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OpenAI has decided to maintain its status as a non-profit entity after receiving criticism from Elon Musk, thereby avoiding a shift to a for-profit model. This decision places the company, known for creating ChatGPT, under the control of its non-profit board. The organization’s future faced contention involving CEO Sam Altman, co-founder Elon Musk, former employees, and AI academics.
Recently valued at $260 billion, OpenAI had advocated for a simpler corporate structure to attract more investment. Critics argued that control by a non-profit board was essential to uphold its mission of ensuring AI benefits humanity. OpenAI announced it would adjust the status of its for-profit subsidiary. Investors, including Microsoft, along with employees, will now hold conventional equity stakes, while the non-profit retains ultimate governance.
Additionally, the non-profit will acquire a significant share of the for-profit segment, which will transition into a public benefit company, emphasizing social good alongside profit.
Elon Musk, who departed from OpenAI in 2018, had resisted its conversion to a for-profit entity by initiating a lawsuit in California. He accused OpenAI and Altman of breaching contractual obligations and alleged fraudulent activities regarding the conversion. Musk further proposed a public auction for the non-profit’s assets and offered a $97.4 billion bid to take over the organization.
In response to OpenAI’s announcement, Musk’s lead counsel, Marc Toberoff, commented that it “changes nothing.” Toberoff argued that the move does not resolve the core issue of charitable assets potentially benefiting private parties, including Altman, his investors, and Microsoft.
Altman, on the other hand, stated that the decision was not influenced by external pressures. Complex negotiations are ongoing with Delaware, where the non-profit is incorporated, California, where its headquarters reside, and investors, including Microsoft.
Delaware Attorney-General Kathy Jennings expressed that her primary concern was ensuring the public remains the ultimate beneficiary. She perceived OpenAI’s attempts to resolve the matter positively.
Altman disclosed that OpenAI requires significantly more capital than initially anticipated when it was founded as a research lab a decade ago. The launch of its for-profit subsidiary in 2019 allowed external investment in return for profit shares. Since the release of ChatGPT in 2022, OpenAI has been raising substantial funds to compete with entities like Google, Anthropic, and Musk’s xAI. Previously, the structure did not accommodate investor equity stakes in the for-profit segment, contrary to typical expectations from tech investors.
In past funding rounds, including a $6.6 billion investment in October and a $40 billion round led by SoftBank, there were provisions contingent on the company adopting a traditional structure. Successfully completing the conversion would grant investors equity in the public benefit corporation proportionate to their investments. Failure to do so within the year could allow investors to reclaim their investments or, in SoftBank’s case, reduce its financial commitment by $10 billion.
OpenAI is actively negotiating with Microsoft regarding its stake in the public benefit corporation. Discussions also involve independent advisers and attorneys-general about the non-profit’s equity share. Despite these challenges, sources close to OpenAI assert confidence in completing the transition within the current year.
