OpenAI dials back conversion plan, nonprofit to retain control

By Krystal Hu, Arsheeya Bajwa, Aditya Soni

(Reuters) -OpenAI has dialed back a significant restructuring plan, with its nonprofit parent retaining control in a move that is likely to limit CEO Sam Altman's power over the pioneering maker of ChatGPT.

The announcement follows a storm of criticism and legal challenges, including a high-profile lawsuit filed by rival and co-founder Elon Musk, who has accused OpenAI of straying from its founding mission to develop artificial intelligence for the benefit of humanity. 

"OpenAI was founded as a non-profit, is today a non-profit that oversees and controls the for-profit, and going forward will remain a non-profit that oversees and controls the for-profit. That will not change," Altman said in a blog post on Monday.

OpenAI had outlined plans in December to convert its for-profit arm into a public benefit corporation, a structure designed to balance shareholder returns with social goals, unlike nonprofits, which are solely focused on public good. Under that proposal, the nonprofit parent would have been a big shareholder in the PBC but would cede control over the startup.

On Monday, OpenAI said the nonprofit parent would continue to control the PBC and become a big shareholder in it. The company will push ahead with plans to change the structure of its for-profit arm to allow more capital-raising to keep pace in the AI race. 

The move to an outright for-profit was intended to help OpenAI raise more capital and ease restrictions tied to its nonprofit parent. But it sparked concerns over whether the company would fairly allocate assets to the nonprofit and how it would balance profit-making with its mission to develop AI for the public good.

"We made the decision for the nonprofit to stay in control after hearing from civic leaders and having discussions with the offices of the Attorneys General of California and Delaware," Bret Taylor, chairman of OpenAI's board, said in a blog post, adding that the new announcement meant the startup would continue to have a structure "extremely close" to the current one. 

Altman called the move a compromise "that (works) well enough for investors that they're happy to continue to fund us to a degree we think we will need." He said OpenAI would work with major backer Microsoft, regulators and newly appointed nonprofit commissioners to finalize the updated plan.

"We believe this is well over the bar of what we need to be able to fundraise," Altman said, adding there were "no changes to any existing investor relationships" and that the company would remove caps on the profit that  investors can earn. He noted that public benefit corporations have become common at AI companies including rivals such as Anthropic, which is  backed by Amazon as well as Alphabet's Google, and at Musk's xAI. 

But some questions remain over what exactly was changing and whether the move made it harder for OpenAI to raise capital as aggressively as it might have under a more conventional corporate structure.

"We’re glad that OpenAI is listening to concerns from civil society leaders ... but crucial questions remain," said Page Hedley, OpenAI's former policy and ethics adviser, and lead organizer of the group Not For Private Gain.

"Will OpenAI's commercial goals continue to be legally subordinate to its charitable mission? ... Who will own the technology that OpenAI develops? The 2019 restructuring announcement made the primacy of the mission very clear, but so far, these statements have not," he said. He added he was concerned that in the current PBC structure, the board would be obligated to maximize shareholder value. 

EXPENSIVE AI

As the expensive pursuit of artificial general intelligence, or AI that surpasses human intelligence, heats up, OpenAI has been looking to make changes to attract further investment. 

It announced in March it would raise up to $40 billion in a new funding round led by SoftBank Group, at a $300 billion valuation. The round was contingent on the AI firm transitioning to for-profit status by the end of the year, a structure that drew attention in November 2023 during one of the biggest boardroom dramas in Silicon Valley, where members of the nonprofit board ousted Altman over a breakdown in communication and loss of trust. He was reinstated after five days, following an outpouring of support from employees and investors.

Altman said OpenAI would still be able to receive funding from the Japanese tech investor after Monday's move.

SoftBank did not immediately respond to a request for comment, while Microsoft declined to comment.

The announcement also raised questions over the future of Musk's lawsuit which sought to block OpenAI’s transition away from nonprofit control, among other claims. A jury trial had been scheduled for March 2026.

A consortium led by Musk had also made an unsolicited $97.4 billion bid for OpenAI earlier this year that was swiftly rebuffed by Altman with a "no thank you."

(Reporting Krystal Hu in New York, Aditya Soni and Arsheeya Bajwa in Bengaluru and Anna Tong in San Franciso; Editing by Sayantani Ghosh and Matthew Lewis)