Legislators in California, Illinois and Colorado have introduced bills restricting private equity firms from acquiring law practices, striking at a budding investment strategy that was long considered off-limits for buyout firms. The measures come as private equity begins testing the legal industry—a sector historically dominated by partnerships and independent practitioners.

Private equity firms have increasingly targeted law firms in recent years, seeking to replicate the consolidation play they executed in healthcare, veterinary medicine and other professional services. The three states' coordinated pushback suggests lawmakers are moving to shut the door before the practice becomes widespread, rather than waiting for the industry to establish itself first.

The legislation could significantly complicate private equity's expansion into the legal sector, potentially forcing firms to seek opportunities in more permissive jurisdictions or abandon the strategy altogether. If more states adopt similar restrictions, the nascent trend toward corporate ownership of law firms may be stunted before it gains momentum.