Private equity and law firms in 2026: where the rules and the deals stand
John Voll ·
Outside capital has moved from a regulatory experiment to live deals. Most of the attention goes to structure: who may own what, in which state. This is a short map of where the rules and the deals stand in October 2026, followed by the questions that decide whether a law firm investment works, which are mostly about people.
Where direct ownership is allowed
- Arizona began licensing alternative business structures (ABSs) in 2021. It had 152 active licensed ABSs at the end of 2025, up from 114 a year earlier. KPMG Law US was approved in February 2025, the first Big Four firm licensed to practice law in the U.S.
- Utah went the other way. New rules in 2024 narrowed its sandbox to services for underserved Utah consumers, and the number of authorized entities fell from 39 in 2022 to 11 by April 2025.
- Puerto Rico adopted rules in 2025, effective January 2026, that let nonlawyers own up to 49% of a firm.
- Washington approved a 10-year entity regulation pilot in December 2024.
Everywhere else: the MSO
In most states, ABA Model Rule 5.4 and its state equivalents still bar nonlawyer ownership, and the ABA reaffirmed that position in 2022. So investors use a management services organization. The law firm stays lawyer-owned and keeps its fees. A separate, investor-owned MSO provides technology, marketing, staffing and finance for a service fee, and has no say over legal judgment (DLA Piper).
The deals are no longer hypothetical:
- Uplift Investors launched Orion Legal, a personal injury MSO platform, in January 2026, and added further firms within months.
- Morgan & Morgan was reported by Reuters in June 2026 to be exploring a minority stake sale.
- Large commercial firms are looking too: Fox Rothschild notes that McDermott Will & Schulte confirmed in late 2025 that it was exploring an MSO stake sale.
And the states pushing back
Regulators are now writing MSO-specific rules. Texas Ethics Opinion 706 says MSO fees may not be a percentage of firm revenue. California barred sharing contingency fees with out-of-state ABSs in 2025, and according to Hinshaw a 2026 California law targeting indirect nonlawyer control through MSOs takes effect in January 2027, with Illinois and Colorado laws already in effect. The structure is legal in most places, but the terms are narrowing, and they differ by state.
The question the structure memos skip
In an MSO deal the investor owns the services company, not the practice. The revenue comes from lawyers and the clients who follow them, and lawyers generally cannot be bound by noncompetes. So the value of the deal rests on people the investor does not own. Five questions decide it:
- Portability. Which partners could take their work to a competitor within a year, and what would the market pay them to do it?
- Concentration. How much origination sits with the top few partners and their top clients, and how much is institutional?
- Attrition baseline. How has headcount moved over three to five years compared with peer firms, and where did departing lawyers go?
- Pay after the deal. After service fees and any change to distributions, how does partner and associate pay compare with what competitors would offer the same people?
- Hiring capacity. Does the market hold the lawyers the growth plan assumes, at a cost the model supports?
Deal counsel answers whether the structure works. These questions are answered with market evidence, which is the work we do. See talent and market diligence for law firm deals.
This article summarizes public reporting and is not legal, ethics or investment advice.