California legislators have sent a bill to Governor Gavin Newsom that would limit the reach of alternative business structure (ABS) law firms in the state. If enacted, the measure would prohibit fee-sharing between California lawyers and ABS entities owned by non-lawyers. The development was first reported by Law360.

ABS firms, common in the United Kingdom and Australia, allow outside investors and non-lawyers to hold ownership stakes in law firms. Advocates cite increased access to justice and innovation, but opponents warn of risks to professional independence and client protection. California’s proposal would specifically prevent lawyers from entering financial partnerships with out-of-state ABS firms that are not wholly lawyer-owned, effectively restricting their operations within state borders.

The legislation follows lengthy consultations within the legal community, where concerns centered on whether profit motives from non-lawyer investors could compromise attorneys’ duty to clients. Critics emphasize that the model could shift priorities away from professional ethics toward commercial gain.

Supporters of ABS firms argue the opposite—that opening ownership to non-lawyers fosters efficiency, modernizes service delivery, and could expand access for underrepresented populations. Yet, California’s bar and policymakers have generally taken a cautious approach, underscoring the tension between innovation and regulation in legal services. The American Bar Association has also weighed in, reflecting the national debate on whether non-lawyer ownership aligns with the profession’s core principles.

Governor Newsom’s decision will determine whether California joins other states in reinforcing limits on ABS models. The outcome could ripple beyond state lines, shaping policy discussions in jurisdictions evaluating similar measures.