OpenAI set for major overhaul, nonprofit to get $100 billion stake

The current OpenAI nonprofit is poised to gain control of a newly established public benefit corporation. Adopting the model allows OpenAI to justify prioritising shareholder profits

Artificial intelligence (AI) powerhouse OpenAI is moving closer to transforming into a conventional for-profit company, edging towards the resolution of challenging negotiations with major shareholder Microsoft Corp, according to a Bloomberg report. The discussions also involve setting terms that would allocate at least $100 billion in equity to its nonprofit arm.

 

OpenAI and Microsoft are revising the terms of their partnership, which would allow the ChatGPT developer to pursue a public listing in the future, while maintaining Microsoft’s continued access to cutting-edge AI technology.

 

OpenAI’s $100 billion shake-up

Planned changes will position the current OpenAI nonprofit to control a newly established public benefit corporation, said Chairman Bret Taylor in a statement on Thursday. He added that the nonprofit would receive an equity stake sufficient to make it “one of the most well-resourced philanthropic organisations in the world". OpenAI intends to allocate an equity stake worth over $100 billion in the new corporation to its nonprofit arm, according to reports. This stake represents a baseline that could increase. It would result in the nonprofit holding approximately 20 per cent of OpenAI if a deal closes, permitting employees to sell shares at a $500 billion valuation. Such a transaction would establish OpenAI as the world’s largest startup.

 

 

“OpenAI started as a nonprofit, remains one today, and will continue to be one -- with the nonprofit holding the authority that guides our future,” Taylor emphasised.

 

OpenAI's growing pains

OpenAI was established in 2015 as a nonprofit committed to advancing digital intelligence “in the way that is most likely to benefit humanity as a whole". Sam Altman and Elon Musk, co-founders of OpenAI, have publicly expressed concerns about the existential risks advanced AI poses to humanity, advocating for ethical leadership within the industry.

 

However, OpenAI’s atypical structure became a significant point of contention in 2023, when Altman was abruptly dismissed and reinstated after several tumultuous days. As OpenAI has evolved into an AI behemoth, it has undertaken efforts to reform its board and governance structure.

 

What is a public benefit corporation?

A public benefit corporation combines features of for-profit companies and nonprofit organisations, enabling entities to address societal or environmental issues while also generating returns to shareholders. Adopting the public benefit corporation model provides the firm and its board with a stronger rationale to focus on shareholder financial returns. Although the public benefit label indicates a commitment to positive societal impact, the entity can still operate as a profit-seeking business.

 

OpenAI, Microsoft in talks to reset high-stakes partnership

Microsoft has offered to relinquish a portion of its equity stake in OpenAI’s new for-profit venture in return for continued access to new AI models developed beyond 2030, when a pivotal contract expires.

 

Renegotiating the agreement, originally formulated when Microsoft invested an initial $1 billion in OpenAI six years ago, is vital for restructuring the startup, into which Microsoft has invested several billion dollars more since.