Cal. Rules of Prof. Conduct, rule 5.4 · Chapter 5. Law Firms and Associations
Financial and Similar Arrangements with Nonlawyers
Text — 2026 edition, as the State Bar of California publishes it (read October 22, 2026)
(a) A lawyer or law firm* shall not share legal fees directly or indirectly with a nonlawyer or with an organization that is not authorized to practice law, except that:
(1) an agreement by a lawyer with the lawyer’s firm,* partner,* or associate may provide for the payment of money or other consideration over a reasonable* period of time after the lawyer’s death, to the lawyer’s estate or to one or more specified persons;*
(2) a lawyer purchasing the practice of a deceased, disabled or disappeared lawyer may pay the agreed-upon purchase price, pursuant to rule 1.17, to the lawyer’s estate or other representative;
(3) a lawyer or law firm* may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement, provided the plan does not otherwise violate these rules or the State Bar Act;
(4) a lawyer or law firm* may pay a prescribed registration, referral, or other fee to a lawyer referral service established, sponsored and operated in accordance with the State Bar of California’s Minimum Standards for Lawyer Referral Services;
(5) a lawyer or law firm* may share with or pay a court-awarded legal fee to a nonprofit organization that employed, retained, recommended, or facilitated employment of the lawyer or law firm* in the matter; or
(6) a lawyer or law firm* may share with or pay a legal fee that is not court-awarded but arises from a settlement or other resolution of the matter with a nonprofit organization that employed, retained, recommended, or facilitated employment of the lawyer or law firm* in the matter provided:
(i) the nonprofit organization qualifies under section 501(c)(3) of the Internal Revenue Code;
(ii) the lawyer or law firm* enters into a written* agreement to divide the fee with the nonprofit organization;
(iii) the lawyer or law firm* obtains the client’s consent in writing,* either at the time the lawyer or law firm* enters into the agreement with the nonprofit organization to divide the fee or as soon thereafter as reasonably* practicable, after a full written* disclosure to the client of the fact that a division of fees will be made, the identity of the lawyer or law firm* and the nonprofit organization that are parties to the division, and the terms of the division, including the restriction imposed under paragraph (a)(6)(iv); and
(iv) the total fee charged by the lawyer or law firm* is not increased solely by reason of the agreement to divide fees.
(b) A lawyer shall not form a partnership or other organization with a nonlawyer if any of the activities of the partnership or other organization consist of the practice of law.
(c) A lawyer shall not permit a person* who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s independent professional judgment or interfere with the lawyer-client relationship in rendering legal services.
(d) A lawyer shall not practice with or in the form of a professional corporation or other organization authorized to practice law for a profit if:
(1) a nonlawyer owns any interest in it, except that a fiduciary representative of a lawyer’s estate may hold the lawyer’s stock or other interest for a reasonable* time during administration;
(2) a nonlawyer is a director or officer of the corporation or occupies a position of similar responsibility in any other form of organization; or
(3) a nonlawyer has the right or authority to direct or control the lawyer’s independent professional judgment.
(e) The Board of Trustees of the State Bar shall formulate and adopt Minimum Standards for Lawyer Referral Services, which, as from time to time amended, shall be binding on lawyers. A lawyer shall not accept a referral from, or otherwise participate in, a lawyer referral service unless it complies with such Minimum Standards for Lawyer Referral Services.
(f) A lawyer shall not practice with or in the form of a nonprofit legal aid, mutual benefit or advocacy group if the nonprofit organization allows any third person* to interfere with the lawyer’s independent professional judgment, or with the lawyer-client relationship, or allows or aids any person* to practice law in violation of these rules or the State Bar Act.
Notes and commentary — not rule text
Comment
[1] Paragraph (a) does not prohibit a lawyer or law firm* from paying a bonus to or otherwise compensating a nonlawyer employee from general revenues received for legal services, provided the arrangement does not interfere with the independent professional judgment of the lawyer or lawyers in the firm* and does not violate these rules or the State Bar Act. However, a nonlawyer employee’s bonus or other form of compensation may not be based on a percentage or share of fees in specific cases or legal matters.
[2] Paragraph (a) also does not prohibit payment to a nonlawyer third-party for goods and services provided to a lawyer or law firm;* however, the compensation to a nonlawyer third-party may not be determined as a percentage or share of the lawyer’s or law firm’s overall revenues or tied to fees in particular cases or legal matters. A lawyer may pay to a nonlawyer third-party, such as a collection agency, a percentage of past due or delinquent fees in concluded matters that the third-party collects on the lawyer’s behalf.
[3] Paragraph (a)(5) permits a lawyer to share with or pay court-awarded legal fees to nonprofit legal aid, mutual benefit, and advocacy groups that are not engaged in the unauthorized practice of law. (See Frye v. Tenderloin Housing Clinic, Inc. (2006) 38 Cal.4th 23 [40 Cal.Rptr.3d 221]; see also rule 6.3.) Under the specified circumstances, paragraph (a)(6) permits a lawyer to share with or pay legal fees arising from a settlement or other resolution of the matter to 501(c)(3) organizations, such as nonprofit legal aid and charitable groups that are not engaged in the unauthorized practice of law. Paragraphs (a)(5) and (a)(6) include the concept of a nonprofit organization facilitating the employment of a lawyer to provide legal services. One example of such facilitation is a nonprofit organization’s operation of a law practice incubator program.
[4] A lawyer or law firm* who has agreed to share with or pay legal fees to a qualifying organization under paragraphs (a)(5) or (a)(6) remains obligated to exercise independent professional judgment in the client’s best interest. See rules 1.7 and 2.1. Regarding a lawyer’s contribution of legal fees to a legal services organization, see rule 1.0, Comment [5] on financial support for programs providing pro bono legal services.
[5] Nothing in paragraphs (a)(5) or (a)(6) is intended to alter the regulation of lawyer referral activity set forth in Business and Professions Code section 6155. In addition, a lawyer must comply with rules 5.4(a)(4) and 7.2(b).
[6] This rule is not intended to affect case law regarding the relationship between insurers and lawyers providing legal services to insureds. (See, e.g., Gafcon, Inc. v. Ponsor Associates (2002) 98 Cal.App.4th 1388 [120 Cal.Rptr.2d 392].)
[7] Paragraph (c) is not intended to alter or diminish a lawyer’s obligations under rule 1.8.6 (Compensation from One Other than Client).
History
[Publisher’s Note: Rule 5.4 was amended by order of the Supreme Court, effective March 22, 2021.]
Source of truth
- Edition
- 2026 edition, as the State Bar of California publishes it (read October 22, 2026)
- Official file
- https://www.calbar.ca.gov/sites/default/files/portals/0/documents/rules/Rules-of-Professional-Conduct.pdf (PDF pages 58–60)
- Text hash
- sha256 ad4f5b76e92e9ac21faa10a89e17df93ba8e4a5932cc36dc71ab5bc82272e7bb
- Composed by
- rpc/build 2026-10-22: the State Bar's 2026 PDF (pages 12-71) read by two readers, PyMuPDF glyph positions and pdfminer with the PDF's tagged structure, agreeing on 834 of 843 paragraphs character for character, the other nine (paragraph boundaries only) resolved against the rendered page; 205,485 printed glyphs accounted for; the State Bar's chapter pages a third reading
- The State Bar's 2026 PDF prints Comment [6] twice (the second time without its number, indented, after three blank lines); its web page prints it once. BenchPath shows it once.
- Paragraph (a)(5) reads "employed, retained, recommended, or facilitated employment" in the State Bar's 2026 PDF and "employed, retained or recommended employment" on its web page (read October 22, 2026); the PDF's reading is shown.
This rule cites
Provisions in this library that the text above cites, as it prints each citation. A range cited as “ss. 61.13-61.16” links its first and last provisions.
Business and Professions Code
California Rules of Professional Conduct
- Cal. Rules of Prof. Conduct, rule 1.0Purpose and Function of the Rules of Professional ConductPrinted as rule 1.0
- Cal. Rules of Prof. Conduct, rule 1.7Conflict of Interest: Current ClientsPrinted as rules 1.7 and 2.1
- Cal. Rules of Prof. Conduct, rule 1.8.6Compensation from One Other than ClientPrinted as rule 1.8.6
- Cal. Rules of Prof. Conduct, rule 1.17Sale of a Law PracticePrinted as rule 1.17
- Cal. Rules of Prof. Conduct, rule 2.1AdvisorPrinted as rules 1.7 and 2.1
- Cal. Rules of Prof. Conduct, rule 6.3Membership in Legal Services OrganizationPrinted as rule 6.3
- Cal. Rules of Prof. Conduct, rule 7.2AdvertisingPrinted as rules 5.4(a)(4) and 7.2(b)
Cited by 4 provisions
Provisions in this library whose text cites Cal. Rules of Prof. Conduct, rule 5.4. Each shows the citation as that text prints it.
California Rules of Professional Conduct
- Cal. Rules of Prof. Conduct, rule 1.8.6Compensation from One Other than ClientPrinted as rule 5.4(c)
- Cal. Rules of Prof. Conduct, rule 1.17Sale of a Law PracticePrinted as rule 5.4(a)
- Cal. Rules of Prof. Conduct, rule 7.2AdvertisingPrinted as rules 2.1 and 5.4(c)
- Cal. Rules of Prof. Conduct, rule 7.3Solicitation of ClientsPrinted as rules 5.4 and 8.4(a)
Procedural information only. Not legal advice and not a substitute for the advice of an attorney. Confirm the current text with the official publisher before relying on it.