Legal Services Reforms > Questions & Answers
Alternative Business Structures (ABS)

Questions & Answers

The Supreme Court unanimously adopted changes to its rules to encourage business innovation in providing legal services at affordable prices. The Court further adopted modifications to the court rules regulating the practice of law and eliminating the rule prohibiting fee sharing and prohibiting nonlawyers from having economic interests in law firms. The regulatory framework addressing this change requires businesses, called “Alternative Business Structures,” to be licensed. The changes are effective January 1, 2021.

The Committee on Alternative Business Structures will review applications for licensure under Arizona Supreme Court Rule 33.1 and Arizona Code of Judicial Administration section 7-209 and will make licensure recommendations to the Supreme Court.

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.
 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.

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 section 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 Code section 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 Code section 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 newly adopted Arizona Supreme Court Rule 33.1(b) and in  Code section 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.

What are the requirements for the ABS Compliance Lawyer?
The Compliance Lawyer’s duties and responsibilities are in ACJA section 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.

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

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?

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.  Code section 7-209(E) describes the persons within an applicant ABS who must complete related "authorized person" application forms. An "authorized person" is defined in Code section 7-209(A) as a person with an economic interest equal to or more than 10%, and someone with the legal right to exercise decision-making authority on behalf of the ABS.

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 and application forms are required from the compliance lawyer, designated principal, and authorized person(s), and a form providing information about the applicant ABS entity. The application forms are guided by the requirements in Code sections 7-209(E) and (G) for authorized persons and the entity and in Code section 7-209(G)(3) for compliance lawyers.

Will the application require disclosure of how much money/capital is being contributed by nonlawyers?
All disclosure will be guided by Code section 7-209.

If 20% of the ownership of an ABS is through a trust, LLC, etc., will the application require disclosure of the beneficial owners/individuals in control of the trust, LLC, etc.?
Applicants should anticipate that any individual or business that meets the “authorized person,” “economic interest,” and “decision-making authority” definitions in Code section 7-209(A) are required to complete application forms and be subject to the investigative process.

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 Code section 7-209(A) are required to complete application forms and be subject to the investigative process.

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 newly adopted Arizona Supreme Court Rule 33.1(b) and Code section 7-209(E).

Is the ABS application open to the public?
Public access to the application is generally permitted under Rule 123 of the Rules of the Supreme Court of Arizona. Certain exceptions to the open records rule include records that are:

• Confidential by Rule or Law
• Social Security and Bank Account numbers
• Protected by Attorney Client Privilege
• Proprietary Applicant Records that are clearly identified by the application at the time of submission
How will complaints against an ABS be handled?
Complaints will be taken, investigated and prosecuted by the State Bar of Arizona in the same manner as a complaint against a lawyer. Each ABS will pay an annual registration fee which will include monies paid into the Client Protection Fund.

Where can I get more information?
Contact the Certification and Licensing Division at 602-452-3378 or email [email protected]
See Task Force on the Delivery of Legal Services Report and Recommendations
See Alternative Business Structures