Are Management Service Organizations the Future of Law Firms?

By: Madison Landry and Grace Tinsley

Introduction

The involvement of private equity in professional service provider industries is transforming how these businesses operate by bringing capital, technology, and professional management expertise to traditionally partner-owned practices. This has led to the rise of the Management Service Organization (MSO) structure, which allows for capital investment while maintaining regulatory compliance.[1] This model is being used in a variety of industries, particularly healthcare, accounting, and architecture.[2] The corporatization of healthcare is likely the most profound example of the MSO model in action, as it is perfect for navigating the need for capital investment and compliance with the Corporate Practice of Medicine regulations.

While the MSO model has been well utilized in healthcare for nearly four decades, it has only recently been implemented in another industry: law firms.[3] In the last few years, law firms seeking an infusion of capital and assistance with non-legal duties have turned to private equity backed MSOs to offer aid.[4] This recent shift in structure represents “the next frontier of professional services investment,” especially as navigating the traditional restrictions on the ownership of law firms has created new challenges and opportunities.[5]

What is a MSO?

MSOs are typically used in the healthcare context by providing assistance to healthcare providers with the administrative and management matters of their business.[6] The arrangement between medical practices and MSOs typically involve the doctors retaining control of all professional aspects of their practice.[7] This includes “diagnosis and treatment or the hiring and termination of providers.”[8] Conversely, the investor backed MSO provides administrative and nonprofessional services to the practice based on the terms in the management services agreement (MSA).[9] The overarching goal of the MSO model is to improve the quality of patient care by allowing providers to spend more of their time and focus on the patients, while the MSO handles all administrative duties.[10] 

How is an MSO used in the legal profession? 

            MSOs in law firms typically follow the same general MSO model used by other professional service providers.[11] The law firm engages in a deal where, at closing, the MSO will acquire nearly all of the firm’s assets related to the management and administration of the firm.[12] The law firm will retain certain assets that can only be owned exclusively by the firm.[13] These assets include “client records, engagement . . . and offer letters, or employment agreements with lawyers to provide professional services.”[14] Essentially, there are two separate entities working together under the umbrella of one law firm. The lawyers and law firm are one entity and they continue to advise clients.. Meanwhile, the second entity is the MSO, which handles all the backend functions of the law firm. The cooperation of these two entities is tied together with the MSA and other related agreements which aim to maintain and protect the law firm entity and the lawyers.[15] The MSA and related documents are vitally important and should be drafted with particularity. These documents must strike a balance between the law firm maintaining a close connection with the MSO, while also ensuring that the MSO does not interfere with the lawyer’s decision-making and professional judgement.[16]

Challenges 

            Numerous legal, ethical, and practical challenges cloud the opportunities that may arise from MSOs in the legal field. One of the largest challenges is that lawyers are prohibited from sharing legal fees with nonlawyers.[17] A lawyer is additionally prohibited from forming a partnership with a nonlawyer if any activities include the practice of law or utilize professional judgment in providing legal services, or if the nonlawyer owns an interest in, serves as a corporate director, or has the right to control or direct the lawyer’s professional judgment.[18]  

Separating the law firm and the MSO into two separate entities, contracted together by the MSA, might solve these challenges as the law firm would include only the lawyers and be owned by the lawyers. Thus satisfying Model Rule 5.4.[19] The MSO is then able to be owned by anyone because it is only involved in the management of the firm.[20] This proposed solution would be ideal for smaller to mid-sized firms and allow them to catch up and keep up with the larger-sized firms that have more resources.[21] Larger firms may struggle with this separation because they tend to have fewer but larger corporations as clients.[22]

Benefits

            While there are several challenges in implementing the MSO model, there are also numerous benefits of MSOs. First, MSOs may boost firms’ potential by allowing private equity capital to enter law firms.[23] For example, Arizona removed its equivalent of the ABA Model Rules of Professional Conduct Rule 5.4 in 2020 and now has over 100 law firms that allow outside investors.[24]  This model could lead law firms to experience increased efficiency and reduced costs.[25] 

            Second, some experts have argued that by allowing nonlawyer ownership (“NLO”), MSOs would increase access to justice.[26]  Increasing the availability of legal services is a core value of the legal profession.[27] NLOs offer hope in this area by making law firms more efficient and potentially lowering the cost of services or fees.[28] However, even when permitted, there has been little progress in fixing the access to justice issue.[29] The truth is that even with lower costs, it is unlikely that the individuals or entities in need of increased access to justice will see it; the likely reality is that the law firms will increase their profit margins.[30] Lastly, the NLO model has already been implemented in modern medicine under the Corporate Practice of Medicine, where medical costs have actually increased and competition has decreased with the flow of private equity capital.[31] Patients have not reaped the benefits of the NLO model used in healthcare, and there is not much hope that a different result would be seen in the legal field.

Conclusion

            Overall, while MSOs may provide opportunities for law firms to increase efficiency and decrease costs, there are still barriers in place that may make implementing MSOs in all states an uphill battle. States may be hesitant to abandon their equivalent of Model Rule 5.4 because of the lack of evidence on increasing access to justice. But by forming two separate entities, the law firm and the services entity, MSOs may still survive in the legal field.

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[1] Joshua Elias Porte et al., Restructuring Law Firms Through Management Service Organizations, Holland & Knight (July 10, 2025), https://www.hklaw.com/en/insights/publications/2025/07/restructuring-law-firms-through-management-service-organizations.

[2] Id.

[3] Melissa D. Mortazavi, What Lawyers Could Learn From the Corporate Practice of Medicine, 77 Wash. U. J.L. & Pol’y 212, 218–19 (2025).

[4] Id.

[5] Porte et al., supra note 1.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Model Rules of Pro. Conduct r. 5.4(a) (A.B.A. 2020).

[18] Model Rules of Pro. Conduct r. 5.4 (A.B.A.2020).

[19] Jacob Shamsian, It’s Illegal in Most States for Private Equity to Buy a Law Firm. Lawyers Have Figured Out a Workaround, Business Insider (July 6, 2025), https://www.businessinsider.com/law-firms-outside-investment-mso-private-equity-2025-7.

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Mortazavi, supra note 3, at 214.

[27] See H. Thomas Wells, Common Core Values, ABA (Sept.-Oct. 2008), https://www.americanbar.org/groups/bar-leadership/publications/bar_leader/2008_09/3301/corevalues/.

[28] Shamsian, supra note 19.

[29] Mortazavi, supra note 3, at 215.

[30] Id. at 231.

[31] Id. at 232, 236–37.