LegalZoom Has Big Plans for Expansion

LegalZoom is about to get much zoomier.

Fresh off an IPO in June that resulted in a multi-billion dollar valuation, LegalZoom is now pursuing an alternative business structure license in Arizona. If successful, the move could signal a seismic shift in the legal landscape.

“Obtaining an alternative business structure license would allow LegalZoom to hire attorneys as employees to provide legal advice directly to customers rather than relying on an independent network of lawyers,” according to Lyle Moran in the ABA Journal. “This is something LegalZoom has been able to do in the UK … but the company has not been able to take a similar approach in the U.S. because of strict regulatory requirements around law firm ownership and attorney fee-sharing.”

LegalZoom recently announced it had generated $150.4 million in revenue in the second quarter of 2021 – a rise of 36 percent annually. In addition, LegalZoom has launched a tax advisory service and hired in-house tax advisers.

The company says it has a network of more than 1,300 independent attorneys who have provided more than 611,000 consultations to small businesses and families since 2011.

“Traditionalists and unauthorized practice of law regulators in the US have long feared the possibility of a legal technology company like LegalZoom becoming a publicly traded law firm-like entity with its own attorneys serving clients,” Moran writes for the Journal. “They have argued that such a business setup would result in the company’s economic interests being put before the best interests of its clients. Whether those worries are legitimate could soon face a major test in Arizona.”

Rocket Lawyer is also seeking an ABS license in Arizona. 

Read the ABA Journal article here.

Read a report in Reuters here.

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LegalZoom Seeks Expansion in Arizona 

LegalZoom has targeted Arizona for expansion because in 2020 the Arizona Supreme Court eliminated the state’s Rule of Professional Conduct 5.4 that prohibited nonlawyers from having an economic interest in a law firm or participating in attorney fee-sharing.

“The change, which went into effect Jan. 1, permits alternative business structures [ABS] to be licensed in the state as part of efforts to increase consumers’ access to justice,” writes Moran. 

In May, LegalZoom applied for an ABS license under the business name LZ Legal Services. The application is under review.

LegalZoom’s general counsel issued this statement: “We embrace any such reform efforts and believe that innovative products and business models benefit legal consumers and create more opportunities for attorneys as well. We intend to continue advancing our mission by deeply integrating attorney expertise and support with LegalZoom’s technology, process efficiencies and commitment to providing affordable access to legal services.”

Here are three steps LegalZoom says it plans to take in its first year of operation as an ABS:

• Launching innovative low-cost solutions for small businesses in Arizona.
• Meeting trademark needs for small businesses nationwide.
• Offering business and estate planning advice and legal services through a monthly membership plan.

In its 20 years of operation, LegalZoom has encountered fierce resistance from organized bar groups in many states, including North Carolina. To date, it has overcome this resistance and enjoyed steady growth.

The ABA Journal article points out that the company “acknowledged in an SEC filing that becoming an ABS in one state would not necessarily insulate it from UPL claims in other jurisdictions.” 

An ethics expert and director of the ABA’s Center for Professional Responsibility says she thinks LegalZoom’s growth is good for lawyers because it connects consumers with attorneys.

“I think the bigger it gets, the more lawyers it’s going to engage [and] the more business it’s going to generate,” says Teresa Schmid in the ABA Journal article. “It doesn’t displace lawyers; it is a portal.”

What do you think of LegalZoom’s plans? Good or bad for the law profession? For consumers? How do you think it will it affect your law practice, if at all?

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