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.
Microsoft has played a key role in OpenAI’s financing and growth, investing $1 billion in 2019 and an additional $10 billion in early 2023. Under the original deal, Microsoft became OpenAI’s go-to cloud partner, gaining exclusive rights to deliver OpenAI’s software through its Azure platform. However, OpenAI’s explosive growth has driven the startup to diversify its cloud partnerships beyond Microsoft, signing landmark deals with Oracle and Google, and collaborating with SoftBank on large-scale data centre projects.
The relationship between OpenAI and Microsoft has been shifting. This is due to months of tough negotiations over control and independence, including Microsoft’s interest in the Windsurf AI coding startup that OpenAI had planned to acquire. That deal collapsed, with Windsurf’s founders and staff eventually joining Google and another AI startup, respectively.
Despite these frictions, Microsoft remains committed to its partnership with OpenAI. A Microsoft spokesperson affirmed their dedication to continue collaborating on frontier AI models, emphasising that the companies are actively working to finalise a definitive agreement following the MOU. Microsoft even wants to keep access to OpenAI’s technology even if the AI reaches a level of human-like intelligence, a milestone that could have ended their current partnership under the old terms.
The Current Hurdle
As the transition depends on regulatory approval, OpenAI and Microsoft have pledged to continue cooperation with the California and Delaware attorneys general. They’re hoping to complete the process by the end of this year to avoid risking billions in funding tied to this timeline. Regulatory scrutiny reflects concerns from various quarters, including nonprofits such as Encode and The Midas Project, which argue that the shift to a for-profit arm threatens OpenAI’s founding mission of developing artificial general intelligence (AGI) to benefit humanity.
In response, OpenAI has taken a firm stance, issuing subpoenas to these groups, accusing them of being influenced by rivals like Elon Musk and Meta’s Mark Zuckerberg. Claims the nonprofits deny. This legal battle adds yet another layer of complexity to an already delicate and high-stakes transition.
“This structure reaffirms that our core mission remains ensuring AGI benefits all of humanity. Our PBC charter and governance will establish that safety decisions must always be guided by this mission.” said Bret Taylor.
As OpenAI keeps growing, it will need to scale its infrastructure and work with more cloud providers. By moving to a more traditional governance setup, they aim to bring in more investors while still protecting the company’s core mission.
