After months of considering a transition into a for-profit entity, OpenAI has decided to maintain its nonprofit structure, continuing to oversee products like ChatGPT. On Monday, CEO Sam Altman shared in a letter to employees that the decision came after dialogues with civic leaders and discussions with the Attorneys General of California and Delaware.
Altman, along with Bret Taylor, chair of OpenAI’s nonprofit board, explained that the nonprofit will still control OpenAI. However, they suggested a restructuring to expand the company’s business. This restructuring involves transforming the existing for-profit segment into a public benefit corporation, which must balance shareholder interests with its mission.
With this change, shareholders will receive stocks, and profit caps for some investors will be lifted. Altman described this as a move to enable the for-profit segment to function more like a conventional enterprise.
Taylor did not specify the nonprofit’s ownership stake in the new public benefit corporation. He mentioned that the nonprofit will appoint board members for the corporation, with initial selections likely to come from the existing nonprofit board.
Public benefit corporations, first established in Delaware in 2013, are mandated to focus on social good besides profits. Companies such as Amalgamated Bank and Coursera have adopted this model, defining their unique social missions upon incorporation.
Altman noted the shift from a limited liability company to a public benefit corporation simplifies the structure needed for the company’s size and goals. He also highlighted the unexpectedly high demand for AI tools, indicating that accessing more capital will facilitate mergers, acquisitions, and other business activities.
OpenAI, founded by Altman, Elon Musk, and others, began as a nonprofit aimed at developing artificial general intelligence (AGI) safely for the benefit of humanity. Today, it boasts a market value of $300 billion with 400 million weekly ChatGPT users.
Last year, OpenAI faced multiple challenges over its governance structure changes, including a lawsuit from Musk. He claimed that the company and Altman deviated from its founding principles, leading him to attempt to block the shift towards for-profit. Recently, a federal judge dismissed part of Musk’s claims, allowing some to go to trial next year.
Furthermore, the company encountered scrutiny from law enforcement in Delaware and California. Both states’ attorneys general were assessing the restructuring plans, with California’s AG office confirming ongoing discussions with OpenAI.
Advocates, including former employees and other organizations, urged California’s AG, Rob Bonta, and Delaware’s AG, Kathy Jennings, to safeguard OpenAI’s charitable objectives by blocking its restructuring.
Concerns were raised by AI pioneer Geoffrey Hinton, among others, about the potential risks if OpenAI develops AI exceeding human capabilities without accountability to its public mission.
While several AI companies like Anthropic and Musk’s xAI have incorporated as public benefit corporations, OpenAI plans for its public benefit corporation to remain under nonprofit board control.
Altman acknowledged that while traditional corporate structures might raise funds more easily, the commitment to the mission justifies the chosen model. He is optimistic about a substantial investment from SoftBank Group, which announced plans to collaborate with OpenAI on AI services.
Microsoft, OpenAI’s significant investor over recent years, did not comment on the developments.
Page Hedley, a former OpenAI staffer who called for halting the for-profit transition, expressed contentment that OpenAI acknowledged civic concerns, though specific details remain a worry.
Hedley emphasized the importance of the charitable mission, ensuring technology serves the public rather than shareholder interests. There remains concern that these interests might diverge in developing and controlling such technology.
A coalition of charities in California reiterated demands for the state’s AG to probe OpenAI’s business restructuring, questioning its alignment with the organization’s philanthropic mission.
Fred Blackwell, CEO of the San Francisco Foundation, suggested a transfer of assets to a separate public trust, independent of for-profit motives, if OpenAI is committed to serving humanity.
Nonprofit tax attorney Rose Chan Loui noted any changes should enable the nonprofit to retain control over tech development. She mentioned that outsized voting rights on important issues could help maintain control, though it might displease investors seeking influence.