OpenAI Resumes Talks With Regulators to Transition into a “For-Profit Company”

OpenAI, the company behind Chat GPT, has entered discussions with regulators about changing its corporate structure.

The company, valued at $157 billion, is in talks with Attorney General, Rob Bonta, in California and another regulator in Delaware to become a for-profit entity.

OpenAI Move from Nonprofit to For-Profit

In 2015, OpenAI, a non-profit organization to develop AI tools that would benefit and protect humanity.  However, the firm’s high costs for advanced AI model development led to the creation of a capped for-profit subsidiary in 2019.

Now, to secure more funding for its AI development, OpenAI is looking to shift its structure further as a for-profit model appeals more strongly to investors who may be hesitant to invest in a nonprofit entity.

Regulatory and Legal Hurdles

Despite the shifts already implemented, the organization faces a challenge in valuing its primary assets—intellectual property, including its large language models—which makes the transition difficult.

Furthermore, a California law requires nonprofits to dedicate any asset value to charitable causes, making the transition more complex.

Sources familiar with the discussions are reporting that OpenAI has begun consultations with the office of California Attorney General Rob Bonta and regulators in Delaware to resolve the issues.

Pressure and Concerns for the Planned Transition

With plans for a transition coming, questions about OpenAI’s dedication to its original mission. This has raised tensions within the nonprofit board due to balancing AI safety with the increasing demands of commercialization.

OpenAI’s nonprofit board chairman, Bret Taylor, has emphasized that any restructuring would ensure the nonprofit continues to thrive, retaining its stake and mission. He stated that OpenAI is “committed to protecting charitable assets for their intended purpose.”

Internal challenges have also marked the company’s journey. On November 17, 2023, during a brief period of turmoil, OpenAI’s board of directors temporarily removed co-founder and chief executive Sam Altman from his position. However, employees and investors pressured the board to rehire him shortly after.

Additionally, Elon Musk, who invested $50 million in OpenAi, filed a lawsuit against OpenAI in February 2024 citing breach of contract. The billionaire questioned the legality of the transition to for-profit status, arguing that OpenAI was originally founded as an open-source, nonprofit organization to combat the influence of tech giant Google. However, he ultimately dropped the case in June. 1.