THE WAR ROOM: DISRUPTED
AI can change how legal work gets done. But ownership rules may determine whether law firms can access the capital, technology leadership, and business expertise needed to make legal services more accessible.
“Change isn’t bad. It’s just different.”
That stayed with me because lawyers are trained to look backward for answers. We study precedent. But precedent cannot tell us how to build the next legal business model.
Artificial intelligence and alternative business structures may seem like separate issues. They are not. AI changes how legal work can be done. Alternative business structures determine whether law firms can obtain the capital, technology leadership, and business expertise needed to put those tools to work at scale.
I believe AI will change legal work. But law firm ownership rules will determine whether that change makes legal services more accessible or simply gives the largest firms another advantage.
THE BOTTOM LINE
Key Takeaways
- Alternative business structures, or ABS law firms, allow some degree of nonlawyer ownership or investment.
- AI and ABS are connected because building legal technology requires funding, technical talent, and leadership.
- ABA Model Rule 5.4 generally limits fee sharing and law firm ownership involving nonlawyers.
- Arizona has licensed more than 160 alternative business structures.
- ABS firms must still protect client confidentiality and lawyer independence.
- Family law is well suited for technology that reduces repeatable work while keeping lawyers involved where judgment matters.
- Regulators should measure client outcomes, cost, access, and harm rather than assume one ownership model is always safer.
WHAT IT MEANS
What Is an Alternative Business Structure?
An alternative business structure is a regulated law firm that allows nonlawyers to hold some or all of the ownership interest. Depending on the jurisdiction, those owners may include business professionals, technology leaders, investors, accountants, or other people who bring skills and capital to the firm.
In a traditional law firm, ownership is generally limited to lawyers. Nonlawyers can work for the firm, but they usually cannot become equity owners or share directly in legal fees.
During our conversation, Taylor explained that Arizona did not simply decide that “anyone can own a law firm.” The state created a licensing process, ethical rules, a compliance role, and ongoing oversight.
That distinction matters. An ABS is not an unregulated legal company. It is a different ownership model operating under a regulatory framework.
AI + OWNERSHIP
Why AI and Law Firm Ownership Are Connected
There is no shortage of discussion about how AI will change the practice of law. Every week brings another tool, prediction, or warning.
But buying an AI subscription is not the same as building technology around a firm’s workflows, knowledge, quality controls, and client experience. That requires funding, software engineers, product leaders, testing, and time.
The largest firms can pay for that work from existing profits. Smaller and midsized firms usually cannot spend hundreds of millions of dollars developing private AI systems.
Imagine an attorney develops a promising way to make routine legal work faster and less expensive. Under the traditional model, the attorney can hire technology professionals but may not be able to offer them ownership. The firm may also be unable to accept outside investment.
An alternative business structure creates another path. It can give firms access to capital and allow nonlawyer leaders to hold a real stake in what they are helping build.
This is why I do not believe AI alone will solve the access problem. If we add new technology to the same ownership structure and hourly billing model, we should not expect a completely different result.
Rule 5.4 Protects Independence—but It Also Limits Change
ABA Model Rule 5.4 generally prohibits lawyers from sharing legal fees with nonlawyers, forming partnerships with nonlawyers to practice law, or practicing through a company in which a nonlawyer owns an interest.
The principle behind the rule is important. A lawyer’s judgment should belong to the lawyer—not an investor, marketer, or business executive. Clients should never have to wonder whether financial pressure is controlling the advice they receive.
I agree with that principle. I disagree with the assumption that only one ownership model can protect it. Ownership and professional judgment are related, but they are not the same thing. The better question is whether a firm has strong protections preventing owners from interfering with a lawyer’s duties to the client. That can be regulated. More importantly, it can be measured.
A WORKING MODEL
What Arizona Is Teaching the Legal Industry
Taylor told me Arizona moved forward because its leaders saw a problem and decided to address it. Access to legal services has been a problem for decades. Continuing to protect the same system while expecting different results makes little sense.
Arizona replaced its traditional Rule 5.4 restrictions with a licensing system for alternative business structures. The Arizona Supreme Court’s ABS directory now contains more than 160 licensed entities, although not every listed license remains active.
These firms provide services involving immigration, estate planning, business law, personal injury, veterans’ benefits, family law, and other areas. The directory also includes multidisciplinary organizations such as KPMG Law US.
There is no single ABS model. Some firms use outside investment to build technology. Others combine legal services with accounting, financial, or business support. Some focus on high-volume work that traditional firms have struggled to offer at a price ordinary people can afford.
Arizona continues to adjust its oversight. In 2026, the Arizona Supreme Court strengthened parts of its ABS rules. Firms must have policies protecting lawyer independence, confidentiality, professional standards, and clients’ interests.
The Arizona model is not perfect. Better data should have been required from the beginning. We need clearer measurements of prices, outcomes, complaints, geographic reach, and the number of people served. Still, after more than five years and more than 160 licensed entities, Arizona is learning how to regulate and improve a system already in operation.
CLIENT PROTECTION
Are Alternative Business Structures Less Regulated?
One of the most common arguments against nonlawyer ownership is that it will expose clients to greater risk. In Arizona, an ABS applicant cannot simply register a company and begin offering legal services. The business must complete a licensing process, establish policies designed to protect the public, and appoint a compliance lawyer.
Attorneys working in an ABS remain lawyers. They must protect confidential information, avoid conflicts, and exercise independent legal judgment.
That does not mean an ABS cannot cause harm. Any organization can fail its clients. Traditional law firms do it, too.
We cannot compare alternative business structures with an idealized version of traditional practice. We must compare them with the system people experience today. Do ABS firms create more harm than traditional firms? Do clients pay less? Are more people receiving help? How many complaints are filed, and how are they resolved?
I want evidence. Fear of what might happen is not enough to justify protecting a system that already leaves millions of people without meaningful legal support.
WHY IT MATTERS
Why Family Law Is Ready for a Different Model
Family law shows why this discussion matters. The National Center for State Courts reports that self-represented litigants make up roughly 80% to 90% of people in many family court dockets. That does not mean most people want to handle a divorce, custody dispute, or support matter without legal help. Often, the cost of family law services leaves them without another option.
Technology can help collect financial information, organize property and debt, complete standard forms, calculate support ranges, track documents, and prepare routine disclosures. Lawyers should not have to spend their highest-cost hours performing every one of those tasks manually.
But family law cannot be reduced to forms and formulas. A parenting dispute involving abuse, substance use, or a child’s safety requires human judgment. A settlement that appears equal on a spreadsheet may leave one spouse without enough retirement income or the ability to keep a home.
The answer is not AI instead of lawyers. It is technology handling repeatable work so lawyers can focus on advice, negotiation, problem-solving, and advocacy.
At Modern Family Law, our Client Dashboard lets clients review documents, see billing information, message their legal team, track progress, and sign documents online. Our family law calculators give people a starting estimate before they decide what to do next. These tools do not replace an attorney. They reduce friction and give clients greater access to their own information.
A DIFFERENT DIRECTION
What Colorado’s ABS Ban Gets Wrong
In 2026, Colorado chose to move in the opposite direction. The state enacted the Colorado Legal Practice Integrity and Fee-Sharing Prohibition Act. The law prohibits several arrangements involving nonlawyer ownership, fee sharing, alternative business structures, and certain management service organizations.
I testified against the bill because I believed, and still believe, that it protects the traditional legal business model more than it protects the public. Instead of creating rules for responsible change, Colorado chose to shut the door. But an outright prohibition avoids the harder work of creating rules, collecting data, and holding regulated firms accountable.
Large law firms can fund technology through existing revenue. Firms in Arizona can seek outside capital through a regulated ABS framework. Colorado firms now have fewer options, even when they want to build tools that could reduce the cost of legal services.
Rules intended to protect clients should not freeze the legal industry in place. They should make responsible change possible.
OUTCOMES OVER ASSUMPTIONS
What Regulators Should Measure
The ABS debate often begins with predictions about what might go wrong. I believe it should begin with outcomes.
- The number and types of clients served
- Average and median client costs
- The use of flat fees and other pricing models
- Complaints and disciplinary actions
- Client satisfaction and outcomes
- Services provided in underserved areas
- Whether nonlawyer owners attempted to influence legal judgment
Traditional law firms should face meaningful measurement as well. Otherwise, we are holding one model accountable while assuming the other works simply because it is familiar.
Washington has taken a useful step in this direction. Its entity-regulation pilot program requires participating organizations to propose a test, appoint a compliance officer, report data, and undergo ongoing monitoring.
If alternative business structures create greater harm, the data should show it. If they lower costs or help more people obtain legal services, regulators should be willing to acknowledge that, too.
THE TIPPING POINT
What Comes Next for Law Firms?
Near the end of our conversation, I asked Taylor whether lawyers would eventually view Arizona’s ABS program as a small experiment or as the moment the legal profession fundamentally changed. His answer was direct: “I think we’re at a tipping point.” I think he is right.
The future law firm may bring lawyers, technologists, financial professionals, client-service leaders, and other specialists into one organization. It may offer subscriptions, flat fees, limited-scope services, and full representation. AI could complete routine work while attorneys review the results, advise clients, negotiate, and appear in court.
There are risks. Investors may push for higher profits. Technology may make mistakes. Poorly designed systems may put speed ahead of quality. Those risks require strong rules, audits, reporting, and enforcement.
But the traditional model has risks, too. High hourly rates can reward more time rather than better results. Limited competition can slow improvement. People who cannot afford representation may receive no professional help at all.
Doing nothing is not a neutral choice. It protects the system we already have, including its failures. Consumers will not wait forever for lawyers and regulators to become comfortable with change. Technology is not slowing down. Neither are client expectations.
The legal industry can shape what comes next through thoughtful regulation, or it can resist until clients and technology companies force the issue. I would rather help build the rules.
THE WAR ROOM: DISRUPTED
Listen to the Full Conversation
This article expands on M. David Johnson’s conversation with Taylor Bell, founder of Arizona ABS Law and a member of the Arizona Supreme Court’s Alternative Business Structures Committee, about alternative business structures, law firm ownership, technology, and the future of legal services.
FREQUENTLY ASKED QUESTIONS
Alternative Business Structures FAQ
What is an alternative business structure in law?
An alternative business structure is a regulated law firm that permits nonlawyers to hold an ownership interest. Owners may include investors, technology professionals, accountants, or other business leaders.
Can nonlawyers own a law firm?
In most U.S. jurisdictions, nonlawyer ownership remains restricted. Arizona permits it through its ABS licensing program. Other jurisdictions have adopted limited exceptions or pilot programs.
What does ABA Model Rule 5.4 do?
ABA Model Rule 5.4 generally restricts sharing legal fees with nonlawyers, forming partnerships with nonlawyers to practice law, and operating through a for-profit legal company owned by nonlawyers. Its purpose is to protect lawyers’ professional independence.
Can private equity invest in a law firm?
Private equity generally cannot directly own a traditional law firm in a jurisdiction that follows Rule 5.4. Investment may be allowed through a licensed alternative business structure where permitted, subject to local licensing and ethics requirements.
Are alternative business structures less regulated?
Not necessarily. Arizona requires ABS firms to complete a licensing process, establish governance protections, and appoint a compliance lawyer. Attorneys in the firm remain subject to professional conduct rules.
How could alternative business structures lower legal costs?
ABS firms may have greater access to capital, technology, and multidisciplinary talent. These resources can help firms reduce repeatable work, offer flat-fee services, and reserve attorney time for tasks requiring legal judgment.
Will AI replace family law attorneys?
AI is more likely to change what family law attorneys do than eliminate the need for them. Technology can support calculations, organization, documents, and routine communication. Attorneys remain important when a matter involves safety, disputed facts, complex finances, negotiation, or court.
THE QUESTION WE SHOULD BE ASKING
Who Will Benefit From Legal AI?
The question is no longer whether AI will change the legal industry. It already is.
The real question is who will benefit. Will AI mainly help large firms complete high-value work faster? Or will it also help ordinary people afford legal support during a divorce, custody dispute, housing problem, or conflict with an employer?
Technology alone will not decide that. Our ownership rules, pricing models, and willingness to test new ideas will matter just as much.
If we want different results, we must be willing to build a different kind of law firm.
