The legal services market is large and fragmented and generates consistent demand. Yet law firms have historically underinvested in technology and back-office infrastructure, operating more as attorney-led partnerships than modern service businesses.
This underinvestment is becoming harder to sustain. Client acquisition has grown more competitive, technology expectations have risen and compliance requirements have expanded. But traditional partnership structures constrain the capital needed to keep pace.
The barrier has been regulatory: ABA Model Rule 5.4 restricts nonlawyer ownership, fee sharing and control of law firms across most U.S. jurisdictions. Rather than wait for those rules to change, firms and investors have organized around them through managed services organizations (MSOs).
Momentum is building. Uplift Investors formed Orion Legal MSO with Dudley DeBosier Injury Lawyers in 2025, and legal industry observers report that roughly a dozen MSO deals closed in 2025, primarily in personal injury and mass tort practices.
L.E.K. Consulting has written previously about alternative business structures (ABSs), which allow direct equity investment in a handful of states. But MSOs remain the more established pathway, working across jurisdictions without requiring new regulatory approvals.
The legal MSO model: Definition and context
The MSO model originated in healthcare, where regulations prevent nonphysicians from owning medical practices. MSOs emerged as a workaround: A separate entity handles administrative functions while physicians retain ownership and control of the clinical practice. The structure has since scaled across dentistry, ophthalmology and other healthcare specialties.
In the context of legal services, an MSO is a separate operating company that provides back-office services to a law firm under a long-term management services agreement. Under this agreement, attorneys control all legal work while the MSO owns and runs the business infrastructure, typically handling marketing and intake, technology and data systems, finance and accounting, human resources (HR) and recruiting, facilities and procurement, and administrative operations. The MSO often employs and sets performance metrics to manage the firm’s entire nonlegal workforce.
How MSOs differ from ABSs and traditional outsourcing
ABSs allow direct equity ownership in law firms, whereas MSOs maintain separation; investors own the MSO entity, which contracts with the attorney-owned law firm to provide services.
Traditional outsourcing handles discrete tasks such as payroll, information technology (IT) support or bookkeeping. MSOs take over the entire business side: all back-office operations, technology infrastructure and administrative functions under a single long-term contract.
Some platforms, such as Federate, Legal Back Office or Delegate.Legal, provide MSO-like operations through an outsourced service model. Investor-owned MSOs are built around an investable entity with long-term contract economics.
Law firm functional taxonomy and MSO structure
Law firms operate across six functional areas. Under the MSO model, legal work and attorney-supervised roles remain with the firm. Everything else moves to the MSO: marketing and intake, technology and data systems, finance and accounting, HR and recruiting, facilities and procurement, and administrative operations.
These functional areas break down as follows:
- Legal delivery and professional judgment. All attorney work, legal strategy, case decisions and supervision of substantive legal work must remain with the attorney-owned law firm under ABA Model Rule 5.4.
- Client relationships and regulated activities. Client engagement agreements, client files, trust accounts and conflicts management must stay with the law firm because they involve fiduciary duties that cannot be delegated to nonlawyers.
- Business development and marketing. Lead generation, intake operations, call centers and advertising spend can move to the MSO. Synergies emerge from scale, data infrastructure and specialized expertise that many firms cannot build internally.
- Operations and technology. IT systems, case management platforms and process automation can move to the MSO. Synergies come from centralized purchasing power and access to specialized technical talent.
- Finance and human capital. Accounting, HR, recruiting, payroll and benefits administration can move to the MSO. Synergies include economies of scale in benefits negotiation and centralized payroll systems.
- Real estate and facilities. Office leases as well as equipment, facilities management and vendor contracts can move to the MSO. Synergies arise from bulk purchasing and lease negotiation leverage.
The paralegal question. Paralegals sit at the boundary. They may be employed by the MSO but must remain under attorney supervision from the law firm and cannot provide independent legal advice. North Carolina State Bar guidelines confirm that paralegals can be employed by entities other than law firms as long as they perform substantive legal work for which a lawyer remains responsible.
The organizational chart below illustrates how these functional areas split between the law firm and the MSO in a typical midsize firm.
How MSOs get paid without fee splitting
All legal fees belong to the law firm. The MSO is compensated through a management fee defined in the management services agreement. ABA Model Rule 5.4 prohibits this fee from being calculated as a percentage of the law firm’s legal revenues or profits. Texas Ethics Opinion 706 (February 2025) confirmed this prohibition.
Common compliant fee structures are flat monthly or annual fees or cost-plus pricing where the firm reimburses the MSO for actual operating costs plus a predetermined margin.
The fee must reflect fair market value; when benchmarked against comparable market pricing, it should fall within a reasonable range. MSOs document their costs, pricing methodology and industry benchmarking to demonstrate compliance.
The law firm collects client revenues, pays the MSO its management fee and distributes the remaining funds to partners after covering legal expenses and attorney compensation.
What this means for law firms and investors
Healthcare provides a useful precedent. When corporate practice of medicine doctrines prevented nonphysicians from owning clinics, the MSO model emerged as a work-around. The model has since scaled nationally across dentistry, ophthalmology, anesthesia and a number of other specialties.
Legal MSOs work when the division between legal practice and business operations is genuine and when the MSO delivers operational value. The value proposition differs by stakeholder:
For law firms: MSOs provide a path to professionalize the business side, attract capital and build scalable infrastructure without violating ethics rules.
For investors: MSOs offer exposure to legal services within existing regulatory constraints. The model is structured around fee-based cash flows from the MSO. Returns come from operational efficiencies, margin expansion and the ability to scale a platform across firms.
As firms face increasing operational complexity and investors seek entry into a large, fragmented market, MSOs have become the most practical structure available.
But structure alone doesn’t guarantee success. In our next article, we’ll look at how investors evaluate legal MSOs, where the model fits best and what breaks when these deals are done poorly.
L.E.K. works with law firms and investors navigating these structures. Reach out to discuss how an MSO might fit your strategy.
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