Beginning January 1st, 2021, last year’s decision by the Arizona Supreme Court to eliminate Rule 5.4 of the Arizona Rules of Professional Conduct took effect. This groundbreaking change allows nonlawyers to share in the economic interests of law firms owned by alternative business structures.
Arizona was the first state to strike Rule 5.4, and others are quickly following its lead. Specifically, California and Utah have also shown interest in changing their laws regarding the ownership rules of law firms. Some have even considered changing the provisions that define what constitutes the unauthorized practice of law. Utah has permitted a provisional basis for ownership of legal practices by paralegals and other nonlawyer employees using regulations. Still, Arizona is the first state to enact such changes and is shaking up the legal industry as we know it.
What Eliminating Rule 5.4 Means For Law Firms
The biggest change for law businesses affected by the elimination of Rule 5.4 in Arizona is that nonlawyers can now gain equity in law firms. This change also makes it possible for investors to supply additional capital into legal firms like they normally would for tech startups or small businesses.
Further, legal practices can use equity interest from their profits to recruit nonlawyer employees, which means that, at some point, it may be possible for law firms to enter public trading, alongside big name brands in the United States and those already traded in the United Kingdom.
