OpenAI announced Tuesday morning that it had completed a tumultuous corporate restructuring effort, simplifying a complex ownership web into a controlling nonprofit entity and a reimagined for-profit subsidiary.
The simplified structure will allow investors and corporate partners to more easily reap returns from their investments and pave the way to an envisioned public offering. The for-profit’s board will be appointed solely by the overarching nonprofit entity and will, for now, consist entirely of the nonprofit organization’s board members.
In a livestream session announcing the change Tuesday, OpenAI CEO Sam Altman said the for-profit entity “will be able to attract the resources we need for [our] gigantic infrastructure buildout to serve the research and product goals that we have.”
Altman said OpenAI has committed to spend roughly $1.4 trillion on infrastructure so far, largely devoted to the data centers and high-performance computing chips required to train and power cutting-edge artificial intelligence systems.
The umbrella nonprofit organization will be rebranded as the OpenAI Foundation, and the for-profit entity will be called the OpenAI Group.
Like competitor Anthropic, the new OpenAI Group will be a for-profit public benefit corporation (PBC), a type of for-profit corporation that intends to produce public benefits and operate in a responsible and sustainable manner, balancing financial returns to shareholders with a broader public interest. A company webpage describing the company’s new structure specifies that the OpenAI Group PBC will advance OpenAI’s “mission and consider the broader interests of all stakeholders, ensuring the company’s mission and commercial success advance together.”
Because OpenAI was founded as a nonprofit organization in 2015, it has faced difficulty balancing its nonprofit charitable duties and attracting needed capital. OpenAI launched a for-profit subsidiary in 2019, predicting it would require “on the order of $10 billion” to achieve its goals. However, investors’ returns in the subsidiary were limited to 100 times their investments or less.
OpenAI could not simply now abandon its nonprofit status, according to Luís Calderón Gómez, a professor at Cardozo School of Law at Yeshiva University in New York City. To do so, a for-profit OpenAI would have had to buy the nonprofit arm’s assets “for fair market value, something that it was unlikely to be able to do,” given OpenAI’s reported $500 billion valuation in early October.
The nonprofit OpenAI Foundation umbrella organization will receive a 26% stake in the for-profit OpenAI Group, a share that would be worth $130 billion at the early-October valuation.
However, Microsoft, one of OpenAI’s early backers and largest investors, will receive a 27% stake. Microsoft has invested $13.75 billion in OpenAI and had been slow to greenlight the restructuring efforts due to concerns over licensing and revenue sharing.
Even though the foundation will control less equity in the OpenAI Group than Microsoft, the board of the nonprofit OpenAI Foundation will have “special voting and governance rights” that allow it to appoint all members of the for-profit OpenAI Group’s board of directors. Currently, Microsoft and other investors do not have seats on OpenAI’s boards.
OpenAI employees will receive 26% equity in the OpenAI Group. As reported by The Information, a group of investors who participated in OpenAI’s $40 billion fundraising round this year, including Japan’s Softbank, will receive 15% equity, while other investors will receive the remaining 6%.
Tuesday’s announcement stipulated that the OpenAI Foundation will also have the contractual right to receive more equity in the OpenAI Group in 2040 if the group’s valuation reaches an estimated $5 trillion, or 10 times its current value.
Asked for comment on the exact amount of the additional equity, an OpenAI spokesperson wrote in an email: “We can’t provide a specific figure because the stake will scale with performance -- it’s not a fixed percentage but instead is designed to ensure the nonprofit Foundation continues to be the largest long-term beneficiary of the for-profit’s success.”
OpenAI was founded as a nonprofit entity by Altman, Elon Musk and nine other co-founders with a mission “to ensure that artificial general intelligence—AI systems that are generally smarter than humans—benefits all of humanity.”
Artificial general intelligence, or AGI, is a hotly debated concept, with many critics contending that such artificial intelligence is not attainable given current AI techniques, others arguing that AGI is a hopelessly nebulous concept, and other critics asserting that notions of AGI help investors inflate AI company valuations.
Yet the concept of AGI is key to OpenAI’s relationship with Microsoft. Since their initial partnership in 2019, Microsoft has secured broad rights to license and use intellectual property generated by OpenAI, except for intellectual property related to AGI. Before Tuesday’s announcement, that exclusive access would have been revoked when OpenAI declared it had reached AGI.
The new structure gives Microsoft rights to OpenAI’s IP for its models and products through 2032 and will extend Microsoft’s rights to OpenAI’s research methods through 2030 or until an independent expert panel verifies claims of AGI, if that happens sooner.
Some critics are not convinced the agreed-upon resolution is truly in the public’s interest and instead see the announcement as a positive spin on existing plans.
In a statement, the consumer advocacy organization Public Citizen wrote that with Tuesday’s announcement, the “OpenAI Foundation will function as a corporate foundation, doing some good work but for the underlying purpose of advancing the interests of OpenAI For-Profit. The problem is, that’s not how OpenAI Nonprofit was formed or what it is required to do — the for-profit was (dubiously) created to advance the mission of the nonprofit, not the reverse.”
Referring to laws surrounding public benefit corporations, Gómez, the law professor, said: “The statute gives them a lot of breadth on when they decide to follow profit and when they decide to follow their nonprofit mission. I see that as a bit of an empty, unenforceable promise.”
Altman initially announced OpenAI’s restructuring would feature a for-profit PBC last December, with a to-be-determined role for the founding nonprofit arm. California’s attorney general inquired about OpenAI’s plans given that “OpenAI, Inc.’s assets are irrevocably dedicated to its charitable purpose.”
The proposed transition was fiercely criticized by a coalition of nonprofit groups in April, who saw the move as a violation of OpenAI’s nonprofit duties to steer its assets and proceeds towards public causes.
As a result, OpenAI clarified in May that any for-profit entity would “continue to be overseen and controlled by that nonprofit.”
The Attorneys General of California and Delaware both declared Tuesday that they had no objection to OpenAI’s recapitalization after close engagement with the company. OpenAI’s main corporate entities are based in California and Delaware.
In Tuesday’s livestream and a separate statement Tuesday, Altman and other company leaders announced the OpenAI Foundation’s first efforts would feature a $25 billion commitment across two areas: technical solutions to maximize benefits and minimize harms from AI and a focus on disease and health.
