Private equity is extending its influence into the legal sector via managed services organizations (MSOs), which allow non-lawyers to hold ownership stakes in law firms. This arrangement has gained traction, with jurisdictions like Puerto Rico and Arizona permitting non-lawyer investment to stimulate economic growth. Arizona reports over 100 law firms welcoming outside investors since abolishing the ABA's ownership rules. The aging baby boomer lawyer population presents an opportunity for firms looking to sell stakes for fresh capital and growth partnerships, appealing to various investors including private equity.
The loophole, known as a "managed services organization" - or MSO - allows non-lawyers to effectively own part of law firms through a second corporate entity.
Arizona, the only state that has done away with the ABA rule, in 2020, now has over 100 law firms that are open to outside investors.
Using an MSO can give private equity firms - or other kinds of companies - a chance to effectively buy a slice of legal practices.
We're in the midst of the largest rolling retirement of lawyers in history. The baby boomers are getting old and retiring.
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