The Professional Ethics Committee for the State Bar of Texas (Committee) in February 2025 issued Opinion No. 706, the first ethics opinion that squarely addressed the use of law firm management service organizations (MSOs).1 The Opinion is unique for two reasons. First, it provides guidance for the use and operation of law firm MSOs. Second, in doing so, it implicitly acknowledges the permissibility of such a structure. In the authors' work in the law firm MSO space, we are asked nearly daily about the ethical permissibility of the relationship between law firms and MSOs. We, like the State Bar of Texas, believe that these relationships can (and currently do) exist entirely within the bounds of the legal regulatory structure – but only when properly planned, controlled and maintained.
By way of background, law firm MSOs function much like the MSOs that have appeared in other professional service industries. As discussed in a previous Holland & Knight article, MSOs exist to assist professional service organizations – such as healthcare companies, accounting companies and law firms – with the administrative challenges that are associated with running those organizations. "In a typical MSO arrangement, the professional retains and exercises control over all professional aspects of the relevant practice [while] … 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."2 The aim of the model is to allow the professional to focus primarily on the professional relationship with their client, while the MSO handles the administrative burdens of the business.3 This structure allows an MSO to take advantage of innovating and professionalizing the business needs of the professional organization.4 This dual structure is becoming increasingly popular in the legal profession. Lawyers recognize the benefits of being able to hand off the "business of law" while keeping control over the "profession of law" – the actual serving of clients in an attorney/client relationship.
While the law firm MSO structure goes to at least 2006,5 there are few people openly discussing these models in the legal profession and even fewer people or organizations writing about them. That is one of the reasons that Opinion No. 706 is so interesting to those of us practicing in the law firm MSO space: It is the first ethics opinion to provide guidelines around properly structuring law firm MSOs. More interestingly, the Committee implicitly approves the use of those very structures.
In the Opinion, the Committee contemplates the following questions:
- If a lawyer engages a nonlawyer-owned company to provide a platform of support services, may the lawyer pay fees to the company based on a percentage of the revenues of the lawyer or the lawyer's firm?
- May a lawyer and nonlawyer share equity ownership of a company that sells a platform of support services to law firms?
The questions arise out of the following facts:
A company owned by nonlawyers (the Company) offers a platform that provides case management, back-office, and legal support services and technology for lawyers and law firms. The Company does not operate as a law firm and does not deliver legal services. The Company markets its platform exclusively to lawyers and law firms. Lawyers and law firms who subscribe to the Company's services are responsible for directing and overseeing the use of the platform.
The Company plans to charge periodic fees based on the revenues of subscribing lawyers or law firms. According to the Company, all revenue data supplied will be aggregated and anonymized, ensuring that no confidential client information is disclosed. The Company will not have access to client lists or be able to link any revenue with specific clients.
Lawyer A has evaluated the Company's technology and services and proposes making an equity investment in the Company, either individually or through Lawyer A's law firm.
Key Takeaways from the Opinion
Fee-Splitting with Nonlawyers Is Prohibited
The Opinion observes that the Company's proposed arrangement – where the Company's fee is based on firm revenues rather than actual costs or services – amounts to a split of legal fees with a nonlawyer.6 Rule 5.04(a) prohibits a lawyer from sharing legal fees with a nonlawyer except in narrow and specifically defined circumstances.7 This prohibition is rooted in long-held concerns about protecting lawyer independence and preventing outside interference with the lawyer's judgment.
Opinion 706 reaffirms this bright-line rule. A payment model in which the Company's compensation is directly tied to law firm revenue – whether gross or net – is a form of prohibited fee-splitting, regardless of whether the company is owned by the lawyer or a third party. The Opinion emphasizes that structuring payment as a percentage of revenues or profits from legal services is impermissible, even if the Company provides legitimate services such as marketing, intake or operational support.
The analysis is consistent with a long line of ethics opinions in Texas and other jurisdictions, which draw a clear distinction between reasonable payments for actual services rendered and percentage-based compensation that fluctuates with legal fees.
Indeed, "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."8
Lawyers Can Have Equity Investments in MSOs (with Conditions)
Opinion 706 also affirms that a lawyer may own or invest in a company that provides law-related services, as long as the company itself does not engage in the practice of law. Examples from the legal industry have historically included litigation support companies, document management providers and title companies. However, the lawyer must take care to ensure that their ownership does not result in indirect violations of the ethics rules.
For example, if the company is offering services in a way that appears to be the unauthorized practice of law or the lawyer's ownership results in improper referral arrangements or fee-sharing, the lawyer may be held accountable under the ethics rules. Simply labeling a service as "nonlegal" will not shield the lawyer from scrutiny if, in substance, the conduct violates the rules of professional responsibility. Overall, though, "the Rules do not prohibit a Texas lawyer from investing in a nonlawyer-owned business that does not engage in the practice of law."9
Dual Roles and Referrals: Ethics Rules Still Apply
Perhaps the most nuanced portion of Opinion 706 involves the situation where a lawyer refers his or her clients to a company in which the lawyer has an ownership interest.10 In this case, the company is not merely an independent service provider – it becomes part of the lawyer's financial landscape. This dual role raises conflict concerns under Rule 1.06 and triggers the business-transaction requirements of Rule 1.08.
Here, Opinion 706 draws a careful but firm line: Where a lawyer refers a client to a law-related business in which the lawyer has a personal financial interest,11 the referral constitutes a business transaction with the client.12 As a result, the lawyer must comply with the full set of requirements in Rule 1.08, including:
- full disclosure of the terms and nature of the transaction
- a recommendation that the client seek independent counsel
- informed, written consent from the client
These safeguards ensure that the client understands the lawyer's dual role and the potential for divided loyalties. The mere fact that the referred services are not strictly "legal" in nature does not eliminate the duty of disclosure. Indeed, the Committee notes that, under the facts presented, it is unclear whether 1) the lawyer's law firm will be using the Company's services in the representation of the law firm's clients or 2) the Company's services will be engaged in general law firm operations or management. Ultimately, it concluded that in situations that implicate the former, "Lawyer A's investment in the Company may create a conflict of interest and may require written disclosure and informed consent under Rules 1.06 and 1.08."
Importantly, the opinion does not prohibit such referrals outright (which is consistent with the view other jurisdictions have taken on the increasingly common practice). Rather, it insists that lawyers treat them with the seriousness and transparency required when engaging in any financial transaction with a client.
As the legal marketplace continues to evolve, lawyers must remain vigilant about the ethical implications of innovation. Structuring law firm MSOs can be complicated, and an attorney must be careful to ensure that the needs of attorneys, investors and, most important, clients are met. While acting only as persuasive authority, Opinion No. 706 confirms that, when structured correctly, law firm MSOs are a viable option for lawyers, investors and service providers.
Notes
1 While there is one earlier ethics opinion related to MSOs, it dealt with an entirely different issue – whether an MSO would be engaged in the unauthorized practice of law where it provided legal services through in-house legal staff as part of overall management services. Naturally, the opinion concluded that such actions would constitute the unauthorized practice of law. Illinois State Bar Association (ISBA) Opinion No. 97-03 (1997). There is also one ethics opinion on law firm referral services that briefly takes up the issue of back-office operations in passing but does not deeply analyze or address such operations. MI Eth. Op. R-25 (2018).
2 Id.
3 Id.
4 Id.
5 Jacob Shamsian, "It's Illegal in Most States for Private Equity to Buy a Law Firm. Lawyers Have Figured Out a Workaround," Business Insider (July 6, 2025). See also Lucian Pera, "The Two-Company Model for New Law," Law Practice, March/April 2020; ISBA Opinion No. 97-03.
6 Although the authors of this article are not fond of the term "nonlawyer," we use it here, as it is still pervasive throughout the Rules of Professional Conduct and in most legal writing, including in Texas Opinion 706.
7 Opinion No. 706 cites the Texas Rules of Professional Conduct. In the American Bar Association's Model Rules of Professional Conduct and most other jurisdictions, this prohibition is found in Rule 5.4. Arizona has eliminated its version of Rule 5.4, so fee-sharing with nonlawyers is not only allowed there, it is now commonplace.
8 Porte, et al., supra.
9 Texas Opinion 706. This is also consistent with ISBA Opinion No. 97-03 supra.
10 In our experience, this is an increasingly common practice in the legal industry. While most such arrangements are permitted (remember, the vast majority of conflicts are waivable), proper disclosures and waivers remain critical, where required under the Rules.
11 Note that in the MSO context, this scenario would typically be triggered where the lawyer is referring the client to an MSO in which the lawyer has a financial interest.
12 Law-related services are goods and services that are related to the practice of law and that are not prohibited as the unauthorized practice of law when provided by a nonlawyer. Common examples of law-related services include title insurance, financial planning or e-discovery services.
