OpenAI Decides To Stay Controlled By Nonprofit Board

OpenAI has reversed its plan to reorganize the AI firm to divorce its non-profit board from its for-profit arm.

Why It Hits: OpenAI has been touting its for-profit plan for a while now in an effort to ramp up fundraising, compete with the growing number of rivals, and make a lot of investors very, very rich. But the ambition was immediately met by swift pushback from rivals, industry watchers, and government officials.

Behind the Curtain: Despite ongoing lawsuits from Elon Musk and Meta over its proposed for-profit restructuring, OpenAI decided to call it quits on its own.

• OpenAI will still be overseen by its nonprofit board, but the for-profit LLC will be changed to a public benefit corporation (PBC), similar to Anthropic and xAI.
• Under the original structure, investors’ returns were capped at 100x their investment, but the new structure will allow that cap to be put back to work.
• That’s key, considering that OpenAI’s last two massive funding rounds came with pretty important fine print — if the cap wasn’t lifted, the money would need to be returned. That’s why OpenAI pushed to get out from under the nonprofit arm’s nose.
• Investors also wanted to make sure that Sam Altman wouldn’t be unceremoniously fired again by the board, as he was extremely briefly in November 2023.

The Future: OpenAI nonprofit board chairman Bret Taylor said that the reversal came about 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.” The Verge notes that both AGs “have oversight of OpenAI’s nonprofit status and could have blocked its planned restructuring.” So, it’s easy to infer that they signaled that they planned to do just that.

Only time will tell whether OpenAI’s investors are happy with the compromise.