Arizona's growing law firm ownership market gives British ABS experience an export value

Arizona's market for outside-owned law firms has grown quickly and is now being tightened

On 27 August 2020 the Arizona Supreme Court unanimously approved reforms that eliminated Ethical Rule 5.4, which had barred nonlawyers from owning law firms and from sharing fees with lawyers, according to the Committee on Alternative Business Structures' annual report for 2025. The licensing code for the new entities, section 7-209 of the Arizona Code of Judicial Administration, took effect on 1 January 2021. The court's own committee reviews applications for licences and renewals, while the State Bar handles complaints against licensed entities and their compliance lawyers.

The growth since then has been steady and, in the last two years, fast. The committee's annual report for 2023 counted 65 licensed ABSs on 31 December 2023, with 40 initial applications pending. In 2024 the court granted 51 licences, more than double the number granted in 2023, which brought the total to 114 active licensed entities on 31 December 2024, according to the committee's report for 2024. By 31 December 2025 there were 152 active licensed entities, after the licensing division received 70 initial applications during 2025 and the court approved 39 of them.

The shape of that growth matters for anyone hoping to sell into it. Of the 51 licences granted in 2024, 47 went to traditional law firms, 2 to small non-law firms and 2 to large non-law firms, and the practice areas ran from personal injury and immigration to family law, tax and intellectual property. Arizona's market is therefore mostly law firms that have taken on nonlawyer owners or managers, not retailers or software companies adding legal services to something else.

The money behind it is changing. An Arizona practice that advises ABS applicants wrote in September 2026 that investor interest had moved towards management services structures, saying that since August 2025 only 5 of 42 ABS applications had involved outside financing, and put the number of ABSs licensed and operating at 171. That is an adviser's count rather than the court's, but it points to a market that is still adding firms while the capital behind them changes form.

British firms already run the controls that Arizona is now writing into its rules

England and Wales have operated outside ownership of law firms for well over a decade. The Solicitors Regulation Authority started accepting ABS applications in January 2012 and licensed its first ABSs in March 2012, under the Legal Services Act 2007. Since then a whole layer of British practice has grown up around the regime: owner approval, fitness checks on investors, compliance officers, breach records and file reviews.

The regime is now a settled part of the market. The SRA's authorisation annual data for 2023/24 shows firms with an ABS licence rising from 791, or 8 per cent of regulated firms, in 2017/18 to 1,141 (12 per cent) in 2021/22, 1,202 (13 per cent) in 2022/23 and 1,257 (14 per cent) in 2023/24, out of 9,147 firms in that last year. Arizona's 152 entities at the end of 2025 are a fraction of that, which is precisely why British experience has something to offer.

Every SRA-authorised firm must also name a compliance officer for legal practice and one for finance and administration. The SRA's guidance on the responsibilities of COLPs and COFAs, published on 25 November 2019, says a COLP must take all reasonable steps to make sure that the firm's managers and interest holders do not cause or substantially contribute to a breach, and that the SRA expects compliance officers to keep a record of all breaches. That is the daily work that Arizona's compliance lawyers are now being asked to formalise.

British legal services already sell well abroad. The Law Society's International Data Insights report 2026, published on 29 September 2026, says exports of UK legal services rose to £10.97 billion in 2025, up 60 per cent on 2021, and that the European Union and the United States remained the two largest markets. Almost all of that is legal advice. My argument is about a smaller and newer line of trade: the governance, compliance and software that outside-owned firms need to stay licensed.

The strongest objection is that Arizona is one state, investors are cooling and US rules keep British firms out

The objection is serious. On 2 October 2026 the Tennessee Supreme Court issued an order after receiving almost 400 comments on possible reforms, and said it would not pursue regulatory reforms related to nonlawyer ownership of law firms or fee sharing at this time. The ABA Journal reported on 21 October 2026 that so far only Arizona and Utah have rewritten or relaxed their nonlawyer ownership rules statewide. A British firm that builds a US business around ABS work is, on that evidence, building around one state.

The capital that made Arizona interesting is also moving. The adviser who counted 5 outside-financed applications out of 42 since August 2025 wrote that California restricted ABS fee sharing in 2025 and that Illinois and Colorado followed. If investors can reach law firms through service companies that sit outside the licensing regime, fewer of them will want an ABS licence at all.

Arizona's own rules are also turning inward. Administrative Order 2026-31, dated 18 March 2026, says licensure must, at least in part, further the court's regulatory objectives for persons located in Arizona, and that lawyers practising with an ABS must be, at least in part, providing legal services to persons. A firm that wanted an Arizona licence as a flag of convenience for national work will find that harder now, and a British firm with no clients in Arizona has little claim to one.

I accept most of this. Exporting legal advice into Arizona is a narrow and slow route, and nobody should plan a British law firm's US growth around a single state court's licensing scheme. Tennessee's court did, however, say in the same order that it may revisit the question as additional data on the success of these reforms becomes available, which tells me that the debate is about evidence of good governance rather than settled principle.

That is where the British opportunity lies. The export is not advice to Arizona clients but the compliance, governance and technology layer that Arizona's licensed firms must now run whoever owns them. On the adviser's count most applications since August 2025 have not involved outside financing, and the 2025 and 2026 rules apply to those firms as much as to investor-backed groups. If outside money cools, the need for audit-ready controls does not.

Arizona's 2025 and 2026 orders turned good intentions into recurring compliance work

Three administrative orders in 2025 reshaped the regime, according to the committee's report for 2025. The March order shortened the look-back period for lesser discipline from 10 years to 5 and extended the revocation period from 3 years to 5. The June order required applicants to describe how their ABS services will advance access to legal services, and clarified the committee's discretion to refuse applications that fail to meet the programme's purposes. The December order raised the threshold for an authorised person to 25 per cent, expanded compliance lawyer requirements and added semi-annual audits every six months from licensure.

The March 2026 order went further on governance. The committee must now ensure that an applicant has adequate governance structures and policies so that lawyers act with independence, the ABS maintains proper standards of work, lawyers make decisions in the best interest of clients and confidentiality is maintained. Those tests are applied at licensing, and the December 2025 rule adds an audit every six months from licensure, so firms need a standing way of showing that the policies work.

The complaints data shows where those controls bite. The 2025 report says the complaints the State Bar received most often involved communication, diligence and conduct prejudicial to the administration of justice, with fees and the safekeeping of client property also common, and several involved supervisory duties. Those are the same risks that British COFAs and COLPs track through accounts rules, file reviews and breach registers.

The administrative load on the court is visible too. The report for 2025 says the programme team grew to four people in 2025, supported by another court staff member and external contracted help on investigations. A regulator stretched that thinly will lean heavily on what licensed firms can evidence for themselves, and that evidence has to be produced by someone.

British suppliers should sell governance to Arizona firms rather than advice to Arizona clients

For a British compliance consultancy or legal software firm, the buyer is the Arizona compliance lawyer and the firm's managers, not the consumer. What they need is a way to document independence controls, record breaches, track ownership changes that require committee approval and produce a semi-annual audit report that will stand up at renewal. That is a product British suppliers have already built for SRA-regulated firms.

Contracts will need to reflect the Arizona connection rule. A supplier should work with ABSs that genuinely serve people in Arizona, because a licence that rests on thin local activity is exposed under the March 2026 order. I would expect sensible suppliers to ask for evidence of the firm's Arizona client base before signing, in the same way that a British supplier checks a firm's SRA status.

Data handling needs care. Arizona's governance test refers to confidentiality under the court's own Rule 42, and a British supplier hosting audit data or client file samples will need to show where that data sits and who can see it. That is a familiar discipline for firms that have worked under UK data protection law, but it has to be written into the contract rather than assumed.

British ABS groups themselves have a different offer. A group that has integrated outside investors, nonlawyer managers and compliance officers since 2012 can partner with Arizona-licensed lawyers on operating models, training and governance, while those lawyers do the legal work. That is a services relationship, not a cross-border practice, and it does not depend on any British lawyer being admitted in Arizona.

The window is open while Arizona is still rewriting its code

Arizona has said openly that the rules are unfinished. The committee's report for 2025 says the amendment effort remains ongoing, with the division and committee continuing to refine the framework. On 25 August 2026 the court's ABS announcements page posted a further proposal to restyle section 7-209 as part of a reorganisation of all certification and licensing code sections, to conform to a new general provisions article effective on 15 November 2026.

The application process itself is being rebuilt. The same page said on 27 August 2026 that the application portal was on hold during a move to a new platform and that applications, including paper submissions, were not being accepted, and on 11 September 2026 it told new applicants to email the programme to begin. A regime that is changing its forms, its code and its audit cycle in the same year is one where practical compliance know-how is scarce.

That scarcity will not last. Arizona's licensed firms, their compliance lawyers and US software vendors will build their own templates and tools as the semi-annual audits become routine. British suppliers that wait until the code settles will be competing with tools designed in Phoenix for Phoenix, rather than shaping what good evidence looks like while the court is still deciding.

What I would do now as a UK ABS owner

First, I would turn our own compliance record into something that can be shown to others. That means writing up how we approve owners, how our COLP and COFA record and report breaches and how we audit files, in a form an Arizona compliance lawyer could read against the December 2025 and March 2026 orders.

Second, I would find two or three Arizona-licensed lawyers who serve clients in the state and offer a paid governance partnership, covering audit preparation, policy templates and training, rather than any share of legal fees. I would check their Arizona client base first, because the March 2026 order makes that the foundation of their licence.

Third, I would talk to the legal software firms we already use about whether their breach registers and audit modules can produce a six-monthly Arizona report. If they cannot, I would expect a British or Arizona competitor to fill the gap within a year.

Fourth, I would watch the states that are still deciding. Tennessee has said no for now but left the door open, and every state court that reconsiders the question will ask what governance outside-owned firms actually run. British evidence from more than a decade of licensing is useful to them, and it should come from firms that can show it working.

My prediction is that by the end of 2028 Arizona's semi-annual audit will have become a standard compliance product, and that at least some of the tools and methods used to meet it will have been built by British firms that started from SRA experience. The firms that move while Arizona is still writing its code will set the template that others copy.