PE Firms Make Full-Scale Entry into U.S. Law Firm Market

Regulatory Easing in Utah and Arizona
Higher Returns Expected Through Mergers and Acquisitions...
Concerns Over the Survival of Small Law Firms

#1. Charlesbank Capital Partners, a U.S. private equity (PE) firm, acquired a stake in Aprio, an accounting and consulting company headquartered in Atlanta, Georgia, and has decided to merge Aprio with Radix Law, a law firm based in Arizona.

#2. Ninth Avenue Capital, a PE firm based in Missouri, holds a partial stake in a law firm in Arizona. This law firm focuses on large-scale damage lawsuits and personal injury cases, and Ninth Avenue Capital is involved in the management of the firm.

As some states in the U.S. have begun allowing non-lawyers (hereafter "non-attorneys") to own law firms, private equity firms are now investing in or even acquiring law firms. These firms are providing the capital necessary for case management, acquiring smaller law firms, and introducing technologies such as artificial intelligence (AI) to increase profitability and diversify their portfolios.

However, there are concerns that allowing non-attorneys to own law firms could lower the quality of law firm services and make it difficult to provide independent and impartial advice, potentially eroding public trust. While such changes are unlikely in Korea due to regulations such as the Attorney-at-Law Act, there are opinions that regulatory easing should at least be considered for the advancement of the legal market.

In most U.S. states, the American Bar Association (ABA) ethics rules prohibit non-attorneys from ▲ owning law firms ▲ employing attorneys ▲ engaging in legal practice. However, recently in Utah and Arizona, private equity, legal tech companies, and accounting firms have been allowed to own and invest in law firms. This is the result of regulatory reforms led by these states.

Utah, led by its state Supreme Court in 2020, introduced a "legal sandbox" (a temporary regulatory exemption), which allows, on a limited basis and with government approval, exemptions from ABA ethical rules prohibiting non-attorneys from owning law firms, employing attorneys, and engaging in legal practice. Arizona, in 2021, introduced the "Alternative Business Structure (ABS)" system, permitting non-attorneys to own law firms and employ attorneys. However, unlike Utah, Arizona still prohibits non-attorneys from engaging in legal practice. Han Aera (53, 27th Judicial Research and Training Institute), a professor at Sungkyunkwan University Law School and chair of the board at SK Hynix, explained during her keynote speech at the "2025 Legal Tech & AI Show (Legal Tech & AI Show·LTAS)" on June 18, "The legal sandbox in Utah offers broader regulatory exemptions, but companies prefer Arizona's clear and permanent regulatory easing approach."

The bold regulatory easing in Utah and Arizona is based on the belief that allowing external capital to access the legal market would drive innovation and efficiency. The influx of external funds could lead to the consolidation of smaller law firms and the adoption of AI to reduce labor costs, making economies of scale possible, increasing profitability, and improving law firm case management efficiency. For these reasons, discussions on legal service market regulatory reform are also underway in other states such as California, Oregon, and Minnesota.

From the perspective of private equity, the U.S. legal market is an attractive investment destination. There are approximately 420,000 law firms in the U.S., and the market is estimated to be worth $400 billion (about 545 trillion won). The legal market is considered a "defensive sector" because demand remains steady regardless of economic fluctuations, covering areas such as divorce, personal injury, wills, and mergers and acquisitions.

The United Kingdom was ahead of the U.S., introducing ABS in 2012 to allow non-attorneys, including private equity, to invest in and own law firms and employ attorneys. Thanks to ABS, legal service companies serving the general public in areas such as wills, real estate transfers, and traffic accidents have grown rapidly in the UK. It is also credited with fostering organic connections between the legal profession, academia, finance, and technology sectors.

However, if PE capital flows into law firms, there is a risk that profit-driven culture will intensify at the expense of public interest, and issues such as "conflicts of interest" and violations of attorney ethics may arise. A representative from the Seoul office of a major U.S.-based global law firm commented, "The more traditional and larger U.S. law firms are unlikely to take risks regarding ethical issues," adding, "For the time being, PE investments will likely focus on small and mid-sized law firms rather than large firms."

There are also counterarguments that, as in other industries, appropriate oversight and regulation can maintain balance and prevent major issues. Forbes, a U.S. business media outlet, reported, "Some argue that blocking non-attorney investment in the legal market is equivalent to denying capital that has already driven innovation in other industries," and noted, "Law firms remain one of the last major industries not fully penetrated by private equity, and while the barriers of regulation and ethics remain high, cracks are already appearing."

Hong Yunji, Legal Times Reporter

※This article is based on content supplied by Law Times.