In a recent article for Attorney at Work, Brooke Lively examines how private equity is moving into the legal industry through an increasingly common structure known as the Management Services Organization (MSO). While bar rules continue to restrict non-lawyer ownership of law firms, Lively explains that private equity firms are gaining a foothold by acquiring and controlling the business operations that support legal practices, allowing them to participate in law firm economics without formally owning the firm itself.

At its core, the MSO model separates the practice of law from the business of law. The law firm remains attorney-owned and responsible for legal services, client relationships, and professional judgment. The MSO, often backed by private equity, owns and manages everything else, including billing systems, technology, human resources, marketing, branding, buildings, and administrative operations. This structure closely mirrors what private equity has used for years in the healthcare industry, where management companies handle business functions while licensed doctors and other medical professionals deliver services.

From a private equity perspective, MSOs are especially attractive. They are scalable, repeatable, and capable of producing predictable revenue streams. These are all qualities investors prize. Once an MSO infrastructure is built, it can be rolled out across multiple firms, allowing rapid growth through consolidation. Lively emphasizes that this is not a theoretical future trend. It is already happening. She describes conversations with attorneys who have acquired dozens of firms, are launching PE funds, and are actively building MSOs to accelerate expansion.

The ethical implications of MSOs are a bit murky. Texas Ethics Opinion 706, concluded that an MSO model is permissible so long as it is structured within the Rules of Professional Conduct, meaning that the law firm retains and exercises control over all the professional aspects of the law firm practice and does not share fees with the MSO. North Carolina addressed a similar issue over 20 years ago in 2001 FEO 2. In that opinion, the State Bar ruled that there is no prohibition on a law firm entering into a contract with a management firm to administer the firm provided the lawyers in the firm can fulfill their ethical duties including the duty to exercise independent professional judgment and the duty to maintain client confidences. The opinion also made clear that the law firm may not split legal fees with the management company.

Lively argues in her article that private equity and MSOs are here to stay. She is not suggesting that all law firms will be swallowed by MSOs. But she does suggest that there is a growing trend toward this model.