Arizona & Utah ABS Experiments Explained | Relevant
What Arizona's ABS program and Utah's regulatory sandbox actually did about nonlawyer ownership — and what they signal for the legal MSO model.
Published 2026-07-10
Two states decided to run the experiment the rest of the country has only debated. Beginning in 2020, Arizona and Utah broke with a rule nearly every American jurisdiction shares — the prohibition, embodied in Rule 5.4 of the professional conduct rules, on nonlawyers owning law firms or sharing in legal fees. What they built in its place, and what has happened since, is the closest thing the profession has to real data on what nonlawyer ownership of legal businesses actually looks like.
Arizona went the furthest. In August 2020 the Arizona Supreme Court voted to eliminate its version of Rule 5.4 entirely, effective January 1, 2021, and created a new structure called the Alternative Business Structure, or ABS. An ABS is a business that can deliver legal services while including nonlawyers as owners or investors, subject to licensing, a designated compliance lawyer, and ongoing oversight from the court. Arizona was the first state to take this step, and the program has grown steadily rather than explosively: by early 2026, roughly 150 ABS entities had been licensed, ranging from personal-injury and consumer firms to companies pairing legal services with technology or other businesses.
Utah chose a more cautious design: a regulatory sandbox rather than a permanent rule change. Launched by the Utah Supreme Court in 2020 and run through its Office of Legal Services Innovation, the sandbox authorizes selected entities to try legal-service models and ownership structures that the usual rules would forbid, under close monitoring of consumer outcomes. Crucially, it is a pilot, not a settled reform. It has been extended but is now closed to new applications and is currently scheduled to sunset on August 14, 2027, with previously authorized entities continuing to operate in the meantime — a reminder that even its architects designed it to be evaluated, and potentially wound down, based on the evidence.
Two lessons stand out from the experiments so far. The first is that opening ownership did not produce the harms its critics feared or the flood its champions predicted — adoption has been measured, and much of it looks less like outside investors seizing law firms than like lawyers and entrepreneurs building new kinds of legal businesses together. The second is that these remain the exceptions. Arizona's rule change and Utah's sandbox are two jurisdictions; the other forty-eight still keep Rule 5.4 in place, and in the last two years several have reinforced the line rather than loosened it, with new statutes and ethics opinions targeting fee-sharing and percentage arrangements with nonlawyers.
That split is exactly why the MSO model matters. In Arizona or Utah, a business can, within the rules, include nonlawyer ownership directly. Almost everywhere else, it cannot — and the managed services organization is the structure that lets capital and professional management support a firm without crossing the line that still stands. In an MSO arrangement, the attorneys own the firm and keep all legal fees and judgment; a separate company provides business services for a flat or fixed fee. It is, in effect, the compliant way to get many of the operational benefits the ABS states allow directly, in the many states that have not changed their rules and show no sign of doing so.
For a lawyer trying to read the landscape, the practical conclusion is not to bet on national deregulation. The Arizona and Utah experiments are important and worth watching, but they are two data points against a national rule that, if anything, is being drawn more firmly. A firm's structure has to work in the state where it actually practices — which, for most of the country, means building on the MSO model rather than waiting for Rule 5.4 to fall.