



News Sources

  • Reporting by ComplexDiscovery Staff attending the session “The Future of ABS and Regulatory Reform” at the TLTF Summit 2025 in Austin, Texas, November 13, 2025.
  • TLTF Summit. (2025). 2025 TLTF Summit Lookbook. Austin, TX: TLTF Summit Organizing Committee.
  • TLTF Summit

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