Pera Interviewed on MSOs – Published in Business Insider, Yahoo, MSN, & Bloomberg

Adams & Reese Partner Lucian Pera was interviewed about Management Services Organizations (MSOs) – a business model that allows non-lawyers to effectively own part of law firms through a second corporate entity. The article appeared in Business Insider, Yahoo! Finance, MSN, and also received mention in Bloomberg Tax’s “Money Stuff” Column by Matt Levine.

Nearly every state has adopted a professional ethics rule from the American Bar Association forbidding lawyers from working for nonlawyer-owned firms, but Business Insider spoke to attorneys, including Pera, who advise law firms on MSOs or Alternative Business Structures (ABS), which legal counsel said are becoming increasingly common.

“We’re in the midst of the largest rolling retirement of lawyers in history,” said Pera, one of the nation’s leading legal ethics practitioners. “The baby boomers are getting old and retiring. And that's a real opportunity for some people.”

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 with large companies like KPMG and Rocket Lawyer now owning law firms in the state outright.

Traditionally, law firms have operated as partnerships among attorneys, where equity partners own shares in the firm and help manage it. Ethically, ABA Model Rule 5.4(d) largely prevents nonlawyers from owning law firms or from having the right to control the professional judgment of a lawyer.

But as a workaround, 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. 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,” says Pera.

Recently, Pera published “The Playbook: How to Extend the Reach of an Arizona ABS Law Firm to the Entire United States,” in which he provides a practical survey of tools and models now used by innovators to deliver legal services and extend the reach of ABSs.

At Adams & Reese, Pera is a Partner in the national law firm’s Memphis office. For more than 30 years and licensed in Tennessee and Arizona, Pera has practiced in commercial litigation, media law, legal ethics, and lawyer regulation – advising lawyers, law firms, and businesses on legal ethics, compliance, risk management, and innovative legal service models. Within that practice, Pera counsels clients on whether an ABS fits their business model to deliver legal services, and the geographic reach of an ABS under current law.