OpenAI Realignment To Give Nonprofit Over $100 Billion Stake

OpenAI said it’s closer to converting into a more traditional for-profit company — nearing the resolution of painful negotiations with top shareholder Microsoft Corp. and outlining terms of at least $100 billion in equity for its nonprofit arm.

Planned changes will give the existing OpenAI nonprofit control over a new public benefit corporation, Chairman Bret Taylor said in a statement Thursday. And it would provide the nonprofit with an equity stake that would make it “one of the most well-resourced philanthropic organizations in the world,” he wrote.

“OpenAI started as a nonprofit, remains one today, and will continue to be one — with the nonprofit holding the authority that guides our future,” Taylor said in the statement.

OpenAI plans to give the nonprofit an equity stake of more than $100 billion in the new corporation, which is a floor that could increase, according to a person familiar with the matter who asked not to be identified because the information is private.

That stake would give the company a roughly 20% share of OpenAI — if it closes a deal to let employees sell shares at a valuation of $500 billion. That transaction would make OpenAI the biggest startup in the world.

OpenAI was founded in 2015 as a nonprofit dedicated to advancing digital intelligence “in the way that is most likely to benefit humanity as a whole.” Both Chief Executive Officer Sam Altman and Elon Musk, who were OpenAI co-founders, have spoken about the potential existential risk to humans posed by advanced AI, and argued for ethical leadership in the industry.

But OpenAI’s unusual structure became an issue in 2023, when Altman was suddenly fired and then, after several days of chaos, reinstated. As OpenAI has grown into an AI behemoth, it has moved to remake its board and reshape governance structures. Becoming a public benefit corporation gives the company and its board more justification to pursue financial returns for shareholders.

Though the public benefit designation signals that the business arm remains committed to having a positive impact on society, it can still be run as a profit-seeking entity.

For Microsoft investors, the announcement calmed fears about turmoil in that company’s relationship with OpenAI. Microsoft shares gained about 1.8% in extended trading following the news.

Microsoft and OpenAI have been holding talks for months about reshaping their relationship, in part to secure Microsoft’s assent for the restructuring of the startup. In exchange for massive financial backing, Microsoft has the right to incorporate OpenAI’s AI tools into its products. Winning Microsoft’s approval for the changes has been one of the key roadblocks to OpenAI’s plans, Bloomberg has reported.

In recent months, negotiators for the companies have been meeting regularly. And the CEOs, OpenAI’s Altman and Microsoft’s Satya Nadella, discussed the restructuring at the Allen & Co. conference in Sun Valley, Idaho, Bloomberg reported.

In a joint statement on Thursday, the companies said they had signed a “non-binding memorandum of understanding (MOU) for the next phase of our partnership.” They also said they are “actively working to finalize contractual terms in a definitive agreement. Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety.”

But gaining Microsoft’s buy-in is not the only hurdle to OpenAI’s attempts to restructure.

California Attorney General Rob Bonta and Delaware Attorney General Kathy Jennings are currently reviewing the company’s proposed financial and governance changes. Last week, both offices released a joint letter to OpenAI’s board raising concerns about recent reports of how OpenAI’s products interact with children, including one Californian who Bonta said died by suicide after interacting with a chatbot.

“It is our shared view that OpenAI and the industry at large are not where they need to be in ensuring safety in AI products’ development and deployment,” the letter from the attorneys general said.

OpenAI is also facing opposition to its restructuring from Musk, an early backer who split with the company and accused the startup of defrauding investors about its commitment to its charitable mission in an active lawsuit. OpenAI has pushed back on Musk’s claims and said the billionaire is trying to slow down the San Francisco-based company.