OpenAI Reversal: Nonprofit Retains Control of Business Operations

OpenAI Retains Nonprofit Control Amidst Restructuring Plans

OpenAI has announced a shift in its organizational strategy, deciding that its nonprofit entity will maintain governance over its for-profit counterpart. This decision follows an initial announcement regarding a planned conversion to a fully for-profit structure.

Transition to a Public Benefit Corporation

The company’s commercial operations, previously operating under the nonprofit since 2019, will now be structured as a public benefit corporation (PBC). Critically, the nonprofit organization will retain control and will also function as a significant shareholder within the PBC.

Bret Taylor, Chairman of the OpenAI Board, affirmed this ongoing control in a statement published on the company’s official blog. He emphasized that the nonprofit will continue to oversee and direct the organization’s future direction.

Response to Regulatory Concerns

This decision was reached “after engaging in constructive dialogue and receiving feedback from civic leaders, as well as the Attorney General’s offices of both Delaware and California,” according to OpenAI.

Taylor expressed gratitude to both Attorney General offices and indicated a commitment to continued collaboration. This aims to ensure OpenAI can effectively pursue its core mission moving forward.

Historical Context of OpenAI’s Structure

Founded as a nonprofit in 2015, OpenAI transitioned to a “capped-profit” model in 2019. The company was then considering a further restructuring towards a traditional for-profit entity. Throughout these changes, the nonprofit wing has consistently held a controlling interest in the organization’s commercial arm.

OpenAI previously justified the proposed conversion as a necessary step to secure the capital required for growth and expansion. The company stated it would preserve the nonprofit’s status and allocate additional resources to “charitable initiatives” within fields like healthcare, education, and scientific research.

Opposition to the For-Profit Conversion

The proposed restructuring faced considerable opposition. Elon Musk, an early investor in OpenAI, filed a lawsuit challenging the company’s planned transition. His complaint alleged that OpenAI was abandoning its original nonprofit mission, which prioritized the benefit of all humanity through its AI research.

Musk requested a preliminary injunction to halt the conversion, but a federal judge denied this request. However, the court allowed the case to proceed to a jury trial scheduled for spring 2026.

Amicus Briefs and Petitions

Support for Musk’s lawsuit came in the form of amicus briefs filed by former OpenAI employees and Encode, a nonprofit involved in California’s AI safety legislation.

Separately, a coalition of organizations, including nonprofits and labor groups like the California Teamsters, petitioned California Attorney General Rob Bonta to prevent OpenAI from becoming a for-profit entity. They argued the company had “failed to protect its charitable assets.”

Letters requesting intervention were also sent to Bonta and Delaware’s Attorney General, Kathy Jennings, by Nobel laureates, law professors, and various civil society organizations.

Potential Consequences of the Reversal

OpenAI faced a deadline to complete its for-profit conversion by the end of the current or following year. Failure to do so could have resulted in the loss of some recently raised capital. The implications of reversing course are currently unclear.

Future Funding Requirements

In a letter to staff, CEO Sam Altman suggested that OpenAI may ultimately require “trillions of dollars” to achieve its goal of making its services accessible to all of humanity.

Altman explained that the nonprofit will become a substantial shareholder in the PBC, with the amount determined by independent financial advisors. He also noted a move towards a standard capital structure with broader stock ownership.

“[W]e look forward to advancing the details of [our] plan in continued conversation with them, [our partner] Microsoft, and our newly appointed nonprofit commissioners,” Altman concluded.