State legislators in California, Illinois and Colorado are moving to tighten rules that would restrict buyout firms and corporate investors from taking control of law practices, focusing specifically on the role of Management Services Organizations, or MSOs, which can provide a pathway for non-lawyers to influence legal operations.
In April, lawmakers in California and Illinois advanced measures aimed at reinforcing prohibitions on non-lawyer control of legal practices. A bipartisan group in Colorado also brought a similar proposal through the House Judiciary Committee, signaling cross-state momentum to limit outside investors' influence in the legal sector.
California legislation and sponsor comments
California Assembly Bill 2305 recently cleared the state Assembly. The bill is intended to "close the loopholes" that, according to its backers, have allowed corporate investors to gain operational control of law firms via MSOs.
Assembly member Ash Kalra, who sponsored the bill, said: "We have seen how private equity has operated in many different industries to extract profit and not reinvest in the long-term health of the industry". He added that the measure is meant to ensure lawyers make choices grounded in "clients’ best interests, not the best interests of their investors".
Colorado and Illinois proposals
In Colorado, State Senator Lindsey Daugherty raised comparable concerns about the potential effects of out-of-state corporate investment. She said, "I don’t want private-equity investment in law to have the same consequences we’re seeing in the healthcare industry". The Colorado proposal also contains language that would bar law firms from sharing revenue with non-lawyers.
Meanwhile, the Illinois General Assembly passed legislation designed to prevent private-equity interference in law firms; that bill is pending consideration in the state Senate.
Market activity and professional perspectives
Despite the legislative push, private-equity interest in legal services appears to be growing. Deal activity has been particularly noticeable in consumer-facing legal firms and in startups focused on artificial intelligence. Publicly reported investments cited by legislators and market observers include Blackstone's stake in an AI-focused law firm, Norm AI, and backing from Uplift Investors for a personal-injury practice in Louisiana.
Practitioners active in structuring MSO arrangements say demand remains strong. Trisha Rich, a partner at Holland & Knight, said she has completed 15 MSO transactions recently and is working on roughly a hundred more. Rich suggested that some supporters of the legislation "say the goal is to protect the public, but they’re really worried about their competitors’ getting access to capital".
What’s at stake
The proposals in these three states target the contractual and structural mechanisms that enable non-lawyer investment to affect law-firm operations. Bills vary in scope, but common elements include closing MSO-related loopholes, reaffirming the requirement that lawyers retain decision authority to prioritize clients, and explicitly banning revenue-sharing arrangements with non-lawyers.
As the measures progress through state legislatures, legal practices that have engaged with private investors and the firms that provide MSO services will be among the most directly affected. The proposals also bear on broader market segments that supply capital to professional services and to companies developing AI tools for legal work.