Selling a Law Firm in Texas: Structuring Your Transition
At some point, every law firm owner faces the same question: How do I transition the value I have built?
Law firm succession in Texas is not a traditional M&A exercise. The structure of these transactions is driven first by ethics rules set forth in the Texas Disciplinary Rules of Professional Conduct (TDRPC), not deal economics.
Unlike most service businesses, a law practice cannot be sold to nonlawyers, and client relationships cannot be transferred as assets without consent. Instead, every transition—whether internal, through merger, or to an outside firm—must be structured around rules that prioritize client choice, confidentiality, and lawyer independence.
These constraints do not prevent successful transitions, but they do shape how deals are designed, valued, and executed. Understanding these structural limitations is the starting point for evaluating any succession strategy.
Internal Succession:
Transferring ownership to lawyers already in the firm.
Because the new owners are licensed attorneys, this approach avoids the nonlawyer-ownership issue entirely.
There are two primary ways to accomplish this:
Admit existing attorneys to partnership. If the firm has strong associates or junior partners, it can gradually sell them equity over time. This allows ownership, control, and profits to shift in stages and gives the firm a longer transition period. It can also help preserve client relationships and firm culture.
Buy out an existing owner. If one of several owners wants to retire, the remaining owners can purchase that partner’s interest under the firm’s governing documents or a buy-sell agreement. These buyouts are often funded through firm cash flow, outside financing, or installment payments over several years.
Merger:
Combining two separate law firms into one, with existing partners receiving equity in the new entity.
This approach is often a good fit for mid-sized firms that want to grow, expand into new practice areas, or create a longer succession runway while the founding partners continue practicing for a few more years.
The mechanics of the merger is governed by the Texas Business Organizations Code. The merger itself also raises several issues under the TDRPC:
Conflicts checks: Once the firms combine, each firm’s matters are imputed to the entire combined firm. New conflicts can arise, and the firm may need to screen, obtain waivers, or decline some matters.
Client notices: The firms should send a joint notice to all active clients explaining that the firms are merging, when the merger becomes effective, what the new firm will be called and where it will be located, and that the client may either stay with the combined firm or choose new counsel. The notice should also explain how client files and IOLTA funds will be handled.
Name of resulting firm: The combined firm name must comply with the naming rules and may include the names of current, retired, deceased, or predecessor firm members.
Fee division between firms: If the firms are sharing work or referring matters to one another prior to the official merger closing date, fee-splitting rules apply (because they are considered separate firms prior to the merger), and the firms must obtain written client consent and disclose the lawyers or firms involved, how the fee will be divided, and each party’s share.
External Sale:
For solo and small firms without a clear internal succession plan, an external sale may be the best option, especially when the owners want a clean break or only a short wind-down period.
Texas makes these transactions more complicated than in many other states. Texas has not adopted ABA Model Rule 1.17, which expressly addresses the sale of a law practice and its goodwill. As a result, a Texas law firm cannot simply be sold like a typical business, and the transaction must be structured carefully to comply with all of the restrictions set forth in TDRPC.
In practice, an external sale is usually built from several separate pieces:
Tangible and intellectual property. The buyer purchases physical assets, accounts receivable, real estate, and intellectual property such as the firm name, brand materials, software, phone numbers, and website domains.
Client-by-client consent. Client files cannot be transferred in bulk. Instead, the closing is often conditioned on each client signing an authorization to move the file and any unearned IOLTA funds to the buyer.
Transition or consulting agreement. The buyer may pay the selling lawyer a salary or consulting fee during a transition period. The seller’s role is often to introduce consenting clients to the new firm and help transfer client trust in a way that complies with Texas rules.
A sale also has to comply with several other ethical requirements:
Successor competence. The selling lawyer should be confident that the buyer has the skill, experience, and resources to handle the matters being transferred.
Confidentiality. During early negotiations, the seller must protect client confidences. Buyers usually review redacted or aggregated data first, with more detail disclosed later if needed and permitted by the client.
Conflict checks. The buyer must run its own conflicts review before accepting any transferred matters.
Client notice and consent. Active clients must be told about the proposed transfer in writing and must be given the choice to stay with the new firm, hire another lawyer, or take their files elsewhere.
Client property. Unearned fees and client files must be handled carefully and only in accordance with client instructions and applicable accounting rules.
Fee sharing. If the deal includes an earn-out, future revenue share, or delayed payout tied to ongoing legal fees, it may trigger Texas fee-splitting rules. That makes many traditional M&A deal structures difficult unless the lawyer remains involved in the representation.
Post-sale practice limits. Texas generally prohibits restrictive covenants that limit a lawyer’s right to practice after the relationship ends, subject to narrow exceptions.
After closing, the selling lawyer usually remains involved for a transition period to introduce clients, help with active matters, and support client retention. That period is not just a business point; it also reflects the lawyer’s professional duties to former clients. A few issues matter most:
Length. Transition periods can last from several months to a few years, depending on the type of practice and the complexity of the matters.
The Seller’s role. If the seller continues providing legal services, the seller must remain in good standing and the ownership rules for the firm still apply. If the seller’s role is limited to introductions and administrative handoff, the structure is simpler.
Compensation. Transition payments may be treated as part of the purchase price, salary, consulting fees, or an earn-out. The structure affects both tax treatment and ethics compliance.
Client consent controls. A client cannot be transferred without consent. The transition plan should make clear that each matter moves only if the client agrees.
Malpractice coverage. Malpractice claims can arise long after a transaction closes, so the seller should also consider tail insurance. Most professional liability policies are claims-made policies, so coverage may end when the policy lapses unless an extended reporting period endorsement is purchased.
Selling to another law firm.
Because Texas restricts nonlawyer ownership and fee-sharing, private equity firms and other nonlawyer investors cannot directly own a law firm. Instead, some firms use a management services organization, or MSO, structure to separate the legal practice from the business operations.
In a typical MSO arrangement, the law firm keeps the client relationships and legal work, while the MSO purchases and owns the non-legal assets and services needed to run the business, such as billing, software, marketing, real estate, and administrative support. The MSO then provides those services to the law firm under a management services agreement for a fee. This structure can allows investment in the operational side of the business without violating Texas ownership rules. The economics for the non-lawyer investors come from the MSO’s receipt of service fees, not through direct ownership of the law firm.
Texas is notably one of the first jurisdictions address MSO arrangements directly. In Texas Professional Ethics Committee Opinion No. 706, issued in February 2025, the Committee recognizes that a properly structured MSO arrangement can be permissible, with two important caveats:
Percentage-based fees are not allowed. A lawyer may not pay an MSO a fee tied to a percentage of the firm’s revenue. Even if the MSO provides legitimate services, a revenue-based fee is treated as fee-splitting under Texas Rule 5.04(a). The safer approach is to use a flat fee, cost-plus fee, or fair-market-value fee for actual services rendered.
Lawyer ownership in an MSO may be allowed. A lawyer may invest in an MSO that provides law-related, but not legal, services, so long as the company does not practice law. If the lawyer refers clients to that company, however, the transaction may trigger business-transaction and conflict rules, including full disclosure, advice to seek independent counsel, and written informed consent.
MSO structures remain under close scrutiny, especially where the arrangement could look like hidden fee-splitting or give investors influence over legal judgment. Careful drafting, clear documentation, and strict attention to Texas Opinion 706 are essential.
The broader landscape is also changing. Some jurisdictions now permit true nonlawyer ownership of law firms through alternative business structures, or ABSs. But multistate firms face additional complexity because ABS structures do not always translate cleanly across state lines, and some jurisdictions have imposed limits on fee-sharing with out-of-state ABS firms while still allowing properly structured MSOs.
Outside Investment via Management Service Organizations (MSOs)
Obtaining non-lawyer capital without violating ownership rules.
Contact us.
For any law firm, the best transition plan is one that protects client relationships, preserves value, and fits the realities of the firm and its attorneys.
Reach out today to discuss the transition strategy that best fits your practice.