Understanding Managed Services Organizations: Why MSOs Are Gaining Momentum in Legal

Law firms are under more pressure than ever to operate like modern businesses while still preserving the professional and regulatory structure that makes the legal industry unique. That tension is one reason Managed Services Organizations, or MSOs, are drawing so much attention right now.

In a recent webinar, Cecy Graf, Co-Founder & Chief Executive Officer of Federate Legal, broke down what MSOs are, how they differ from alternative business structures, and why firms of all sizes are beginning to explore them as a way to create more flexibility on the business side of law.

Here are the key takeaways.

What is a Managed Services Organization?

At its core, a Managed Services Organization is a separate entity that provides business services to a law firm. Those services can include functions like finance, billing, IT, HR, and operations. What an MSO does not do is provide legal services.

That distinction matters.

Rather than embedding all business operations inside the partnership itself, an MSO separates those operational functions into a dedicated structure designed to run more consistently and scale more effectively. The law firm continues practicing law. The MSO supports the business side.

As Cecy explained during the webinar, this is not about replacing the law firm model. It is about creating a structure around the law firm that can better support the growing operational demands firms face today.

Why law firms are structurally different from other businesses

To understand why MSOs are gaining traction, it helps to start with the law firm model itself.

Law firms do not operate like most other businesses. Because of professional and regulatory constraints, non-lawyers generally cannot own law firms. That means most firms operate as partnerships, with profits distributed to partners rather than retained and reinvested in the business the way they might be in a traditional corporation.

That structure has worked for a long time, but it also creates limitations.

Decision-making is often decentralized. Capital does not accumulate in the same way it does in other industries. Revenue stays closely tied to billable work. And investments in infrastructure, systems, and business operations often compete directly with partner distributions.

The result is that firms can be highly successful, but still face structural friction when it comes to scaling, standardizing, and making sustained long-term investments.

Why the traditional model is feeling pressure now

Those structural limits are becoming harder to ignore because the business environment around law firms has changed.

Clients expect greater efficiency, transparency, and consistency. Technology costs continue to rise. Cybersecurity, data management, and talent strategy are now core business needs, not optional enhancements. Firms are managing more offices, more systems, and more complexity, often without the centralized operating model needed to support them.

At the same time, law firms are no longer competing only with other firms. Alternative legal service providers and technology companies are entering the space with different ownership models, more centralized operations, and greater freedom to invest in infrastructure.

According to Cecy, the issue is not that firms are incapable of improving operations internally. They can and they do. The issue is whether those improvements can be sustained over time and at scale within the traditional partnership model.

That is where MSOs come in.

MSO vs. shared services: what is the difference?

Many firms already use some form of shared services. Finance, IT, HR, and other functions may be centralized across offices or business units. That can create real efficiencies, but it is still happening inside the same law firm structure.

An MSO goes further.

While shared services consolidate work, an MSO changes how that work is governed, funded, and managed. Those functions move into a separate business entity with its own operating structure and defined service relationship with the law firm.

That structural distinction gives firms the opportunity for more centralized accountability, more consistent investment, and greater long-term scalability.

In other words, shared services can improve how a firm runs. An MSO can change how the business side is built.

Why MSOs create more flexibility for firms

One of the major themes from the webinar was that MSOs are not just about efficiency. They also open up options that are difficult or impossible to create within the traditional law firm model.

For example, ownership in a law firm is typically tied to active partners. As partners retire or leave, ownership changes. That can affect continuity, leadership stability, and long-term planning.

An MSO can create a different kind of continuity. Because it is separate from the law firm itself, ownership can persist beyond someone’s active role in legal practice. It can also include non-lawyer leadership, creating opportunities to better align operations professionals with the long-term success of the business.

That does not change ownership of the legal practice. But it can change how the business side is built, incentivized, and sustained.

MSOs are not the same as alternative business structures

One of the clearest points Cecy made was that MSOs and alternative business structures are not the same thing.

That distinction is critical.

An Alternative Business Structure (ABS) allows non-lawyers to own or hold a stake in the entity that delivers legal services. That is a regulatory shift and is only permitted in certain jurisdictions, such as Arizona.

An MSO, by contrast, does not practice law. It provides business support services to the law firm while operating within existing ownership rules.

The two models can coexist. In some cases, firms operating under an ABS may also establish an MSO to manage the business side. But they are fundamentally different structures.

As Cecy noted, while ABSs generated significant attention over the past few years, much of that excitement is beginning to shift toward MSOs because they are often a more practical option with fewer regulatory complications.

What different MSO models can look like

There is no one-size-fits-all MSO model. Firms can structure them in several ways depending on size, goals, and appetite for complexity.

A single-firm MSO is created by one firm to support its own operations. It is intended to serve only that firm and its related entities.

A multi-firm MSO supports several firms through one shared managed services platform. This is the model Federate Legal uses. It can create economies of scale and give smaller firms access to resources they might not be able to afford or build on their own.

A private equity-backed MSO introduces outside capital to help fund growth, technology, and operational investment.

There are also hybrid approaches, depending on what the firm is trying to achieve.

According to Cecy, many firms are starting with the simplest version: a single-firm MSO.

Why private equity is interested in MSOs

MSOs have become closely associated with private equity, largely because they offer a path for outside investors to participate in the legal industry without directly investing in the practice of law.

Private equity firms are drawn to the legal market for several reasons. It is highly fragmented. Many firms are independently building the same back-office infrastructure over and over again. Operational performance varies widely across billing, collections, IT, and data management. And many of these functions are recurring, routine, and ripe for optimization.

From a private equity perspective, that looks less like a traditional law firm challenge and more like a platform opportunity.

Private equity brings capital, operational discipline, and experience building scalable businesses. That can help firms invest in infrastructure, technology, and talent without relying entirely on partner contributions.

But those benefits come with trade-offs.

Outside capital is not neutral. Investors expect returns, timelines, and performance. That can create tension in an industry where decision-making has traditionally been driven by partner relationships, autonomy, and professional judgment rather than centralized operational metrics.

Do firms need private equity to benefit from an MSO?

No.

That was one of the most important takeaways from the webinar.

A firm does not need private equity to benefit from an MSO structure. The real value of an MSO comes from the structure itself, not necessarily from outside funding.

A firm can use an MSO to create more disciplined operations, better technology decisions, stronger billing processes, and a more scalable business model without bringing in external investors.

Private equity may accelerate the process, but it is not required.

As Cecy emphasized, one of the biggest misconceptions in the market today is the idea that MSO automatically means outside investment. It does not. A firm’s MSO can remain wholly owned by the partnership if that is the right fit.

Which firms are most likely to benefit?

While firms of many sizes are exploring the concept, Cecy said the strongest traction right now is among firms in the roughly 30 to 200 attorney range.

These firms are often large enough to feel the strain of operational complexity, but still nimble enough to rethink their structure and adopt new models. For very small firms, a dedicated MSO may not make sense, though shared-service or multi-firm models can still be attractive. At the very largest firms, the conversation is often more complex and may take a different form.

What should firms do first?

For firms hearing about MSOs for the first time, the first step is not to jump into a new structure.

It is to look inward.

Cecy recommended starting with an internal diagnostic. Where is the firm struggling to stay ahead? Where does it want to invest but cannot? Where are there persistent challenges around technology, implementation, billing, HR, or operations? Where is performance inconsistent in ways that should be predictable?

Those questions help identify whether the current structure is still sufficient and where an MSO model might create the most value.

The bottom line

Managed Services Organizations are gaining momentum because they offer law firms something they increasingly need: a more flexible, sustainable way to build and manage the business side of law.

They are not the same as private equity. They are not the same as alternative business structures. And they are not a magic fix for every operational challenge.

But for firms facing growing pressure to invest, standardize, and scale, they may offer a powerful new option.

As Cecy put it, the real question is not whether firms can improve operations inside the traditional law firm model. It is whether they can do it consistently, at scale, and over time.

That is the distinction that matters.

Want to keep the conversation going?

If your firm is beginning to think about operational structure, investment strategy, or how to support long-term growth, understanding the MSO model is a smart place to start.

About Centerbase

Centerbase provides cloud-based legal software that centralizes all aspects of law firm management, including billing, accounting, timekeeping, matter and document management, automated workflows, and profitability reporting. Designed for mid-size law firms, Centerbase helps firms modernize operations, optimize productivity, and improve client service. For more information, visit centerbase.com.

Media Contact:
Trish Stromberg
trish.stromberg@centerbase.com