Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
OpenAI will remain under the control of the group’s non-profit arm, with the ChatGPT maker reversing course after intense criticism from Elon Musk over plans to convert into a for-profit company.
The artificial intelligence company, which recently raised funds at a $260bn valuation, said it would convert its existing for-profit subsidiary into a public benefit corporation, lifting its current cap on returns that investors can receive, but would leave the non-profit with ultimate control. The non-profit will also receive a large stake in the public benefit company.
The decision comes after a backlash to OpenAI’s proposed restructuring to a for-profit company, including a lawsuit from co-founder and tech entrepreneur Musk, as well as widespread criticism from former employees and academics who study AI.
OpenAI has been pursuing a simplified corporate structure in order to unlock greater investment. But critics argued that without the non-profit retaining control, it would not have an overarching responsibility to its founding mission: to ensure AI benefits humanity.
Musk, who left OpenAI in 2018, has attempted to block its conversion. He filed a lawsuit in California alleging that OpenAI and its chief executive Sam Altman had breached the terms of his contract and were engaging in fraud by converting the company to a for-profit. Musk has also lobbied for OpenAI to hold a public auction for the non-profit’s assets, and lodged an unsolicited $97.4bn bid to take control of the group.
Altman said on Monday that the decision to keep the non-profit in control was not motivated by outside pressure. “We’re all obsessed with our mission. You’re all obsessed with Elon.”
OpenAI also faced complex negotiations with the attorneys-general of Delaware, where the non-profit is incorporated, and California, where it is headquartered, and with its investors, including Microsoft.
The attorneys-general have sought assurances from OpenAI that it will remain committed to its charitable purposes as part of any conversion, and that the assets held by the non-profit will be fairly valued in the restructuring.
Bret Taylor, chair of OpenAI’s board, said the group “made the decision for the non-profit to retain control of OpenAI after hearing from civic leaders and engaging in constructive dialogue with the offices of the attorney-general of Delaware and the attorney-general of California”.
Altman said on Monday that OpenAI needed “much more capital than we envisaged” when the company was founded as a research lab a decade ago.
OpenAI launched its for-profit subsidiary in 2019, which opened the door for external investors to back the company in exchange for a share of profits. After the launch of ChatGPT in 2022 kicked off a race to develop new AI tools, the company has sought to raise tens of billions of dollars to remain competitive with rivals such as Google, Anthropic and Musk’s xAI.
The previous structure did not allow investors to take equity stakes in the for-profit unit, which is something that is typically demanded by backers of tech companies. The conversion of the for-profit entity into a public benefit company — which focuses on social good in addition to profits — will allow investors to hold stakes in the group.
The past two rounds of financing raised by OpenAI — a $6.6bn investment in October and a $40bn SoftBank-led round earlier this year — have both contained provisions attached to the company converting to a more traditional structure. SoftBank, for instance, could cut its investment by $10bn if OpenAI fails to convert this year.
A person close to the company said OpenAI was confident it could now complete the transition of its for-profit subsidiary into a public benefit group within that timeframe. It expects to complete the conversion after it has determined with independent advisers and the attorneys-general what stake the non-profit will own in the public benefit corporation.
