Who Can Own Law Firms and Provide Legal Services?

Published: Oct 19, 2022

 JD Alternative       Law       

In 1983, the American Bar Association adopted the Model Rules of Professional Conduct, which govern lawyers’ ethical and professional responsibilities to their clients, to the legal system, to the legal profession generally, and for the quality of justice.[i] All states have subsequently created their own rules of professional conduct to regulate lawyers’ activities and behaviors.

Within the eight main Rules of Professional Conduct, ABA Rule 5.4 specifically regulates the professional independence of a lawyer and prohibits lawyers from joining with nonlawyers for a business that involves the practice of law. However, some states have relaxed this standard and allow nonlawyers to provide legal services.

History and Application of Rule 5.4(b)

ABA Rule 5.4(b) states: “A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.”[ii] The purpose of this rule is to prohibit third parties from directing a lawyer’s professional judgment “in rendering legal services to another.”[iii] And this makes sense—we want lawyers to provide counsel based on the best interests of the client. We don’t want lawyers to be influenced by outside parties who may have ulterior motives or prioritize profits over duties to clients.[iv]

Until recently, forty-nine statesfollowed this standard.[v] Washington, DC has allowed lobbyists and public relations professionals to have ownership interests in law firms since 1991. The state of Washington began a program in 2012 that allowed nonlawyers trained in family law to “practice law on a limited license,” but the state supreme court ended the program in 2020.[vi] Illinois considered opening up the legal profession to nonlawyers several years ago,[vii] and currently California, Michigan, and North Carolina are looking into it.[viii] However, Arizona and Utah have been the true pioneers.

Nonlawyers Offering Legal Services

In August 2020, the Utah Bar created a pilot program through a “regulatory sandbox”—a temporary suspension of regulations through 2027—that allows nonlawyer-owned groups to apply to a centralized “legal services innovation” office for licenses to offer legal services. As of March 2022, 31 organizations have been approved to provide guidance in the areas of business law, divorce, immigration, and personal injury cases.[ix] Also in August 2020, the Arizona Bar got rid of its rule 5.4 altogether to allow groups—if they include at least one lawyer to serve as compliance counsel—partially owned by nonlawyers to provide legal services.[x]

Most jurisdictions have opted not to follow Utah and Arizona’s lead. Further, the ABA reaffirmed the position that only lawyers should be allowed to own law firms this past summer—but only by a “non-binding resolution” that opened the doors for state bar associations to “explore innovations designed to increase access to justice by making legal services more affordable.”[xi]

What This Means—Risks and Benefits

Some of the risks of nonlawyers owning legal practices include:

  1. Insufficient knowledge and expertise. Attorneys spend years in law school and months preparing for the bar exam so that they have the foundational knowledge and, after some time, the expertise to be able to address a wide range of clients’ legal needs. Nonlawyers, obviously, do not have the education or experience to be able to provide this kind of guidance.
  2. Conflicting interests. With nonlawyers in the mix, there is a strong possibility that their interests—namely, profits—may conflict with lawyers’ duties and affect lawyers’ ability to exercise their best professional judgment.
  3. Threats to privilege and confidentiality. Once third-party nonlawyers are added to the lawyer-client equation, there is a greater risk that the attorney-client privilege will be breached and that lawyers will not be able to protect the confidentiality of client communications.[xii]
  4. Absence of an oath. After law school and passing the bar exam, all lawyers take an oath that binds them to certain professional obligations and requires them to “faithfully uphold and support the laws of [their] state and our country.”[xiii] Nonlawyers are not held to this same standard.

On the other hand, expanding guidelines for who can provide legal services offers some benefits:

  1. Increased access. With relaxed bar regulations that would allow a wide range of nonlawyers to provide civil legal services, clients would have greater access to service providers willing to take their case.
  2. Lower costs. With more persons providing legal services, competition for those services would increase and would drive down costs for low- and middle-income Americans.
  3. Connecting legal and ancillary services. Commentators have proposed that allowing firms to form “multidisciplinary practices (MDPs) that could offer legal services alongside other complementary services would positively affect the quality and cost of legal advice for clients”[xiv] by allowing groups to take advantage of multiple revenue streams.

Given these changes in certain jurisdictions, the debate between Rule 5.4(b) and considerations of who can provide legal services and how to increase access to affordable legal services likely will continue.

[i] American Bar Association. (n.d.). Model Rules of Professional Conduct: Preamble & Scope. https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/model_rules_of_professional_conduct_preamble_scope/

[ii] American Bar Association. (n.d.). Model Rules of Professional Conduct Rule 5.4: Professional Independence of a Lawyer. https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_4_professional_independence_of_a_lawyer/

[iii] American Bar Association. (n.d.). Model Rules of Professional Conduct Rule 5.4: Professional Independence of a Lawyer – Comment. https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_4_professional_independence_of_a_lawyer/comment_on_rule_5_4/

[iv] Jacoby, C. (2022, March 31). Practice Innovations: Non-lawyer ownership of law firms – Are winds of change coming for Rule 5.4? Reuters. https://www.reuters.com/legal/legalindustry/practice-innovations-non-lawyer-ownership-law-firms-are-winds-change-coming-rule-2022-03-31/

[v] Kavanaugh, C. (2021, June 3). Nonlawyer Ownership of Law Firms: Coming to a Jurisdiction Near You? JD Supra. https://www.jdsupra.com/legalnews/nonlawyer-ownership-of-law-firms-coming-2760765/

[vi] Spiezio, C. (2020, June 8). Washington state to end program that gives non-lawyers limited license. Reuters. https://www.reuters.com/article/lawyer-fee-sharing-washington/washington-state-to-end-program-that-gives-non-lawyers-limited-license-idUSL1N2DL2L9

[vii] Coe, A. (2019, September 22). Like It Or Not, Law May Open Its Doors To Nonlawyers. Law360. https://www.law360.com/articles/1201357/like-it-or-not-law-may-open-its-doors-to-nonlawyers

[viii] Skolnik, S. (2022, August 9). ABA Sides Against Opening Law Firms Up to New Competition. Bloomberg Law. https://news.bloomberglaw.com/business-and-practice/aba-sides-against-opening-law-firms-up-to-new-competition

[ix] Jacoby, Practice Innovations: Non-lawyer ownership of law firms – Are winds of change coming for Rule 5.4?

[x] Ibid.

[xi] Skolnik, ABA Sides Against Opening Law Firms Up to New Competition.

[xii] Rubin, K. (2021, March 22). Non-Lawyer Ownership of Law Firms is Trending – But Is it a Good Idea? Ohio Bar. https://www.ohiobar.org/member-tools-benefits/practice-resources/practice-library-search/practice-library/2021-ohio-lawyer/non-lawyer-ownership-of-law-firms-is-trending--but-is-it-a-good-idea/

[xiii] Gottfried, R. (n.d.). The Anatomy of Our Oath. American Bar Association. https://www.americanbar.org/groups/young_lawyers/publications/after-the-bar/professional-life/anatomy-of-our-oath/

[xiv] Kavanaugh, Nonlawyer Ownership of Law Firms: Coming to a Jurisdiction Near You?