OpenAI Restructuring Plan

By Aditya Soni, Arsheeya Bajwa, Krystal Hu

(Reuters) – OpenAI on Friday outlined plans to revamp its structure, announcing the creation of a public benefit corporation (PBC) to raise more capital than previously imagined and to remove restrictions imposed by its nonprofit parent.

This acknowledgment and the rationale behind the restructuring confirm a Reuters report from September, which ignited debate among corporate watchdogs and tech leaders, including Elon Musk. The concerns center on whether OpenAI will allocate its assets fairly to the nonprofit and balance profit-making with social good as it develops AI.

Under this plan, OpenAI’s existing for-profit arm would become a Delaware-based PBC, designed to consider societal interests alongside shareholder value. The company is looking to attract more investment to support its costly pursuit of artificial general intelligence (AGI).

Reuters reported that OpenAI’s latest $6.6 billion funding round at a valuation of $157 billion is contingent upon restructuring and removing a profit cap for investors within two years. The nonprofit will have a “significant interest” in the PBC, receiving shares as set by independent financial advisers, making it one of the “best-resourced nonprofits in history.”

OpenAI began in 2015 as a research-focused nonprofit but established a for-profit unit in 2019 to secure funding for AI development. Its unique structure previously placed control of the for-profit unit with the nonprofit.

OpenAI stated, “We once again need to raise more capital than we’d imagined. Investors want to back us but need conventional equity at this scale.” The substantial investment in AI development by major companies showcases the resources required for OpenAI to continue its mission.

This PBC plan aligns OpenAI with rivals like Anthropic and Elon Musk’s xAI, which also use similar structures and raised billions in funding. Analyst Gil Luria emphasized that this step is crucial for OpenAI to continue fundraising but noted it does not require the company to go public.

However, the company may face obstacles, including opposition from Musk, who has sued OpenAI, claiming it prioritizes profit over public good. Meta Platforms is also pushing California’s attorney general to block OpenAI’s conversion.

While becoming a benefit corporation signals a commitment to social mission, it does not legally enforce prioritizing the mission over profits. Corporate law professor Ann Lipton noted that the board of directors would balance mission and profit, with shareholders ultimately dictating adherence to the mission.