California is set to become the third state this year to restrict private equity from buying law firms, an investment strategy whose rapid growth is polarizing members of the legal profession.

The California Senate and Assembly this week approved Assembly Bill 2305, which prohibits private-equity firms, hedge funds and other corporate investors from influencing the practice of law. The bill will now head to the desk of Gov. Gavin Newsom, who has until Sept. 30 to act on it.

The measure was introduced in February and both the Assembly and the Senate passed it without opposing votes, although there were abstentions. The press office of Newsom, a Democrat, didn't reply to an inquiry.

California Assemblymember Ash Kalra, who introduced the bill, said he wants to close the "loopholes" allowing private equity to exert "undue influence" on the legal field as the industry has in other sectors of the economy.

His bill has the support of the Consumer Attorneys of California, a trade group representing the state's litigators that said it would ensure lawyers answer to their clients and not their investors.

"There's a lot of money in litigation, and Wall Street is trying to get a piece of the pie," said Kalra, a Democrat representing most of San Jose. "We don't want private equity and corporate legal funders to be making decisions on behalf of clients."

Private-equity investment in law firms is a nascent field that has generated a backlash as it gains more attention, with Illinois and Colorado this year enacting laws similar to the California measure.

Firms are considering taking on private-equity funding to expand their businesses, gain efficiencies of scale and adapt to the challenges of artificial intelligence. Dealmakers say law firms should have the same opportunities as other companies to access capital markets to improve their businesses.

Deal lawyers say some of the biggest U.S. corporate law firms are discussing bringing on private-equity money. Last week, the Financial Times reported that Charlesbank Capital Partners plans to buy a stake in insurance-defense specialist Wood Smith Henning & Berman at a $700 million valuation, which would be the largest private-equity law deal to date.

Mostly, however, private equity is backing smaller firms to profit via the "roll-up" approach-merging many small companies to get the benefits of scale-that it has successfully used in other industries.

These deals also have generated some backlash, part of a broader reaction against private equity's influence playing out in statehouses across the country. For instance, several states in the past two years have banned private equity from influencing medical care at practices they back, while federal lawmakers are investigating the industry's alleged role in driving up prices in fields including youth sports and emergency vehicles.

The California, Illinois and Colorado laws take aim at the structures private equity uses to invest in legal practices, which are designed to leave lawyers in charge of the legal work while investors manage a firm's business operations.

Borrowed from the medical sector, this arrangement lets private equity have an economic stake in a law firm without violating rules on the books in nearly every U.S. state barring nonlawyers from influencing the practice of law. But some lawmakers, such as Kalra in California, consider it an inappropriate workaround.