ChatGPT creator OpenAI (OPAI.PVT) announced on Monday that it would remain under the control of a nonprofit, a move that followed public questions, criticisms, and litigation about plans for the artificial intelligence upstart to become a for-profit business.
OpenAI co-founder and board chairman Bret Taylor posted the news to the organization’s website, saying OpenAI would remain a charitable organization and convert its for-profit subsidiary into a public-benefit corporation. The charity that oversees OpenAI will control that corporation as a large shareholder.
“OpenAI was founded as a nonprofit, and is today overseen and controlled by that nonprofit,” Taylor said. “Going forward, it will continue to be overseen and controlled by that nonprofit.”
CEO Sam Altman said in a message to employees that “we made the decision for the nonprofit to stay in control after hearing from civic leaders and having discussions with the offices of the Attorneys General of California and Delaware.”
Rose Chan Loui, founding executive director of UCLA’s Lowell Milken Center on Philanthropy and Nonprofits, called the decision a “great result” but added that “the devil is in the details.”
“We would hope that the nonprofit, regardless of the size of its equity stake, will truly be in control of how artificial intelligence … is developed by OpenAI. That this original purpose, and not profit, is paramount.”
OpenAI began in 2015 as a nonprofit under the name OpenAI Inc., a nod to its mission of advancing humanity instead of pursuing profits.
Things got more complicated in 2019 when OpenAI CEO Sam Altman and his team created a for-profit subsidiary to raise outside venture capital — including billions from Microsoft.
It was structured in such a way that the for-profit subsidiary, technically owned by a holding company owned by OpenAI employees and investors, remained under the control of the nonprofit and its board of directors while giving its biggest backer (Microsoft) no board seats and no voting power.
OpenAI had hoped to shed its nonprofit status to attract additional investors and renegotiate with existing ones.
The move would have also detached it from its legal responsibility to carry out its original organizational purpose: to “advance digital intelligence in a way that is most likely to benefit humanity.”
Two major roadblocks stood in the way of OpenAI’s original plan to convert its nonprofit parent organization into a for-profit enterprise.
One is that OpenAI the nonprofit was legally required to receive fair market value in exchange for selling its assets. OpenAI was estimated at $300 billion in its latest funding round, in March.
Unfair compensation to the nonprofit threatened to expose OpenAI to legal challenges, especially from state attorneys general and Delaware in particular, where the nonprofit is registered.
Another is a lawsuit already set for trial, filed by OpenAI co-founder Elon Musk against the charity’s board members and co-founder Sam Altman, in which Musk is seeking to block OpenAI from converting to a for-profit business.
Musk and Altman co-founded OpenAI in 2015 as a nonprofit, but Musk separated himself from the AI firm over disagreements regarding how to move forward with the venture and eventually started a competing AI company called xAI.
In addition to alleging that converting the charity to a profit business would breach its organizing purpose, Musk claims that his $45 million donation to fund the startup was contingent on OpenAI remaining a nonprofit organization.
Chan Loui said the nonprofit’s governance structure will be key to whether or not it carries out its mission.
“We need to know more about … who will appoint the board members of the nonprofit and how the nonprofit board will oversee the operations of the PBC [public benefit corporation],” she said, because those members will be tasked with making sure that the PBC developing artificial general intelligence safely and for the benefit of humanity.
“The nonprofit board can’t do its job without full transparency into the operations of the PBC.”
OpenAI did not immediately respond to Yahoo Finance’s request for comment.
Altman told reporters, according to Bloomberg, that the structure announced Monday would still be attractive to investors.
“I think it just sets us up to be a more understandable structure, and to do the things that a company like ours has to do,” Altman said, according to Bloomberg.
“I won’t pretend that it wouldn’t maybe be easier if we were a fully normal company, but the mission comes first,” he added. “We believe this is well over the bar of what we need to be able to fundraise.”
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
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