{"id":162250,"date":"2026-09-03T18:13:52","date_gmt":"2026-09-04T02:13:52","guid":{"rendered":"https:\/\/xira.com\/p\/2026\/09\/03\/private-equity-investment-in-law-firms-floated-as-one-neat-trick-to-get-around-ethical-obligations\/"},"modified":"2026-09-03T18:13:52","modified_gmt":"2026-09-04T02:13:52","slug":"private-equity-investment-in-law-firms-floated-as-one-neat-trick-to-get-around-ethical-obligations","status":"publish","type":"post","link":"https:\/\/xira.com\/p\/2026\/09\/03\/private-equity-investment-in-law-firms-floated-as-one-neat-trick-to-get-around-ethical-obligations\/","title":{"rendered":"Private Equity Investment In Law Firms Floated As *One Neat Trick* To Get Around Ethical Obligations"},"content":{"rendered":"

Private equity circles the legal profession like a vulture. Even elite law firms are reportedly taking meetings<\/a> and while none of them appear ready to hand the keys over to private equity yet<\/a>, the fact that they\u2019re even taking meetings means the idea cleared the first round of speedbumps. People charging $2000\/hr don\u2019t waste time discussing some banker\u2019s pitchdeck unless they\u2019re already seriously thinking about it. <\/p>\n

Why would a law firm agree to sell off a stake to private equity? The elephant squatting in that room is artificial intelligence, a costly investment in any case, and even more so if it\u2019s the sort of firm interested in building its own bespoke AI model<\/a>. Private equity can inject a lot of cash for big capital investments, and that industry sees legal as a lucrative business to enter.<\/p>\n

The problem for private equity is that we have ethical rules preventing non-lawyers from owning law firms. When entities unbound by the professional rules of lawyers take financial stakes in the success of a law firm, it gives at least the appearance of the firm as a business<\/em> having obligations beyond those owed to the client and the profession. <\/p>\n

Undeterred, private equity has a workaround. Instead of buying a direct stake in the firm as is, the business would bifurcate and the lawyers would sit in a wholly lawyer-owned practice of law entity, while all the administrative and back-office work would become a spinoff entity owned by private equity. This \u201cmanaged services organization\u201d (MSO) would then collect fees for providing all the business of law services to the law firm while taking all those expenses off the law firm\u2019s direct books in exchange for a big payday. It\u2019s how private equity took over dentistry. <\/p>\n

And, depending on the terms, it may not be the worst thing in the world! There are efficiencies to be gained in back office operations and lawyers might not be the optimal people to manage that. On the other hand, bifurcating businesses and paying fees to transfer wealth from Peter to Paul is what hastened the destruction of Red Lobster 1.0. All this is to say that I\u2019m not entirely opposed to private equity investment, as long as lawyers approach it cautiously and with a clear eyed understanding of ethical obligations.<\/p>\n

But yesterday, I read about another proposed advantage for private equity that made me say, out loud, \u201coh, hell no\u201d even though absolutely no one else was in the room. <\/p>\n

Infodash<\/a> CEO Ted Theodoropoulos \u2014 always a great resource on legal tech and the industry by the way \u2014 posted an interesting conversation on his blog<\/a> with a pair of Holland & Knight attorneys who have become the experts on law firm MSO deals. In his LinkedIn post describing the episode, he included one nugget that threw me:<\/p>\n

\"\"<\/a>
<\/figcaption><\/figure>\n

I repeat: oh, hell no. <\/p>\n

For clarity, this is the exact quote: \u201cIt can help with retention. If an equity partner at a law firm has equity in the law firm, they can leave whenever they want. If they have equity in the MSO, the MSO has more latitude around, for example, non-competes, and tying lawyers up that way.\u201d On the podcast, both lawyers explain that every deal they work on complies with ethical rules and there\u2019s no reason to doubt that. But if you\u2019re inventing whole new business structures to get around the letter of an ethical rule, then you\u2019re very much in breach of the spirit. <\/p>\n

This was an off-the-cuff conversation, so maybe there\u2019s more nuance to this. But on the four corners of the podcast \u2014 we\u2019ll stick with that analogy \u2014 this would seem to be a selling point that at least some firms are getting from private equity, and of all the reasons to go down that road, it\u2019s a troubling one.<\/p>\n

Non-competition agreements are a vile employment practice designed to trap workers in undesirable arrangements. For lawyers, the consequences are worse. A lawyer who can\u2019t freely port their client to the most advantageous platform is at least potentially constrained from doing right by their client. Conflicts can block clients from having the lawyer of their choice. It\u2019s just bad news all around.<\/p>\n

Rule 5.6<\/a> could not be more clear on this:<\/p>\n

\n

A lawyer shall not participate in offering or making:<\/p>\n

(a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or<\/p>\n

(b) an agreement in which a restriction on the lawyer\u2019s right to practice is part of the settlement of a client controversy.<\/p>\n<\/blockquote>\n

Law firms can already employ shady tactics to steal away books of business by building institutional ties designed to entangle clients even if the original relationship partner departs. But making them sign non-compete agreements, otherwise barred by Rule 5.6, by putting on a different hat takes it to a new level.<\/p>\n

And, frankly, if the MSO non-compete functionally prevents a lawyer from enjoying their freedom to move their legal business, it should<\/em> be a violation of Rule 5.6 anyway. \u201cRestricts\u201d is, one could argue, intentionally broad.<\/p>\n

It would be one thing to say \u2014 as proponents of MSOs would \u2014 that lawyers with stakes in the MSO would be incentivized to stay in ways that pure firm equity couldn\u2019t match. MSOs can use the business side of a firm to open new revenue streams that might be sufficiently attractive to a lawyer to keep them on with a firm they might otherwise not love. There are perfectly fine reasons to adopt an MSO model. <\/p>\n

But to raise the spectre of non-competes for lawyers? As a selling point for a firm to gain asymmetrical power over your flow of lateral talent?<\/p>\n

That\u2019s worrying no matter what caveats come with it.<\/p>\n

Earlier<\/strong>: Private Equity Found A Law Firm That Said Yes<\/a>
The Richest Law Firms Are Looking At Private Equity Cash Because I Guess They Don\u2019t Have Enough Money<\/a>
Biglaw Partners Aren\u2019t Ready To Hand Over The Keys To Private Equity Just Yet<\/a><\/p>\n

\n

\"Headshot\"Joe Patrice<\/a>\u00a0is a senior editor at Above the Law and co-host of Thinking Like A Lawyer<\/a>. Feel free to\u00a0email<\/a> any tips, questions, or comments. Follow him on\u00a0Twitter<\/a>\u00a0or Bluesky<\/a> if you\u2019re interested in law, politics, and a healthy dose of college sports news.<\/em><\/strong><\/p>\n

The post Private Equity Investment In Law Firms Floated As *One Neat Trick* To Get Around Ethical Obligations<\/a> appeared first on Above the Law<\/a>.<\/p>\n

Private equity circles the legal profession like a vulture. Even elite law firms are reportedly taking meetings<\/a> and while none of them appear ready to hand the keys over to private equity yet<\/a>, the fact that they\u2019re even taking meetings means the idea cleared the first round of speedbumps. People charging $2000\/hr don\u2019t waste time discussing some banker\u2019s pitchdeck unless they\u2019re already seriously thinking about it. <\/p>\n

Why would a law firm agree to sell off a stake to private equity? The elephant squatting in that room is artificial intelligence, a costly investment in any case, and even more so if it\u2019s the sort of firm interested in building its own bespoke AI model<\/a>. Private equity can inject a lot of cash for big capital investments, and that industry sees legal as a lucrative business to enter.<\/p>\n

The problem for private equity is that we have ethical rules preventing non-lawyers from owning law firms. When entities unbound by the professional rules of lawyers take financial stakes in the success of a law firm, it gives at least the appearance of the firm as a business<\/em> having obligations beyond those owed to the client and the profession. <\/p>\n

Undeterred, private equity has a workaround. Instead of buying a direct stake in the firm as is, the business would bifurcate and the lawyers would sit in a wholly lawyer-owned practice of law entity, while all the administrative and back-office work would become a spinoff entity owned by private equity. This \u201cmanaged services organization\u201d (MSO) would then collect fees for providing all the business of law services to the law firm while taking all those expenses off the law firm\u2019s direct books in exchange for a big payday. It\u2019s how private equity took over dentistry. <\/p>\n

And, depending on the terms, it may not be the worst thing in the world! There are efficiencies to be gained in back office operations and lawyers might not be the optimal people to manage that. On the other hand, bifurcating businesses and paying fees to transfer wealth from Peter to Paul is what hastened the destruction of Red Lobster 1.0. All this is to say that I\u2019m not entirely opposed to private equity investment, as long as lawyers approach it cautiously and with a clear eyed understanding of ethical obligations.<\/p>\n

But yesterday, I read about another proposed advantage for private equity that made me say, out loud, \u201coh, hell no\u201d even though absolutely no one else was in the room. <\/p>\n

Infodash<\/a> CEO Ted Theodoropoulos \u2014 always a great resource on legal tech and the industry by the way \u2014 posted an interesting conversation on his blog<\/a> with a pair of Holland & Knight attorneys who have become the experts on law firm MSO deals. In his LinkedIn post describing the episode, he included one nugget that threw me:<\/p>\n

\"\"<\/a>
<\/figcaption><\/figure>\n

I repeat: oh, hell no. <\/p>\n

For clarity, this is the exact quote: \u201cIt can help with retention. If an equity partner at a law firm has equity in the law firm, they can leave whenever they want. If they have equity in the MSO, the MSO has more latitude around, for example, non-competes, and tying lawyers up that way.\u201d On the podcast, both lawyers explain that every deal they work on complies with ethical rules and there\u2019s no reason to doubt that. But if you\u2019re inventing whole new business structures to get around the letter of an ethical rule, then you\u2019re very much in breach of the spirit. <\/p>\n

This was an off-the-cuff conversation, so maybe there\u2019s more nuance to this. But on the four corners of the podcast \u2014 we\u2019ll stick with that analogy \u2014 this would seem to be a selling point that at least some firms are getting from private equity, and of all the reasons to go down that road, it\u2019s a troubling one.<\/p>\n

Non-competition agreements are a vile employment practice designed to trap workers in undesirable arrangements. For lawyers, the consequences are worse. A lawyer who can\u2019t freely port their client to the most advantageous platform is at least potentially constrained from doing right by their client. Conflicts can block clients from having the lawyer of their choice. It\u2019s just bad news all around.<\/p>\n

Rule 5.6<\/a> could not be more clear on this:<\/p>\n

\n

A lawyer shall not participate in offering or making:<\/p>\n

(a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or<\/p>\n

(b) an agreement in which a restriction on the lawyer\u2019s right to practice is part of the settlement of a client controversy.<\/p>\n<\/blockquote>\n

Law firms can already employ shady tactics to steal away books of business by building institutional ties designed to entangle clients even if the original relationship partner departs. But making them sign non-compete agreements, otherwise barred by Rule 5.6, by putting on a different hat takes it to a new level.<\/p>\n

And, frankly, if the MSO non-compete functionally prevents a lawyer from enjoying their freedom to move their legal business, it should<\/em> be a violation of Rule 5.6 anyway. \u201cRestricts\u201d is, one could argue, intentionally broad.<\/p>\n

It would be one thing to say \u2014 as proponents of MSOs would \u2014 that lawyers with stakes in the MSO would be incentivized to stay in ways that pure firm equity couldn\u2019t match. MSOs can use the business side of a firm to open new revenue streams that might be sufficiently attractive to a lawyer to keep them on with a firm they might otherwise not love. There are perfectly fine reasons to adopt an MSO model. <\/p>\n

But to raise the spectre of non-competes for lawyers? As a selling point for a firm to gain asymmetrical power over your flow of lateral talent?<\/p>\n

That\u2019s worrying no matter what caveats come with it.<\/p>\n

Earlier<\/strong>: Private Equity Found A Law Firm That Said Yes<\/a>
The Richest Law Firms Are Looking At Private Equity Cash Because I Guess They Don\u2019t Have Enough Money<\/a>
Biglaw Partners Aren\u2019t Ready To Hand Over The Keys To Private Equity Just Yet<\/a><\/p>\n

\n

\"Headshot\"Joe Patrice<\/a>\u00a0is a senior editor at Above the Law and co-host of Thinking Like A Lawyer<\/a>. Feel free to\u00a0email<\/a> any tips, questions, or comments. Follow him on\u00a0Twitter<\/a>\u00a0or Bluesky<\/a> if you\u2019re interested in law, politics, and a healthy dose of college sports news.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Private equity circles the legal profession like a vulture. Even elite law firms are reportedly taking meetings and while none of them appear ready to hand the keys over to private equity yet, the fact that they\u2019re even taking meetings means the idea cleared the first round of speedbumps. People charging $2000\/hr don\u2019t waste time […]<\/p>\n","protected":false},"author":3,"featured_media":162231,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[16],"tags":[],"class_list":["post-162250","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-above_the_law"],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/i0.wp.com\/xira.com\/p\/wp-content\/uploads\/2026\/09\/Headshot-300x200-r5Wk2P.jpg?fit=300%2C200&ssl=1","_links":{"self":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/posts\/162250","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/comments?post=162250"}],"version-history":[{"count":0,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/posts\/162250\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/media\/162231"}],"wp:attachment":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/media?parent=162250"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/categories?post=162250"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/tags?post=162250"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}