OpenAI announced on Friday its intention to restructure, revealing plans to establish a public benefit corporation aimed at facilitating the ability to “raise more capital than it had anticipated,” While also lifting the limitations set by its current nonprofit parent organization.
This announcement, along with the reasoning behind the significant restructuring, has ignited discussions among corporate regulators and influential figures in technology, including Elon Musk. Concerns have been raised regarding the potential impact of this transition on the equitable distribution of assets to the nonprofit sector and how the organization will navigate the dual objectives of profitability and societal benefit in its AI development efforts.
According to the proposed changes, OpenAI’s current for-profit division will transition into a Delaware-based public benefit corporation (PBC), a framework intended to balance societal interests with shareholder returns. OpenAI is seeking to implement these changes to attract additional investment, particularly as the race to develop artificial general intelligence—AI that exceeds human capabilities—intensifies.
The recent funding round, which raised $6.6 billion at a valuation of $157 billion, was reportedly dependent on OpenAI’s ability to modify its corporate structure and eliminate a profit cap for investors within a two-year timeframe. The nonprofit will retain a “significant interest” in the PBC through shares, the specifics of which will be determined by independent financial advisors. OpenAI stated in a blog post that this arrangement would position it as one of the “best resourced nonprofits in history.”
Founded in 2015 as a research-oriented nonprofit, OpenAI established a for-profit branch four years later to secure the necessary funding for the costly development of AI technologies. This unique structure placed control of the for-profit entity under the nonprofit, which came under scrutiny last year when CEO Sam Altman was dismissed, only to be reinstated shortly thereafter following employee pushback.
The Microsoft-supported startup announced on Friday that it needs to secure more capital than previously anticipated. While investors are interested in supporting the venture, they require traditional equity structures rather than customized arrangements at this level of funding.
Elon Musk, a co-founder of OpenAI who has since distanced himself and become a prominent critic, is attempting to halt the initiative. In August, he filed a lawsuit against OpenAI and its CEO, Sam Altman, claiming that OpenAI has prioritized profit over public welfare in its efforts to advance artificial intelligence.
Earlier in Dec 2024, OpenAI requested a federal judge to dismiss Musk’s claims and released a series of communications with him to demonstrate that he initially supported the organization’s for-profit model before departing after failing to secure a majority stake and full control.
According to Ann Lipton, a corporate law professor at Tulane Law School, simply becoming a benefit corporation does not ensure that a company will prioritize its mission over profit. The legal designation only requires the board to “balance” its mission with profit-making objectives.
