The UK has permitted outside investment in law firms for almost fifteen years. In the United States, litigation finance has expanded exponentially and with increasing sophistication since the industry’s modern roots in the mid-2000s. And lawyers need only look to other licensed professions—doctors and accountants—for models of how to unlock the value of long-term human capital in current cash flow. In this context, there’s inevitable (and perhaps inexorable) pressure to embed private capital more deeply into law firm operations.

More (including a connection to tax law) below the fold.

Outside of a few U.S. jurisdictions and a handful of reported transactions, however, these types of investor-law firm relationships have remained largely outside the mainstream. In August, Burford Capital, a prominent litigation funder, announced an intention to explore direct investment in law firms and their operations. Then, in early November, McDermott Will & Schulte disclosed discussions about restructuring the megafirm to allow for private equity investment. Weeks later, New York-based Cohen & Gresser stated that it was exploring a $40 million loan that would be convertible into firm equity, should the conversion become permissible under state ethics rules. Certain areas of practice, such as plaintiff-side personal injury law, may lead the way as these deals accelerate.

And they do appear to be accelerating. In early December, NetLaw, a technology and support services provider, announced a private equity investment to expand its capabilities on a national scale. NetLaw currently serves the Hargrove Firm, a Kentucky-headquartered estate-planning firm. Both operations are owned by members of the same family. Meanwhile, Certum Group, a prominent litigation funder with venture capital ties, acquired a management services organization (MSO)—essentially, a non-law business that provides administrative and technical support services—that grew out of litigation boutique Sbaiti & Company. Do these deals signal the start of a sea change across firms? Or will this type of outside investment further segment the legal market?

There are, of course, tax connections. The anti-cracking regulations under § 199A—the Tax Cuts and Jobs Act’s well-known pass-through deduction—include an example with a law firm that spins out a proto-MSO. In one of the provision’s typically absurd citations, it’s Treas. Reg. 1.199A-5(c)(2)(iii)(A) Ex. 1. As state bars consider whether and how to regulate these sidecar businesses, they should draw on Treasury’s thorny experiences with the pass-through deduction—and recognize the extraordinary challenges of policing the separation of economics and governance in these contexts. The Code’s service provider rules for REITs, as well as the Regulations’ transfer pricing regime, address similar issues with even greater complexity. Regardless of approach, balanced and effective regulation of the frontier of law firm investment is unlikely to be straightforward.

Moreover, law firm-MSO structures can give some lawyers their own partial claim on the pass-through deduction’s tax benefits. Section 199A allows a 20% deduction for income from certain businesses; this category expressly excludes legal, medical, and accounting services. For these regulated professions, MSOs definitionally do not (and cannot) perform these types of specified services. As long as the professional firm’s members own less than 50% of the service-provider MSO, the MSO’s income can be eligible for § 199A’s 20% tax benefit—including for MSO owners who also practice law as members of the law firm that deducts the costs of hiring the MSO. Outside equity investment is a clear, business-motivated mechanism to manage this tax-based ownership limitation. The overall arrangement is akin to a reverse Morris Trust for partnerships, with the pass-through deduction as an incentive to break common ownership. From this perspective, federal income tax puts a thumb on the scale in favor of these types of law firm restructurings.

More reportage and analysis follows.

Madison Arnold, Estate Planning Law Firm Gains PE Stake In Tech Platform, Law360 Pulse (Dec. 9, 2025):

NetLaw CEO Alex Hargrove confirmed to Law360 Pulse on Tuesday [December 9] that it received an investment from Conditor Equity but would not disclose the amount. NetLaw provides technology to the Hargrove Firm[, a Kentucky-based trust and estate panning law firm owned by Hargrove’s father and brother,] as well as managed services, back office support and administrative infrastructure. . . .

“We build AI, and we have a road map behind that,” Hargrove said [about Netlaw]. “We don’t want to put AI out there to the advisers or to their clients. We put really great attorneys out there, but we want those attorneys to be superefficient. We’ve got a road map of efficiencies we’re going to continue to build in the platform that’s going to allow us to scale from where we’re doing thousands of plans to many thousands of plans in the coming years, and to do so without any sacrifice in quality.”

Justin Henry, Law Firm Private Equity Investments Grow With Hargrove Deal, Bloomberg Law (Dec. 9, 2025)

The agreement is an example of how law firms are increasingly opening themselves to new forms of investments after resisting outside dollars for decades. Rules in all but a few states require lawyers to own firms, though operators have gotten around the restrictions by outsourcing administrative functions while keeping lawyers in charge of the delivery of legal services. . . .

“There is a compelling opportunity to evolve the way legal services are delivered in the estate planning space,” [said John Cochran, founder of Conditor]. He declined to comment on whether his investment gives him any form of control over NetLaw.

Ryan Boysen, Litigation Funder Certum Expands into Managed Services, Law360 (Dec. 4, 2025):

Litigation funder Certum Group has purchased a managed services organization [MSO] that handles back-office operations and tech support for mass tort and personal injury firms, amid growing interest in the model within the legal industry. . . .

[MSOs] have been in the news recently, with legal entrepreneurs lauding them as a way to skirt ethical rules that generally prohibit nonlawyer ownership of law firms in the U.S., by splitting a law firm into two entities.

The law firm itself will continue to employ lawyers and practice law, while the MSO handles back-office, nonlegal work like billing, marketing, information technology and human resources. The MSO then bills the law firm for those services and, because it does not practice law itself, can take on outside investments.

Emily R. Siegel, Litigation Funder Certum Launches MSO Aimed at Mass Tort Firms, Bloomberg Law (Dec. 4, 2025):

“I think it’s an interesting strategy for litigation funders to kind of diversify what has traditionally been their bread and butter approach here involving debt instruments to look at equity opportunities,” said Josh Porte, a partner at Holland & Knight who advises on MSO transactions.

The service organizations, increasingly seen in the healthcare and accounting industries, are getting a closer look in the US legal market as a way for firms to raise capital and steer clear of restrictions on direct investments [by nonlawyers] in most states. . . .

Paul Haskel & Paul Pollock, Litigation Funders Looking to Invest in Law Firms Face Hurdles, Bloomberg Law (Nov. 24, 2025):

[For licensed medical practices, s]tates such as New York and California restrain [the MSO] structure through fee-splitting prohibitions that limit the health-care MSO’s ability to capture profits from the practice. While many states prohibit non-professionals from directly influencing the physician/client relationship, the MSO’s ability to take on direct administrative functions and apply significant financial pressures enables them to exert substantial control. . . .

The use of MSOs in the law firm space is a much newer trend [that reflects, in part, increased demand for capital-intensive technology, even at smaller law firms] . . . .

Demographics also play a role. Many “founder” law firms are led by an aging generation that may be looking to scale back their duties and/or take some money off the table [by selling non-legal assets to an MSO]. . . .

[T]he growth in the law firm MSO space is bound to attract regulatory scrutiny. State bar associations and state judiciaries soon will raise concerns about the potential for private equity firms and litigation funders to exert undue influence over law firms and otherwise interfere with the attorney-client relationship.

Sujeet Indap, Private Equity Can Help Lawyers Grow as Rich as Their Clients, Fin. Times (Nov. 25, 2025):

[I]t’s a question of monetising the significant value locked up in the form of partnership equity. . . .

Not all the cash that flows into law firms through these innovative channels will necessarily go to line partners’ nest eggs. Some will inevitably fund signing-on bonuses for poached talent. Investments in technology, including artificial intelligence, have to be paid for too.