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Yahoo
06-07-2025
- Business
- Yahoo
It's illegal in most states for private equity to buy a law firm. Lawyers have figured out a workaround.
Legal ethics rules generally don't allow non-lawyers to own law firms. MSOs are a workaround to allow nonlawyers, including private equity firms, to effectively invest. Law firm owners can use the investors to scale, as well as for succession planning. Real estate, airlines, fashion. It might seem like private equity has climbed the mountain of the American economy, declaring everywhere the light touches as part of its kingdom. But one corner remains in the shadowlands: Law firms. Nearly every state has adopted a professional ethics rule from the American Bar Association forbidding lawyers from working for nonlawyer-owned firms. Lawyers, of course, have figured out a way around it. 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. Business Insider spoke to two attorneys who advise law firms on the arrangement, which they said is becoming increasingly common. In June, Puerto Rico's high court allowed non-lawyer investment in law firms in order to spur economic development in the territory. 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, according to a recent Stanford Law School study. Large companies like KPMG and Rocket Lawyer now own law firms in the state outright. The MSO model, which isn't limited to only Arizona, could appeal to law firm owners who want to retire or who don't want to hand their firms over to a law partner. "We're in the midst of the largest rolling retirement of lawyers in history," said Lucian Pera, a legal ethics attorney at Adams & Reese who advises lawyers and businesses about setting up MSOs. "The baby boomers are getting old and retiring. And that's a real opportunity for some people." Using an MSO can give private equity firms — or other kinds of companies — a chance to effectively buy a slice of legal practices. And it gives lawyers the chance to sell stakes of their companies for cold, hard cash. It could also offer the chance to partner with a deep-pocketed company that could boost the firm and help scale it to new heights. Traditionally, law firms have operated as partnerships among attorneys, where equity partners own shares in the firm and help manage it. That's partly because of ethics rules designed to maintain attorney independence, such as ABA Model Rule 5.4(d), which largely prevents nonlawyers from owning law firms or from having the right to control the professional judgment of a lawyer. The ABA's rules have made law practices distinct from many other white-collar professions, like finance or consulting, which may have robust ethical rules and norms but don't impose such stringent limits on ownership. There are plenty of publicly traded banks and consulting firms, but no publicly traded law firms. As a workaround, the law firms can set themselves up as two corporate entities, Pera said. One is the law firm itself, composed exclusively of lawyers and owned only by lawyers. The second is the service organization, which can be owned by anyone and acts as a vendor for the law firm. It is essentially the back office, taking care of all non-lawyer tasks, including marketing, accounting, human resources, real estate leases, and employing paralegals. The two corporate entities enter into a long-term contract. Under this MSO arrangement, non-lawyers can invest in the service corporation, though not the law firm itself. Presto! You have an ethically independent group of lawyers who are exclusively working with a company that can sell shares, Pera says. According to Pera, no state bars have issued ethics opinions that expressly bless the MSO model, but no court or regulator has found a problem with it, either. "The pieces fit well, and there's no regulatory approval required for a law firm to do it, just like there's no regulatory approval required for a law firm to take out a bank loan," Pera said. A spokesperson for the American Bar Association said its Center for Professional Responsibility doesn't have any ethics opinions on non-lawyers investing in MSOs. "Lawyers are not subject to the ABA Model Rules," the spokesperson said. "Instead, they are regulated by the state supreme courts in which they are licensed." Tom Lenfestey is the founder and CEO of The Law Market Exchange, a sort of Craigslist for law firms. He says private equity companies are typically interested in consumer-driven firms, like personal injury. Investors might be able to introduce new efficiencies into those firms and get a steady stream of revenue in a larger portfolio, said Lenfestey, who also advises on law firm mergers and acquisitions. Private equity companies might be warier of investing in Big Law firms, which typically service corporations and have fewer but bigger clients, he said. Lawyers could always jump ship and take clients with them, but consumer law firms tend to do steadier business, he said. "Personal injury is brand-marketed — it's the billboards, it's the TV, it's the digital marketing," Lenfestey told Business Insider. "It's not attorney relationship-based." Because law firms aren't required to disclose their use of service organizations, it's difficult to know how widespread the practice is. Both Pera and Lenfestey declined to list the firms they've worked with using the structure, citing confidentiality obligations to their clients, but said it's becoming more common. Pera said he knows of one firm that used the structure as far back as 2006. In more recent years, more law firms and investors have become interested in using MSOs, Pera and Lenfestey said. "There are many more that are in process right now, and some of them are quite large," Pera said. "There's a fairly large insurance defense firm in this country that's looking at doing this. There's a fairly large AmLaw-ranked law firm that's looking at this. So there's a non-trivial number of these that are going on." Lawyers who have built up their practices, and who want to cash out, can do so by effectively selling part of their firm to someone else to manage. They can also help firms scale. Selling shares of an MSO could help finance lead generation or advertising. Catalex Network, which launched earlier this year, is using the MSO model to invest in law firms with a longer time horizon. While a private equity firm might want to stick with a law firm for a few years before selling its stake, Catalex Network says it aims to form long-term partnerships with law firms by helping them establish MSOs, buying substantial stakes in them, combining their back-offices, and giving the firms the resources to compete with Big Law. Catalex Network offers bread-and-butter services like IT, payroll, compliance management, and accounting. But also services that are more specific to the legal industry, like recruiting and sophisticated enterprise software that would be cost-prohibitive for smaller firms. "I've seen kind of what big law resources are and I've seen what small law resources are," said Jeffrey Goldenhersh, a Catalex Network founding partner, who previously worked at the Big Law firm Skadden Arps before moving to a boutique firm. For Catalex Network, the MSO structure offers a way for the company to grow with law firms. The American Bar Association's rules meant to preserve attorney independence, such as limits on fee-sharing with non-lawyers, are a non-issue. And while Catalex Network handles the back office, the lawyers can do less managing and more lawyering, Goldenhersh says. "There's a real consolidation going on at the top end of the legal market and some of these smaller, midsize, boutique-type firms are getting a little bit left behind," Jesse Hamilton, another Catalex founding partner, told BI. "So we're trying to help them catch up and be able to step into the ring with some of the larger firms that have consolidated, have the best technology, the best AI, the best back office staff, and have them be able to compete and stay relevant in the industry." Read the original article on Business Insider
Forbes
13-05-2025
- Business
- Forbes
11 Best Washington, D.C., Registered Agent Services Of 2025
Learn More On Northwest Registered Agent's Website Learn More On Harbor Compliance's Website Learn More Learn More On Rocket Lawyer's Website $249.99 annually, plus $39.99 monthly Learn More Learn More 50% off when you form an LLC Learn More On Swyft Filings' Website $596 (billed $149 per quarter) Learn More Learn More Learn More To operate in Washington, D.C., any formal business entity is required to name a registered agent. Formal business entities are C-corps , LLCs , S-corps , limited partnerships (LPs), LLPs , nonprofit corporations and sometimes professional associations. The registered agent needs to be at least 18 years old and hold a physical street address in Washington, D.C. They must be available at the address during regular business hours. Their role is to take in important legal and tax documents at that address and alert the enterprise once these documents are received. Who Can Be a Registered Agent in D.C.? Washington, D.C., allows a bona fide Washington, D.C., resident or a company physically located in D.C. to serve as a registered agent. The registered agent's name and street address are required by the state to send service of process (SOP) and other vital documents to the business. SOP has to be received personally by an officer or employee of the company or their legal representative, according to Washington, D.C., law. An organization can name an officer or employee to serve as its registered agent, in which case the company's own address will be recorded by the state. However, few small businesses take this route because the person they appoint has to be on hand to receive vital documents during business hours, 52 weeks a year. For home-based businesses, this creates a privacy risk because the home address will be recorded in the public record. The registered agent must update their address with the state whenever they move, which necessitates submitting a change document and paying a fee. What Should I Do If My Registered Agent Moves? Whenever a registered agent changes its address, it has to update its address with the Department of Licensing and Consumer Protection: Corporations Division. Doing so requires paying a fee to file a form (often called a statement of change, statement of information, articles of amendment or certificate of change) with the Department of Licensing and Consumer Protection: Corporations Division. Note that while the state will use the new address for future document deliveries, the registered agent's original address will be retained on your business's Articles of Organization unless you amend it. Does My Registered Agent Need to Consent in Writing? Washington, D.C., does not require a registered agent to consent in writing to act as a registered agent. Registered agent services in Washington, D.C., range from $99 to as much as $596 a year. Some registered agent services, such as ZenBusiness, offer discounts of up to 50% on your first year of service, while others, including Northwest Registered Agent and Bizee, give you a free year of registered agent service with their business formation plans. There's no separate state filing fee for registered agents. When you file your business with the District of Columbia, you'll designate your registered agent on the paperwork and pay a fee to the state to form the business. However, if you have already formed your business and you want to change registered agents, you'll need to file a change of registered agent form and pay a fee. All the registered agent services in our rankings serve as your company's official address for receiving legal mail from Washington, D.C., and provide digital copies soon after the material has been received. The difference in registered agent service prices often, but not always, indicates additional services, such as expedited delivery of paper copies of documents and the inclusion of business support services such as telephone numbers and domain names. Choosing a registered agent service for your business depends on having the right mix of capabilities at a price that's within your budget. The core features registered agents provide to organizations in Washington, D.C., are receiving and forwarding important correspondence from the Department of Licensing and Consumer Protection: Corporations Division quickly and accurately. Selecting one service over another usually comes down to other useful registered agent features, such as the vendor's ability to alert you of upcoming compliance deadlines, forward other mail sent to your organization and protect the privacy of your organization and its officers and employees. Many SMBs will find that the extra cost of a higher-priced registered agent service is worthwhile because the product's added features free up more time for managing the operation rather than handling administrative tasks. One example is Rocket Lawyer, which sells its registered agent service as an add-on to its legal services plans. This allows businesses to purchase their registered agent needs from the same vendor that provides their legal support. Below are some additional resources for starting a business in D.C.: Click on the state below to get started. Start Now Pennsylvania is the only state that doesn't require a registered agent to be named when filing business paperwork (though it does require a registered office address that doesn't have to be staffed by a person). The other 49 states and Washington, D.C., are required to designate a registered agent. Entities required to have an agent are limited partnerships (LPs), LLCs and corporations. Because sole proprietorships and general partnerships are deemed 'common law' entities, they don't have to register with Washington, D.C., or fulfill any other formation duties. The terms 'statutory agent' and 'registered agent' are two ways of describing the same position. The phrase 'statutory agent' is used in Arizona and Ohio, while Maryland, Massachusetts and Michigan refer to the position as 'resident agent.' California uses 'agent for service of process.' All other states use a form of 'registered agent' to describe the position. New organizations often tap the expertise and experience of business owners of other enterprises in their city or state for advice on finding a local registered agent service. The secretary of state or the chamber of commerce in your town may maintain a list of recommended registered agents in the area. Additionally, each company on our list offers registered agent service in D.C.
