OpenAI Plans Corporate Reset, Microsoft Signs On

OpenAI revealed on Thursday that it had struck a non-binding deal with Microsoft to transition its for-profit arm into a public benefit corporation (PBC). This shift, still awaiting approval from state regulators in California and Delaware, could enable OpenAI to raise additional capital, expand partnerships, and ultimately go public while maintaining its mission of creating AI that benefits everyone.

The change into a PBC marks a shift for OpenAI’s unique governance model. Unlike traditional for-profit companies whose primary goal is shareholder profits, a public benefit corporation has to balance making money with helping people. For OpenAI, this means staying focused on its mission to develop AI that helps as many people as possible, rather than just chasing profits. The nonprofit side of OpenAI will still have control and own a big part of the company to make sure it stays true to this mission as it grows.

Under this non-binding agreement, OpenAI’s existing nonprofit will stick around and keep control over the company to make sure its mission stays on track. The nonprofit will also receive a substantial equity stake in the new PBC, with an estimated value exceeding $100 billion, as per OpenAI board chairman Bret Taylor. This stake is even bigger than the $97 billion offer Elon Musk made earlier this year.

An Unusual Governance Model?

OpenAI’s current hybrid governance structure has been known to be a bit unusual. Unlike typical startups, OpenAI is overseen by a nonprofit board. In 2023, this structure allowed the brief removal and reinstatement of CEO Sam Altman amid internal conflicts which resulted in the resignations of key board members. The board cited a lack of transparency, saying Altman had not been consistently candid in his communications, which undermined their confidence in his leadership. Despite the incident, the nonprofit board has stayed in control.