To start an Alternative Business Structure in Arizona, you form your business entity under state law, recruit a qualifying compliance lawyer and designated principal, and then apply for an ABS license through the Certification and Licensing Division of the Arizona Supreme Court under Arizona Code of Judicial Administration Section 7-209. The license is what lets an entity with non-lawyer owners deliver legal services to the public, and you cannot offer those services until the Supreme Court issues its approval order. Current processing runs about seven to nine months from a complete application.1Arizona Judicial Branch. Announcements – Arizona Judicial Branch
What an ABS License Lets You Do
Arizona Supreme Court Rule 31.1(c) permits any entity with non-lawyers who hold an economic interest or decision-making authority to hire lawyers and offer legal services, provided the entity employs at least one active State Bar of Arizona member in good standing to supervise the legal work, is licensed under ACJA 7-209, and delivers all legal services through authorized individuals.2New York Codes, Rules and Regulations. Arizona Rules of the Supreme Court – Rule 31.1 – Authorized Practice of Law Arizona launched this framework on January 1, 2021, after the Supreme Court eliminated Ethics Rule 5.4. The regulations covering eligibility, documentation, and ongoing duties sit in ACJA 7-209, last amended in August 2024.3Arizona Code of Judicial Administration. Arizona Code of Judicial Administration Section 7-209 – Alternative Business Structures
The eligible entity types are broad. ACJA 7-209 defines “person” to include individuals, business corporations, nonprofit corporations, partnerships, limited partnerships, LLCs, trusts, joint ventures, and cooperative associations. If you can form it under state law, you can likely apply.
Set Up the Entity and Fill the Required Roles
Form your business entity through the state first, then apply for a federal Employer Identification Number through the IRS. The online EIN application is free and issues the number immediately, but it has to be completed in a single session and allows only one EIN per responsible party per day.4Internal Revenue Service. Get an Employer Identification Number
Before the ABS application makes sense, you need the people in place.
Compliance Lawyer
Every ABS must appoint a compliance lawyer. This person must be an active State Bar of Arizona member in good standing, must be a manager or employee of the ABS rather than an outside consultant, and cannot have faced disciplinary action from any bar in any jurisdiction during the preceding 10 years. They also need enough credentials and experience to ensure the entity meets its ethical obligations.3Arizona Code of Judicial Administration. Arizona Code of Judicial Administration Section 7-209 – Alternative Business Structures The State Bar of Arizona has been direct that this is not a role for an inexperienced lawyer.5State Bar of Arizona. FAQs Regarding 01/01/21 Rule Changes Impacting Law Practice
The compliance lawyer is responsible for ensuring that the entity, every authorized person, employees, and independent contractors all follow the Arizona Rules of Professional Conduct, which means building internal controls around lawyer independence, conflicts of interest, and client confidentiality.6Arizona Judicial Branch. Arizona Alternative Business Structure Compliance Lawyer Primer If the entity falls short, the compliance lawyer faces personal disciplinary consequences.
Authorized Persons and the Designated Principal
An “authorized person” is anyone who holds at least 10 percent of the economic interest in the ABS or has the legal right to exercise decision-making authority on its behalf. That covers sole proprietors, LLC managers, corporate officers, general partners, and comparable roles. Every authorized person goes through the application’s vetting process whether they are a lawyer or not.
One of those authorized persons must be named as the designated principal. The designated principal is the point of contact with the Certification and Licensing Division and handles all administrative reporting. This person does not have to be a lawyer, but they need a working command of the regulatory framework because the state treats them as the first line of communication when questions arise.
What the Application Requires
Applications go through an online portal maintained by the Certification and Licensing Division.7Arizona Judicial Branch. How to Apply for ABS Licensure The documentation falls into two buckets.
Entity-Level Submissions
The entity submits the main application form, which includes descriptions of its management structure, governance rules, and internal policies for protecting lawyers’ independent professional judgment. You also provide a signed indemnification statement and conflict of interest statement from each authorized person, full disclosure of relationships to any parent company or subsidiary, and a signed acknowledgment that the ABS and its members are subject to the Supreme Court’s regulatory and disciplinary authority.
Fill in the free-form response fields directly. Avoid shorthand like “see attached.” The division evaluates what you enter in each field, so every required question needs a substantive answer even where the information feels repetitive.
Individual Background Requirements
Each authorized person goes through a personal background investigation, which means submitting detailed personal history, professional background, and financial information. Arizona requires fingerprints for criminal background checks processed by the Department of Public Safety.8Arizona Department of Public Safety. Fingerprint Clearance Card Incomplete or inaccurate information can lead to denial, delay, or disciplinary action.
Fees and Processing Time
Application fees vary by entity type. Under the current fee schedule, a regular ABS pays $9,000, an equity ABS pays $4,500, and a nonprofit ABS pays $3,000. These cover administrative review and background investigations.
Expect roughly seven to nine months from the date the division receives a complete application, a timeline that applies to all pending initial applications and can stretch further if background investigations surface issues.1Arizona Judicial Branch. Announcements – Arizona Judicial Branch The Committee on Alternative Business Structures investigates the application, holds a public meeting to discuss its findings, and forwards a recommendation to the Arizona Supreme Court.9Arizona Judicial Branch. Committee on Alternative Business Structures The Supreme Court makes the final decision. Only after the Supreme Court issues its order can the entity begin offering legal services.
Obligations After Approval
Approval starts the compliance clock. Several duties catch new ABS owners off guard.
Renew Every Two Years
An ABS license expires at midnight on the day two years after the Supreme Court’s approval order. The license holder must submit the renewal application at least 90 days before expiration to allow processing time, and division staff may require updated background information and new fingerprints.
Annual Insurance Disclosure
Every ABS must certify to the State Bar by February 1 each year whether it carries professional liability insurance. Coverage itself is not mandatory, but the disclosure is, and the State Bar publishes the information publicly. If a policy lapses or terminates, you must notify the State Bar in writing within 30 days. Failing the disclosure requirement can trigger summary suspension by the committee.
Report Changes Quickly
The ABS must maintain a statutory agent in Arizona at all times. Any change in the designated principal, compliance lawyer, authorized persons, or contact information must be reported to division staff within three business days. A change in designated principal or compliance lawyer requires separate written notification within 30 days.
Conflicts of Interest Deserve Early Attention
Conflict management is where ABS structures face their hardest practical challenge. A traditional law firm screens conflicts among its clients. An ABS that also provides accounting, technology, or consulting services has a much larger surface area for conflicts, because a non-legal client relationship can compromise legal representation.
The compliance lawyer must build screening procedures appropriate to the entity’s size and type. When a conflict surfaces, the firm identifies the affected clients, determines whether the conflict is one that clients can consent to, and obtains informed written consent from all affected parties if the representation continues. Failing to institute reasonable screening procedures in the first place is itself an ethical violation. Non-lawyer owners from business backgrounds often underestimate how rigid these rules are, so the compliance lawyer needs enough internal authority to override business development decisions when a conflict appears.
Federal Tax Considerations for Owners
For ABS entities taxed as pass-throughs (LLCs, partnerships, S corporations), the Section 199A qualified business income deduction matters because law firms are classified as “specified service trades or businesses.” The deduction begins phasing out above a statutory base threshold of $157,500 for single filers and $315,000 for joint filers, with those figures adjusted annually for inflation. Above the phase-out range, the deduction disappears entirely for specified service businesses.10Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income Entities that try to split legal and non-legal revenue into separate divisions to preserve the deduction face anti-abuse rules: if a non-legal division provides 80 percent or more of its services to a commonly owned law firm, all of that division’s income is treated as specified service income.
On a separate compliance front, as of March 2025 all domestic entities are exempt from beneficial ownership information reporting to FinCEN. Only foreign entities registered to do business in the United States are still subject to that requirement.11FinCEN.gov. Beneficial Ownership Information Reporting
Arizona Licensure Does Not Extend Outside Arizona
Arizona’s program is the most permissive in the country, and no other state has fully eliminated Rule 5.4 restrictions. Utah runs a regulatory sandbox extended to August 2027, the District of Columbia permits limited non-lawyer ownership under a modified Rule 5.4, and California allows fee-sharing with qualifying 501(c)(3) nonprofits but not non-lawyer ownership of for-profit firms. The ABA’s Model Rule 5.4 continues to prohibit non-lawyer ownership of law firms, and most states follow it.12American Bar Association. Rule 5.4 Professional Independence of a Lawyer If you plan to operate across state lines, Arizona ABS licensure authorizes the structure only within Arizona.