HB 5487 Passes, Ushering in New Regulation of MSOs, ABS Models and Law Firm Operations

The Illinois General Assembly passed House Bill (HB) 5487 on May 31, 2026, seeking to address concerns regarding private equity investment and non-lawyer influence in legal services. Although the bill is widely discussed as an effort to regulate management services organizations (MSOs) and alternative business structure (ABS) models, its practical impact reaches far beyond those models. If enacted, the legislation would introduce new restrictions and potential liability that could affect routine vendor relationships, litigation support arrangements, staffing providers and other common law firm operations.¹

The bill defines an "alternative business structure" as an entity that provides legal services while allowing nonlawyers to hold ownership or decision-making authority. It defines a "management services organization" as any entity that provides management or administrative support services in exchange for ownership of a law firm's assets or payments. Since nearly every third-party vendor employed by a law firm provides "administrative support services in exchange for … payments," the law would implicate all operational, contractual and financial relationships connected to law firm practice in Illinois.

The proposed bill does not prohibit MSOs as such. Properly structured MSOs – those that function as conventional service providers, preserve lawyer independence and avoid compensation tied to legal fees or firm profits – should remain capable of operating within the bill's framework. In this respect, compliant MSOs are treated no differently than other third-party vendors.

Under the bill, non-lawyers and non-lawyer entities will be prohibited from interfering with a lawyer's professional judgment. It also bars such entities from exercising control over, or being delegated authority to perform, core legal functions, including revealing client records or attorney-client communications, making decisions regarding the selection or termination of lawyers or allied legal staff, and the establishment of competency or productivity standards for those personnel. The bill would further prohibit fees that are directly or indirectly based on a lawyer's or law firm's fees, revenues or profits. It separately restricts certain contractual provisions, including post-termination noncompetition restrictions and provisions that limit the ability of lawyers or staff to comment on service quality, ethical concerns or revenue-generating practices.

Of course, compliant vendor and MSO relationships are still possible and will continue to exist and thrive in Illinois. The bill's language does not prohibit the provision of administrative, technical or back-office services, including billing, marketing, facilities or similar nonlegal functions. It does not prohibit non-lawyer investment in service platforms as a general matter. Substantively, many of the bill's prohibitions restate principles already embedded in the Rules of Professional Conduct (longstanding ethics rules prohibit interference with lawyer independence, nonlawyer control over legal judgment and fee-sharing tied to legal fees.)

Instead, the bill's language recasts those principles in broader and less precise terms, while adding private enforcement mechanisms and potential statutory damages. This creates risk outside the MSO context, touching every type of vendor that services the legal profession: 

• Client communications and records. The prohibition on revealing client records or attorney‑client communications is not MSO‑specific. Routine litigation workflows – e‑discovery vendors, court reporters or even basic email – require revealing client records or attorney-client communications. The bill allows for no exceptions, even with client consent. As a result, ordinary litigation processes may be subject to a $10,000 statutory penalty without any showing of harm.
• Staffing and performance oversight. The law would bar a covered entity from selecting, hiring, or terminating attorneys or allied legal staff, and from setting competency, productivity or proficiency standards. In practice, these restrictions prevent legal staffing platforms and shared‑services providers from conducting meaningful vetting or evaluation. The regulatory burden shifts to employers of contract attorneys, while MSOs – who typically do not assess attorney performance – should be unaffected.
• Fee restrictions. The bill prohibits fees "directly or indirectly" tied to firm fees, revenues or profits. The term "indirectly" is undefined and lacks a clear limiting principle. Because the bill does not define what constitutes an "indirect" connection to fees, revenues or profits, uncertainty remains regarding how broadly the restriction could be interpreted. Its reach is not confined to MSO models and may extend to ordinary vendor relationships – and the legislature has taken no steps to suggest otherwise.
• Revenue Discrimination. The bill applies only to firms making below $300 million in revenue and to certain contingent‑fee practices. Large firms exceeding that threshold are effectively exempt, while smaller and mid‑sized firms bear the burden of compliance. The disparity is more pronounced for any ABS firm, which ironically becomes unregulated under the proposed law if it makes enough money.

Worse, the bill – which has been amended five times since it was introduced – has made no effort to address the constitutional infirmities that would plague its enforcement or implementation. As we first observed when the bill came out, the bill infringes on the exclusive jurisdiction of the Illinois Supreme Court to regulate the practice of law. In doing so, it usurps the judiciary as the sole arbiter of attorney discipline, empowering any private litigant to take the regulation of the practice of law into their own hands.

In sum, Illinois has not outlawed MSOs, but is codifying a law that is broader, less precise and less coherent than the professional rules it intends to replicate. The conduct the legislature is trying to reach is already off limits. Now, all law firms will experience uncertainty when dealing with ordinary vendors, routine litigation support and standard law firm operations – that is, unless you work for BigLaw, which has been exempted in its entirety (the bill completely exempts from regulation law firms that make more than $300 million annually). For that reason, the bill should be understood as an industry-wide regulatory burden rather than an MSO-specific ban. 

The bill now awaits Gov. JB Pritzker's signature.

What Should Law Firms, MSOs and ABS Entities Do Now?

Although HB 5487 is directed at concerns regarding non-lawyer ownership and influence in legal services, its language reaches far beyond traditional MSO and ABS structures. As a result, law firms, MSOs and other service providers should begin reviewing existing relationships and operational practices now.

Traditional law firms should evaluate vendor agreements, staffing arrangements, technology platforms, litigation support relationships and other third-party service contracts to determine whether any provisions could be viewed as implicating the statute's restrictions regarding client information, personnel decisions, performance standards or compensation structures. Firms should also review governance and oversight practices to ensure that decisions affecting legal services remain firmly within attorney control.

MSOs and other legal service providers should assess management agreements, compensation arrangements and operational workflows to confirm that their services are clearly limited to administrative, technical and business functions. Particular attention should be given to provisions addressing personnel matters, performance metrics, access to client information and any compensation mechanisms that could be characterized as being tied, directly or indirectly, to legal fees, revenues or profits.

Law firms that partner or work with ABS models should carefully evaluate whether the statute's definitions, restrictions and enforcement provisions. Because the legislation introduces new statutory remedies and private enforcement mechanisms, organizations should consider conducting a comprehensive compliance review even where existing structures were designed to comply with the Rules of Professional Conduct.

Finally, all stakeholders should continue monitoring developments as the bill proceeds through the executive process and as questions regarding its interpretation, implementation and potential constitutional challenges begin to emerge.

If you have questions about MSO structures, ABS considerations or implications for your existing operations, please contact your Holland & Knight relationship attorney.

Notes

¹ This concern is already regulated by the Illinois Rules of Professional Conduct, notably Rule 2.1, which requires laws to exercise independent professional judgment, and Rule 5.4, which prohibits nonlawyers from sharing fees with lawyers or owning or controlling law firms. Both the Senate and House, at every hearing on the bill, declined to provide any evidence that these Rules fail to address the "harms" that they suggest will plague Illinois legal practices in the absence of this bill.

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