A Commitment to Innovation

States across the country are looking at new ways of regulating legal services providers. In pursuing legal regulatory innovations, a state will generally take one of two approaches:

  1. Establish a pilot project of limited duration in order to collect data necessary to inform a permanent rule change.
  2. Enact a permanent rule change.

Utah has gone the former route with its legal services regulatory sandbox. The sandbox will run through 2027 at which time the Utah Supreme Court will assess the program and determine if it should continue.

Arizona Task Force on the Delivery of Legal Services opted for the latter route and eliminated the barriers to lawyers and non-lawyers co-owning businesses engaged in the practice of law. The Task Force considered the regulatory sandbox model but declined to take that approach.

“The Task Force ultimately concluded that no compelling reason exists for maintaining [Ethics Rule] 5.4 because its twin goals of protecting a lawyer’s independent professional judgment and protecting the public are reflected in other ethical rules which can be strengthened.”

Source: The Supreme Court of Arizona, Task Force on the Delivery of Legal Services: Report and Recommendations (Oct. 4, 2019)

Permissible Business Model Innovation

That decision launched the Alternative Business Structures (ABS) program, codified in Arizona Code of Judicial Administration § 7-209. The ABS program establishes a path to licensure for legal services companies with ownership structures involving lawyers and professionals without a license to practice law. (Note: the ABS program does not permit professionals without a license to practice law.)

The Arizona ABS program has five regulatory objectives.

Source: Arizona Code of Judicial Administration § 7-209(E)(2)(a)(1) (2022)

An entity applying to become an Arizona ABS must describe how the business will advance one or more of these regulatory objectives. One could assume that more is better, but the Committee on Alternative Business Structures does not provide this explicit guidance.

Furthermore, applicants for an ABS license must demonstrate adequate plans for governance structures and policies to ensure that:

Source: Arizona Code of Judicial Administration § 7-209(E)(2)(a)(2) (2022)

In addition to these narrative elements, an ABS application requires a considerable number of disclosures relating to individuals involved in the business, relationships to other entities, professional liability coverage, and others. Every Arizona ABS must designate an Arizona compliance lawyer.

Once an applicant entity receives approval from the Committee and is granted a license, it must submit a renewal application every year.

Additional Resources