LegalZoom is first business to have ABSs in England and the US

Arizona: ABS pioneer

LegalZoom has become the first business to have an alternative business structure (ABS) license in both the US and England and Wales.

The company – which is not a law firm – has been approved for a licence in Arizona, which in January became the first US state to scrap the rule against non-lawyer ownership.

ABSs have also been licensed in Utah since autumn 2020 as part of a two-year regulatory sandbox.

Rocket Lawyer, a LegalZoom competitor which also has an English ABS, is taking part in the sandbox but – unlike Arizona – this is not yet a permanent regulatory change. It is planning an Arizona ABS as well.

The US has strict rules governing the unauthorised practice of law and LegalZoom – which provides online documents and access to external lawyers – has been pushing their boundaries.

It also emerged in June that LegalZoom, which recently went public on the Nasdaq exchange, was bypassing the domestic ban by employing US lawyers through its English ABS.

The application to the Arizona Supreme Court – the courts oversee lawyer regulation in each state – said LegalZoom intended to provide only legal services in Arizona and before the US Patent and Trademark Office.

It may, however, “explore future offerings that combine legal services with tax and/or accounting services”.

The Arizona ABS will be run by James Peters, vice-president of legal at LegalZoom, who is qualified in both California and England and Wales. Mr Peters is involved in the English ABS too, as is Nicole Miller, LegalZoom’s general counsel and another key figure in the new firm.

Chief executive Daniel Wernikoff said: “We intend to continue advancing our mission to democratize law by deeply integrating attorney expertise and support with LegalZoom’s technology, process efficiencies, and commitment to providing affordable access to legal services.”

Eight ABSs had been licensed in Arizona before LegalZoom.

A recent analysis of the 30 so far approved by the Utah Supreme Court said they were “bringing a variety of safe legal services to thousands of consumers”.

Four are categorised as low risk, 12 as low-moderate risk, 13 as moderate risk, and one as high risk.

The court publishes monthly reports on activities in the sandbox and the analysis by Institute for the Advancement of the American Legal System (IAALS) said this showed that ABSs were meeting “a spectrum” of individual and business legal needs and were in “high demand”.

There have been only a few complaints made about the ABSs, at a rate of one per 1,000 services delivered.

The IAALS said: “Utah’s sandbox has opened up a world of possibilities when it comes to how to practise law, and demonstrates how innovation, technology, and professionals who aren’t lawyers can work alongside attorneys and ensure consumers have real access to the entire spectrum of legal needs.”

For example, 1Law – which is 50% owned by non-lawyers – provides free and low-cost legal services to assist clients in completing court documents, and also offers related legal advice using chatbots, instant messaging, and non-lawyer staff.

Other ABSs include Bee Bankruptcy Law, whose owner applied to participate in order to give his paralegal employee a 10% ownership stake; LawPal, which provides a platform to generate legal documents in divorce and custody cases, eviction cases, and debt-related property seizure cases; and Holy Cross Ministries, a non-profit organisation that will train two community health workers to serve as bilingual medical-debt legal advocates.

The IAALS concluded: “Although it’s been just over a year, it’s undeniable that the sandbox is providing thousands of consumers with a variety of legal services, creating new jobs for lawyers and other types of professionals…

“In just nine months, more than 2,500 people have received help with housing, immigration, healthcare, discrimination, employment, and a gamut of other issues. Lawyers are partnering up with other professionals to create new types of businesses, and technology is enabling them to do their jobs more efficiently.

“Instances of harm are rare – and, when they do occur, are being monitored and utilised by the Office of Legal Services Innovation to continually improve.

“As more states look to re-regulation as a means to increase access to legal services, the data from Utah’s sandbox – and the real people’s lives it is impacting – should be a strong push in that direction.”

In another breach of the dam, the American Bar Association’s standing committee on ethics and professional responsibility has issued a formal opinion confirming that a lawyer may passively invest in an ABS that includes non-lawyer owners, even if the lawyer is admitted in a state that does not allow them.

However, the lawyer must not practise law through the ABS or be held out as a lawyer associated with it.

The opinion said: “The fact that a conflict might arise in the future between the investing lawyer’s practice and the ABS’s work for its clients does not mean that the lawyer cannot make a passive investment in the ABS.

“If, however, at the time of the investment the lawyer’s investment would create a personal interest conflict… the lawyer must refrain from the investment or appropriately address the conflict.”

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