MSOs: History and Context
For decades, healthcare providers have formed or contracted with management services organizations (MSOs) to assist them with the "administrative challenges associated with running their business. MSOs are often able to better take advantage of economies of scale to provide the practice with a heightened level of expertise and to help the practice obtain better results at lower cost."1 In a typical MSO arrangement, the professional retains and exercises control over all professional aspects of the relevant practice, such as diagnosis and treatment or the hiring and termination of providers. By contrast, the MSO, which is often owned by investors, provides all of the administrative services and nonprofessional personnel needed to support the practice, pursuant to a long-term management services agreement (MSA).
The core thesis of the model is to improve quality of care by allowing providers to focus more completely on their patients while offloading the administrative burden of operating a modern healthcare practice to the MSO. Beyond the widespread adoption of the MSO structure in the healthcare context, it has also been deployed and popularized in other professional services industries, such as accounting and architecture.
Law Firm MSOs: The Next Frontier of Professional Services Investment
Coming off the successes in other industries, the market is now demonstrating considerable interest in deploying capital in the legal profession. Holland & Knight, which is among the first law firms to advise on such transactions, has already closed multiple private equity investments into MSOs that support law firms and also helped restructure law firms that are interested in courting investment.
The structure of a law firm MSO transaction generally follows the standard template developed in other professional services contexts: At the closing, the MSO acquires substantially all of a law firm's assets (but specifically excluding any assets that must be owned by a law firm, such as client records, engagement letters and offer letters, or employment agreements with lawyers to provide professional services) and enters into the MSA, as well as related agreements intended to protect the contractual relationship between the MSO and the law firm, while preserving and safeguarding the independence of the law firm entity and its lawyers.
Law firms and their MSOs must strike a balance in the documents and in practice. They must ensure that the law firm remains closely connected with the MSO insofar as permitted under applicable law, but they must also never let the MSO interfere with the professional judgment or decision-making of the law firm or its attorneys. In addition, due to ethical rules that prohibit the splitting of professional fees between attorneys and non-attorneys,2 the fee that is paid by a law firm to the MSO for the MSO's services generally cannot be a percentage of revenue. Rather, the management fee must generally be structured as a "flat" monthly fee, "cost-plus" fee or another fee structure that is not directly tied to the revenues of the firm or profits from any particular case or cases.
Properly structured, MSOs can assist law firms in innovating and professionalizing their operations. For example, law firms remain a top target for cybersecurity attacks given the immense amount of sensitive and confidential information that they store electronically.3 Many law firms, especially small and midsize firms, may struggle to make the types of investments needed to ensure that their systems are adequately protected against intrusion.4 MSOs can serve as an important source of capital in assisting law firms with upgrading outdated information technology infrastructure and preserving the privacy of sensitive information. Many law firms are also making significant investments in artificial intelligence (AI) and other software to enhance productivity. By bringing experienced business and management professionals into supporting the practice of law, MSOs can be a key resource for improved productivity and help law firms and their owners participate in the efficiencies generated by these technological developments.
Unique Challenges
To be sure, MSOs face unique challenges in the legal profession. Though the MSO model has been used in healthcare for decades, it is relatively untested from a regulatory standpoint in the law firm context. Accordingly, there is no guarantee that legal ethics regulators will follow the same trail blazed by their counterparts on boards of medicine and other professional services. That said, at least one state ethics committee has now opined on the subject. In February 2025, the Texas Commission on Professional Ethics released Opinion 706. In this Opinion, the Commission confronted the questions of 1) whether a lawyer may pay an MSO a fee based on a percentage of the revenues of the law firm and 2) whether a lawyer and nonlawyer may own equity in an MSO that provides support services to law firms.5 The Commission concluded as follows:
Under the Texas Disciplinary Rules of Professional Conduct, a lawyer that engages a nonlawyer-owned company to provide a platform of support services may not pay or promise to pay fees to the company based on a percentage of the revenues of the lawyer or the lawyer's firm.
A lawyer may own an equity interest in a company owned in part by nonlawyers so long as the company does not engage in the practice of law. A lawyer who owns or invests in a law-related services company should consider ethical issues, including conflicts of interest, that may arise from the investment.6
These conclusions are consistent with the approach taken by boards of medicine and other professional boards that have evaluated MSO arrangements and represent a positive indicator that MSO arrangements, if properly structured, are likely to be viewed favorably in Texas.
Another unique challenge facing MSOs is that generally, Rule 5.6 prohibits lawyers from being bound by or subject to non-competition provisions or agreements. This risks a situation where the MSO becomes involved with a law firm and the lawyers depart the firm. Accordingly, investors will need to be thoughtful in choosing which law firms to associate with and in structuring transactions so that incentives remain aligned on a post-closing basis. For this reason (and based on experience), we would expect many law firm MSO transactions to involve a significant rollover equity component, and we continue to work with stakeholders to develop other incentives that provide investors the assurances they require but do not run afoul of attorney non-compete restrictions. The enforceability of such restrictions will vary on a jurisdiction-by-jurisdiction basis, of course.
Finally, though certain jurisdictions have long since abolished restrictions on the so-called "corporate practice of medicine" (i.e., restrictions on the ability of unlicensed individuals to hold equity in medical practices), only a handful of jurisdictions (Arizona,7 the District of Columbia,8 Utah9 and, as of June 17, 2025, Puerto Rico10) have taken this approach in the legal services field. Indeed, as the Arizona "alternative business structure" program has received significant national press in recent months, certain states have taken steps to reaffirm their positions that they do not permit nonlawyer ownership. Texas took this position in Opinion 704,11 and the California legislature appears poised to adopt AB931, a bill that would bar any lawyer in the state from sharing fees with a law firm that has nonlawyer owners. Accordingly, although nonlawyer-owned firms face unique challenges of their own, they represent another type of competitive threat within the industry to the MSO model.
Unique Opportunities
The surge of interest in law firm MSOs represents an unparalleled opportunity to invest into a highly fragmented market. Though any investor would need to get comfortable with the business and legal risks that accompany being an early mover, legal services represent an essentially greenfield space into which capital can be deployed.
Footnotes
1 Gregory D. Anderson and Emily B. Grey: "The MSO's Prognosis after the ACA: A Viable Integration Tool?" American Health Lawyers Association Physicians and Physician Organizations Law Institute, Feb. 11-12, 2013.
2 A prohibition that no longer exists in Arizona.
3 Sam Skolnik, Skye Witley and Olivia Cohen: "Law Firm Cyberattacks Grow, Putting Operations in Legal Peril," Bloomberg, July 7, 2023.
4 Which technology competency is required under Rule 1.1.
5 Texas Center for Legal Ethics.
6 Ibid.
7 Westlaw.
8 DC Bar.
10 Emily R. Siegel: "Tax-Friendly Puerto Rico Approves Non-Lawyer Owners of Law Firms," Bloomberg Law, June 24, 2025; Reglas de Conducta Profesional de Puerto Rico (Spanish).
11 Texas Center for Legal Ethics.
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