Colorado Introduces New Legislation To Attempt Regulation Of ABSs And MSO Structures

On April 21, 2026, a bipartisan group of Colorado legislators introduced HB26-1421, the Colorado Legal Practice Integrity and Fee-sharing Prohibition Act. This proposed legislation would broadly prohibit arrangements that allow nonlawyers to share in legal fees, law firm revenue or case outcomes in matters arising in or venued in Colorado. It targets alternative business structures (ABSs) and management service organizations (MSOs) and covers any legal services affecting Colorado clients.

A Closer Look

ABSs fare worse under HB26-1421. If passed, the bill would effectively bar ABSs from participation in Colorado legal services. This includes entities that either participate economically in legal services or share in legal fees, directly or indirectly, if they are owned or controlled by nonlawyers. The bill also prohibits lawyers and law firms from entering into any financial, contractual, marketing, co‑counsel, referral or fee‑allocation arrangement with an ABS that relates to the provision of legal services.

HB26-1421 also builds in significant anti-circumvention principles prohibiting lawyers from forming entities with nonlawyers if any part of the entity provides legal services or practicing in a professional entity in which a nonlawyer holds any ownership interest or has the right to direct or control a lawyer's professional judgment.

MSOs, too, would be regulated by this legislation. Compensation paid to an MSO must not be contingent on legal fees, revenues, profits, recoveries, settlements or case outcomes. Flat‑fee and hourly arrangements remain permissible, but percentage‑based or success‑based compensation structures would be barred. Of course, an MSO consistent with Colorado Bar Association Rule 5.4 should largely comply with these strictures.

Finally, the bill creates meaningful enforcement risk through a private right of action and disgorgement remedies. Clients may sue to recover legal fees paid in violation of the statute, and competing law firms doing substantial business in Colorado may seek injunctive and declaratory relief after notice to the Colorado attorney general. Courts must order disgorgement of funds paid or received in violation of the statute, with disgorged amounts paid to the state. Contracts that violate the act are deemed void. If enacted, the bill would apply to conduct and agreements entered into or renewed after its effective date and would remain in place until a scheduled sunset review in 2032.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.