Arizona’s Alternative Business Structure
The current state of affairs following the passage Arizona Code of Judicial Administration § 7-209
For all of the lawyer jokes out there, lawyers are generally professional and ethical. That’s been my experience in 17 years of law practice. Part of this stems from the rigidity and parsimoniousness of the Model Rules of Professional Conduct, or “MRPC.”
At my prior firm, I became intimately familiar with these rules. Several of these rules—adopted and codified in all US states—seem to come up consistently. The rules underpin every step of the representation, and with training and diligence, their prescriptions become second nature.
MRPC Rule 5.4 prohibits fee sharing between lawyers and non-lawyers. The intent of this rule is to preserve the independence of the legal field vis a vis any private equity donors. On its face, the rule seems misplaced; what is so insidious about a non-lawyer investor per se?
But look beneath the surface of this rule, however, and it makes more sense. If Rule 5.4 were jettisoned as written, the equity owners of a law firm could make top-level decisions without the inconvenience of the MRCP. Yet this argument neglects that the MRCP could, technically attach to a law firm owned by at least one lawyer (presumably Rule 5.4 envisages at least one lawyer present or it would be violative of Rule 5.5: practicing law without a license). Moreover, many states make practicing law without a license illegal in any case.
Given these legal safeguards, it seems our apprehension over such equity structures was misplaced. Arizona, along with Utah, is a leader in what some have called the “sandbox approach.” Ultimately, I predict there will be other states very soon. These Alternative Business Structures, or “ABS,” will help help the legal field immensely.
“The Court’s goal is to improve access to justice and to encourage innovation in the delivery of legal services. The work of the task force adopted by the Court will make it possible for more people to access affordable legal services and for more individuals and families to get legal advice and help. These new rules will promote business innovation in providing legal services at affordable prices.”
Arizona specifically requires a licensed Arizona attorney to be in charge of firm compliance. There are other unique considerations when forming the ABS. Our firm can guide you through the process and serve as your compliance attorney. Formation of an ABS must be formed in harmony with existing MRPC, trust account rules, and other business regulations germane to law firms.
There are numerous upsides for the legal profession. First, lawyers can benefit from insights in other industries. Certified public accountants, chief technology officers, human resources managers, and other skilled members can enrich the offering of a law firm.
Furthermore, firms seeking funding can access the wider free market, leading to more abundant legal offerings as talented attorneys open up their own shops and create competition. Inevitably, this would give the general public greater access to legal services. For years, the legal system was inscrutable and overwhelming to the average individual in need of services. A greater abundance of offerings will shift the market in a positive direction for consumers.
