May a New York lawyer hold a financial interest in, divide fees with, or manage an Arizona-licensed alternative business structure (ABS) with nonlawyer owners?
NY State Bar Ethics Opinion 1291: New York Lawyer Participation in an Out-of-State ABS
Short answer: Per the Committee, (1) a New York lawyer may hold a passive financial interest in an alternative business structure that lawfully practices law in a jurisdiction (here, Arizona) permitting nonlawyer ownership; (2) the lawyer may divide fees with the ABS only if the new Rule 5.4(a)(4) (effective November 10, 2025) conditions are met and the division complies with Rule 1.5(g) (proportion-of-services or joint-responsibility, written client consent, total fee not excessive); and (3) a New York-admitted lawyer who is also admitted in the ABS jurisdiction may manage the ABS, subject to Rule 8.5(b)(2)(ii)'s carve-out that the New York Rules apply to any "particular conduct" whose "predominant effect" is "clearly" in New York.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The inquirer is a New York-only lawyer planning a succession structure built on a proposed Arizona-licensed ABS owned by two family trusts and managed by his son, who is admitted in New York and New Jersey and seeking Arizona admission. The New York firm and a New Jersey contractor firm would feed work to the ABS and share in the fees the ABS earns. The Committee addresses three questions: passive ownership in an ABS, fee-sharing with an ABS, and management of an ABS by a New York-admitted lawyer.
On passive ownership, the Committee concludes no New York Rule forbids a New York lawyer from holding a financial interest in an out-of-state entity owned by nonlawyers if that entity is permitted to practice law in its jurisdiction. The Committee aligns with N.Y. City 2024-4 (2024), which reached the same conclusion for a passive investor.
On fee-sharing, the Committee applies the new Rule 5.4(a)(4) (adopted by the Appellate Division effective November 10, 2025), which permits division of fees with a law firm having nonlawyer owners or supervisors if (i) the governing jurisdiction's rules permit nonlawyer ownership, (ii) the New York lawyer permits no nonlawyer interference with independent professional judgment or the client-lawyer relationship, and (iii) the division complies with Rule 1.5(g). The Committee reads Rule 1.5(g) and Comment [7] to apply equally to the lawyer paying the fee and the lawyer receiving it, citing N.Y. State 1172 (2019), 1244 (2022), 1128 (2017), and 961 (2013) (the retiring-lawyer line). For the inquirer, who is admitted only in New York and would perform the underlying work in New York, Rule 1.5(g) requires fees proportionate to services or written client consent to joint responsibility, written client consent to the division and shares, and a total fee that is not excessive.
On management, the Committee reads Rule 8.5(b)(2)(ii) as ordinarily applying the rules of the lawyer's principal-practice jurisdiction for out-of-court conduct. If DEF principally practices in Arizona once admitted, Arizona rules govern in most instances. But Rule 8.5(b)(2)(ii) carves out particular conduct whose predominant effect is clearly in another jurisdiction in which the lawyer is licensed. If a matter's predominant effect is clearly in New York, New York Rule 5.4(b), (d)(1), (d)(2), and (d)(3) apply, and DEF's participation in an ABS structure would be unethical. The Committee notes the predominant-effect inquiry is fact-intensive and beyond the opinion's scope.
The Committee explicitly does not opine on New Jersey or Arizona ethics rules, on the legality of the proposed arrangement, on Arizona's UPL framework (Arizona ER 5.5), or on the advisability of the business structure.
In practice
Under this opinion, conduct in which a New York-only lawyer holds a passive financial interest in an out-of-state ABS that lawfully practices in its home jurisdiction is permitted. Conduct in which the lawyer divides fees with the ABS is permitted if the new Rule 5.4(a)(4) conditions are met and the division satisfies Rule 1.5(g)'s three requirements. For a dual-admitted lawyer participating in management of the ABS, conduct is permitted where the predominant effect of particular work is clearly outside New York; conduct on matters with clearly predominant New York effect is prohibited because Rule 5.4(b) and (d) bar nonlawyer-owned practice.
Per the opinion, the Rule 1.5(g) requirements apply to both the paying and the receiving lawyer; the receiving lawyer cannot escape them by characterizing the payment as a "referral fee." For the inquirer in particular, whose work would be performed in New York, Rule 8.5(b)(2)(i) makes New York Rules the governing rules.
Common questions
Q: May a New York lawyer be a passive investor in an Arizona ABS?
A: Per the opinion, yes. "[N]o New York Rule forbids or regulates a New York lawyer's holding of a financial interest in an entity operating in a jurisdiction outside New York where the entity is owned by one or more non-lawyers if such entity is permitted to practice law in that jurisdiction." The Committee aligns with N.Y. City 2024-4 (2024).
Q: What did the November 10, 2025 amendment to Rule 5.4 change?
A: Per the opinion, the Appellate Division added Rule 5.4(a)(4) permitting fee division with a law firm that has nonlawyer owners or supervisors, on three conditions: the governing jurisdiction permits nonlawyer ownership; the New York lawyer permits no nonlawyer interference with independent judgment or the client-lawyer relationship; and the division complies with Rule 1.5(g).
Q: Does Rule 1.5(g) apply to a lawyer who is receiving a "referral fee" rather than paying one?
A: The opinion concludes yes. The Committee reads "divide a fee" in Rule 1.5(g) and Comment [7] to apply to both ends of the transaction, citing the N.Y. State 1172, 1244, 1128, and 961 retiring-lawyer line.
Q: May a New York-admitted lawyer manage an Arizona ABS?
A: Per the opinion, the answer is a qualified yes. Under Rule 8.5(b)(2)(ii), Arizona rules apply if the lawyer principally practices in Arizona. But if particular conduct has its predominant effect clearly in New York, New York Rule 5.4(b), (d)(1), (d)(2), and (d)(3) apply and would prohibit the participation. Determining predominant effect is fact-intensive.
Q: Does the Committee opine on Arizona law or UPL?
A: No. The Committee expressly declines to opine on Arizona ER 5.5, on the legality of the proposed arrangement, or on the advisability of the business plan.
Background and rules framework
The opinion interprets New York Rule 5.4 (professional independence), including the new Rule 5.4(a)(4) effective November 10, 2025, Rule 5.4(b) and (d)(1)-(3); Rule 1.5(g) (division of fees between lawyers not in the same firm); and Rule 8.5(a) and (b)(2)(i)-(ii) (choice of law). The Arizona authorities the opinion references for context are Arizona Code of Judicial Administration § 7-209(A) (defining ABS) and Arizona ER 5.5 (multijurisdictional and unauthorized practice).
Citations and references
Rules of Professional Conduct (New York):
- N.Y. Rule 1.5(g) (division of fees)
- N.Y. Rule 5.4(a)(4) (effective Nov. 10, 2025; fee division with ABS or similar)
- N.Y. Rule 5.4(b), (d)(1)-(3) (no nonlawyer-owned practice)
- N.Y. Rule 8.5(a), (b)(2)(i), (b)(2)(ii) (choice of law)
Other jurisdiction authorities referenced:
- Arizona Code of Judicial Administration § 7-209(A) (ABS definition)
- Arizona ER 5.5 (multijurisdictional and unauthorized practice)
Other opinions cited:
- N.Y. City 2024-4 (2024): passive financial interest in a lawfully operating out-of-state ABS is permitted.
- N.Y. State 961 (2013): Rule 1.5(g) applies to a retiring lawyer selling a practice for a share of future fees.
- N.Y. State 1128 (2017): Rule 1.5(g) applies to a lawyer receiving fee shares for client referrals.
- N.Y. State 1172 (2019): Rule 1.5(g) applies to both the paying and receiving lawyer.
- N.Y. State 1244 (2022): Rule 1.5(g) applies to retiring lawyer's receipt of referral fees.
See also
- TX Ethics Op. 704: Texas Lawyer Joining D.C. Firm with Nonlawyer Partner
- TX Ethics Op. 706: Vendor Revenue Share and Lawyer Equity
- NY State Bar Op. 1288: Trust Ownership of Law-Firm P.C.