OpenAI Transition to For-Profit: Plans Revealed

OpenAI's Structural Evolution for Advancing AGI

OpenAI asserts that its organizational framework requires modification to effectively pursue its core objective: ensuring that artificial general intelligence (AGI) – defined as AI capable of performing most human tasks – benefits all of humankind.

Current Structure and Proposed Changes

Currently, the company operates with a for-profit entity governed by a nonprofit organization, featuring a capped profit-sharing arrangement for investors and employees. However, in a blog post released on Friday, OpenAI announced plans to transition its existing for-profit arm into a Delaware Public Benefit Corporation (PBC).

This new structure will include ordinary shares of stock, with the OpenAI mission designated as its primary public benefit interest. While these details were previously reported, this marks the first official public announcement of the proposal by OpenAI itself.

“As we move into 2025, we must evolve beyond being solely a lab and a startup; we need to establish ourselves as a lasting organization,” OpenAI stated. “The global focus is shifting towards building a new infrastructure encompassing energy, land utilization, chip production, data centers, data management, AI models, and AI systems for the 21st-century economy. We aim to adapt to facilitate the next phase of our mission.”

Benefits of the PBC Structure

OpenAI believes that adopting the PBC model will allow for a balanced consideration of shareholder interests, stakeholder concerns, and the overarching public benefit. It will also enable the company to secure necessary capital under conventional terms.

Furthermore, OpenAI anticipates creating one of the most well-funded nonprofit organizations in history. The existing nonprofit would receive shares in the PBC, valued through independent financial assessments.

“We will maintain both a nonprofit and a for-profit entity,” OpenAI clarified. “Our current structure limits the board’s ability to fully consider the interests of those providing mission funding and restricts the nonprofit’s capacity to expand beyond controlling the for-profit. The PBC will oversee OpenAI’s operations and business, while the nonprofit will focus on charitable initiatives in areas like healthcare, education, and scientific research.”

Historical Context and Funding

Founded in 2015 as a nonprofit research laboratory, OpenAI later established its current dual structure to accommodate the increasing financial demands of its research. This involved attracting investments from venture capitalists and corporations, notably Microsoft.

In October, OpenAI secured $6.6 billion in funding at a $157 billion valuation, bringing its total raised capital to $17.9 billion. Despite this, the company projects a $5 billion loss for the current year, and the terms of its latest funding mandate a transition to a for-profit structure within two years.

Challenges and Opposition

The proposed plan is not without its obstacles. Elon Musk, a co-founder of OpenAI, has filed an injunction to prevent the transition to a for-profit model, alleging a departure from the company’s original philanthropic goals.

Musk also claims that OpenAI has hindered his own AI venture, xAI, by securing commitments from investors to refrain from funding it. OpenAI has dismissed these claims as unfounded.

Meta, Facebook’s parent company and a competitor in the AI space, is also supporting efforts to block OpenAI’s conversion. In December, Meta sent a letter to California Attorney General Rob Bonta, arguing that the shift could have “significant repercussions for Silicon Valley.”

“If OpenAI’s new business model is validated, nonprofit investors could enjoy the same for-profit benefits as conventional investors, while also retaining tax advantages provided by the government,” Meta stated in its letter.

Competitors like xAI and Anthropic are already structured as PBCs, but without a corresponding nonprofit component.

Internal Dynamics and AGI Definition

OpenAI’s existing structure contributed to the unexpected removal of CEO Sam Altman last November, causing dissatisfaction among investors, particularly Microsoft. It also grants OpenAI’s board the authority to determine when AGI has been achieved, and exempts AGI from existing licensing agreements.

Microsoft and OpenAI reportedly have a confidential, internal financial definition of AGI. According to reports, the two companies agreed that AGI is achieved when AI systems generate at least $100 billion in profits.

Talent Outflow and Safety Concerns

OpenAI is currently experiencing an outflow of experienced personnel, driven by concerns that the company is prioritizing commercial products over safety considerations. Carroll Wainwright, a former employee focused on AI alignment, expressed on X that OpenAI “acted like a for-profit” despite its nonprofit origins and questioned its future commitments to responsible AI development.

Miles Brundage, a former policy researcher who left OpenAI in October, voiced “serious concerns” regarding the transition plan. He highlighted the lack of detailed governance information and argued that a well-funded nonprofit cannot substitute for product decisions aligned with the original mission.

Brundage also expressed worry that the nonprofit could become marginalized, allowing the PBC to operate as a conventional company without adequately addressing potential risks. He questioned what safeguards are being implemented to prevent this outcome and address the competitive pressures that could lead to compromised safety standards.

“Besides board details, what other guardrails are being put in place… to ensure that the nonprofit’s existence doesn’t (seem to) let the PBC off too easy?” he wrote. “[A]s OpenAI knows (in part from work I coauthored there), competition also begets corner-cutting. What are the PBC and nonprofit going to do about this?”