OpenAI reportedly begins early talks with California attorney general over complex transition from nonprofit to for-profit structure
OpenAI has begun early talks with the California attorney general’s office over the process to switch from a non-profit to a for-profit structure, Bloomberg reported, advancing a significant procedure for the firm that began with an idealistic mission to create artificial intelligence (AI) software that would benefit humanity.
The attorney general in Delaware has also been in communication about the shift, the report said.
The company has opened a dialogue with the office of attorney general Rob Bonta in California and will submit the details of its restructuring plan once it is finalised, the report said.
The attorney general’s office said in a statement it is “committed to protecting charitable assets for their intended purpose”.
Structural shift
Unlike many other nonprofits, OpenAI holds highly valuable intellectual property related to its ChatGPT chatbot and related AI technologies.
California law requires the value assigned to nonprofit assets to be distributed to a charitable cause.
Since OpenAI’s primary asset is its intellectual property, the process of switching to a for-profit structure could be complex as the company values its portfolio and continues discussions with the attorney general.
OpenAI has said any corporate restructure would involve maintaining a non-profit arm that would hold a minority stake in the company.
“While our work remains ongoing as we continue to consult independent financial and legal advisors, any potential restructuring would ensure the nonprofit continues to exist and thrive, and receives full value for its current stake in the OpenAI for-profit with an enhanced ability to pursue its mission,” the company said in a statement.
OpenAI was initially founded in 2015 as a nonprofit research organisation, and in 2019 created a for-profit subsidiary overseen by the nonprofit, to help fund the high costs of developing AI models.
Executive departures
The company made headlines after its public launch of ChatGPT in November 2022 quickly attracted a large user base, leading to tensions between the for-profit subsidiary and the nonprofit oversight board.
These tensions came to a head in late 2023, when the board unceremoniously fired Sam Altman, chief executive of the for-profit organisation, only to rehire him days later.
It is unclear what stake the nonprofit arm would have in the for-profit company under the planned reorganisation.
OpenAI is planning to become a public benefit corporation with a mission for social good while operating on a for-profit basis, OpenAI chief strategy officer Jason Kwon told staff in September.
Many key senior staff under the previous structure have left the company as its transition plans have progressed, including co-founder Ilya Sutskever and former chief technology officer Mira Murati.
The company completed a $6.6 billion (£5.1bn) funding round last month that values it at $157bn, making it one of the most valuable private companies in the world.