| The Court unanimously adopted the elimination of Rule 5.4. What does this allow? |
| Nonlawyers may partner with lawyers. Nonlawyers may own, have an economic interest in, manage, or make decisions in, an Alternative Business Structure that provides legal services. Lawyers will be permitted to split fees. |
| What is an Alternative Business Structure (ABS)? |
| An ABS is an entity that provides legal services and has nonlawyer ownership, managers, or decision-makers in the business. Nonlawyers could have economic ownership (an equity stake) in the business, but only lawyers and other individuals licensed or certified by the Arizona Supreme Court are permitted to provide legal services. |
| What are the advantages of allowing the formation of an ABS? |
- It will allow for greater technological innovations in the delivery of legal services to the public.
- It will provide additional capital to be infused in legal firms.
- It will allow firms to attract the best and brightest nonlawyer partners (as they desire equity in a firm just as lawyers want to be firm partners).
- It will allow for “one-stop shops” to be able to provide legal and non-legal services to a client.
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| Does the public support the proposal to allow nonlawyers to partner in or own a law firm? |
Yes. A poll of Arizona voters and non-voters across ages and political preferences showed 62.3% support for the proposal.
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| Can my firm or I apply for an ABS license? |
| Yes. On August 27, 2020 the Court took the first step in creating the ABS licensing program by adopting rule changes to remove the bar to nonlawyers having an economic interest in law firms. In October 2020, the Arizona Judicial Council (AJC) reviewed and adopted Arizona Code of Judicial Administration § 7-209 setting forth the regulatory and licensing structure for ABSs, effective January 1, 2021. The basic requirements of the ABS application process appear in ACJA§ 7-209(E) and (G)(1). The application form is available on the Alternative Business Structures webpage under the “Licensing & Regulation” tab and Alternative Business Structure. |
| What are the costs to apply for an ABS license? |
| The fees and costs associated with all aspects of the licensing process are set out in ACJA § 7-209(J) |
| How will an ABS be approved? |
| The Supreme Court established a Committee on ABSs, like the current Character and Fitness Committee. The Committee will recommend approval or denial of the application to the Supreme Court and the Court will grant or deny the applications. See Arizona Supreme Court Rule 33.1(a)(4)-(6). |
| Will the ABS committee be looking at the purposes of the ABS (such as requiring that it offer low-cost legal service?) |
| Yes, the Committee’s decision is based on the regulatory factors listed in the newly adopted Arizona Supreme Court Rule 33.1(b) and in ACJA § 7-209(E). |
| Can an ABS be composed of all nonlawyers? |
| No. At least one lawyer licensed to practice law in Arizona must be appointed by the ABS to serve as its compliance lawyer. |
| Must the compliance lawyer be an Arizona lawyer? |
Yes, per Arizona Supreme Court Rule, any person who is not admitted to practice in Arizona and who provides legal advice or services is engaging in the unauthorized practice of law.
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| What are the requirements for the ABS Compliance Lawyer? |
The Compliance Lawyer’s duties and responsibilities are in ACJA § 7-209(G)(3) and include ensuring that the ABS complies with requirements, including policies and procedures to prevent nonlawyers in the business from interfering with lawyers’ ethical duties to clients.
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| Will the application require certification that the compliance lawyer attests to the statements about his/her qualifications? |
Yes. All application forms require attestations. Forms are available on the Alternative Business Structures page
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| Can a disbarred lawyer or a person who has been refused admission due to the character and fitness process own or be a partner in an ABS? |
No.
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| Who is an "Authorized Person"? |
ACJA § 7-209(A) defines “Authorized Person” as “a person possessing: 1. An economic interest in the alternative business structure equal to or more than 10 percent of all economic interests in the alternative business structure; or 2. The legal right to exercise decision-making authority on behalf of the alternative business structure.” ACJA § 7-209(A) further defines “decision-making authority” as “the authority, by operation of law or by agreement, to directly or indirectly: 1. Legally bind the ABS; 2. Control or participate in the management or affairs of the ABS; 3. Direct or cause the direction of the management and policies of the ABS; or 4. Make day-to-day or long-term decisions on matters of management, policy, and operations of the ABS.”
Examples of an authorized person include a manager of a limited liability company, an officer of a corporation, a partner in a general partnership, a director of a parent company, etc. Examples of those who may not be an authorized person include an employee with no management responsibilities or a passive investor with less than a 10% ownership in the ABS.
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| Will the application require the disclosure of the names and identities of all nonlawyer investors – even those with less than a 10% interest? |
Not necessarily. ACJA § 7-209(G)(1) requires each applicant to “submit completed applications for the alternative business structure and each authorized person.” An "authorized person" is defined in ACJA § 7-209(A) as a person with an economic interest equal to or more than 10%, or someone with decision-making authority on behalf of the ABS. In effect, any person or entity that may materially influence the operation of the ABS may be considered an authorized person. However, if investors have less than 10% ownership interest AND do not have decision-making authority, disclosures are not likely required. The applicant is in the best position to determine who is an authorized person and, pursuant to § 7-209(E)(2) failure to provide or fully disclose information may result in denial of the application, delay in processing, or disciplinary action.
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| For all disclosed nonlawyer investors, what information besides crimes/licenses/court sanctions will be required? |
Currently, the application package requires disclosure of other ownership interests and businesses. Application forms are required from the compliance lawyer, designated principal, and authorized person(s), along with a form providing information about the applicant ABS entity. The application forms are guided by the requirements of ACJA § 7-209(E) and (G) for authorized persons and the entity and § 7-209(G)(3) for compliance lawyers.
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| Will the application require disclosure of how much money/capital is being contributed by nonlawyers? |
All disclosure will be guided by Code § 7-209.
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| If 10% of the ownership of an ABS is through an entity, will the application require disclosure of the beneficial owners/individuals in control of that entity? |
Applicants should anticipate that any individual or business that meets the “authorized person,” “economic interest,” and “decision-making authority” definitions in ACJA § 7-209(A) are required to complete application forms and be subject to the investigative process. Applicants will be asked to provide copies of agreements that affect decision-making.
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| Will the application require disclosure of lawyer owners? |
Yes. All persons and entities that meet the “authorized person,” “economic interest,” and “decision-making authority” definitions in ACJA § 7-209(A) are required to complete application forms and be subject to the investigative process.
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| Will the application require disclosure of the ABS’s practice areas? |
Yes, the Committee’s decision will be based on a number of factors, including the regulatory objectives listed in Arizona Supreme Court Rule 33.1(b) and ACJA § 7-209(E).
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| Is the ABS application open to the public? |
| Public access to an ABS application is generally permitted under Rule 123 of the Rules of the Supreme Court of Arizona. However, the following statute, rule, and code provisions protect certain information from being disclosed to the public: Rule 123(c)(1); ACJA § 7-201(E)(4)
• Home addresses
• Home telephone numbers
• Cell phone numbers
• Social Security Numbers, including last 4 digits of SSNs Rule 123(c)(1); ACJA § 7-201(E)(4); A.R.S. § 18-522
• Names of non-applicants (includes investors who do not meet the definition of an Authorized Person under ACJA § 7-209)
• Signatures
• E-mail addresses
• State Bar numbers (license numbers)
• Mailing addresses
• Telephone numbers
• Employer/business names
• Dates of birth |