OpenAI proposes a new for-profit organization to maintain its lead in the expensive AI race.

To make it simpler to “raise more funding than we have imagined,” OpenAI said Friday it would establish a public benefit corporation and lift the limitations placed on the firm by its present nonprofit parent.

The recognition and thorough justification for its well-publicized reorganization supported a September Reuters story that provoked discussion among tech titans like Elon Musk and corporate watchdogs. In question were the potential effects of such a move on whether OpenAI would equitably distribute its assets to the nonprofit division and how the business would combine turning a profit with producing social and societal benefits as it advances AI.

A Delaware-based public benefit corporation (PBC), which takes into account both shareholder value and societal objectives, would replace the ChatGPT maker’s current for-profit division under the proposed plan.

As the costly quest for artificial general intelligence, or AI that outsmarts humans, intensifies, OpenAI has been seeking to make adjustments to draw in more funding.

According to a Reuters article from October, the ChatGPT maker’s ability to change its corporate structure and eliminate a profit cap for investors within two years was a requirement for its most recent $6.6 billion investment round, which was valued at $157 billion.

According to a blog post by OpenAI, the organization will have a “substantial interest” in the PBC in the form of shares, as decided by independent financial consultants. It also claimed to be among the “best-resourced NGOs in history.”

To raise money for the high expenses of developing AI, OpenAI, which began as a nonprofit organization in 2015 with an emphasis on research, established a for-profit division four years later. Because of its unique structure, the charity was able to take control of the for-profit division. This was evident last year when Sam Altman was sacked as CEO but returned a few days later after staff members rebelled.

A crucial phase

“Once more, we must generate more money than we had anticipated. Investors are interested in funding us, but at this level of investment, we require traditional stock and less structural customization,” the Microsoft-backed business stated on Friday.

“The fact that large corporations are now spending hundreds of billions of dollars on AI development demonstrates what OpenAI will need to do to fulfill its purpose.”
By establishing a PBC, the business would be in line with competitors like Anthropic and xAI, which is controlled by Musk and has just received billions of dollars.

While xAI raised over $6 billion in equity financing earlier in December, Anthropic secured another $4 billion investment this month from longtime backer Amazon.com (AMZN.O).

Although he clarified that the action would not “necessitate OpenAI going public,” Luria stated that “this is the crucial step the firm needs to make to continue capital raising.”

However, the idea may provide some challenges for the firm.
Musk, a former co-founder of OpenAI who is now among the startup’s most outspoken detractors, is attempting to thwart the plan and filed a lawsuit against Altman and OpenAI in August. Musk claims that OpenAI broke the terms of the contract by prioritizing profit over the general welfare in its efforts to develop AI.

Earlier this month, OpenAI requested a federal judge to deny Musk’s motion and released a wealth of correspondence with Musk, claiming that Musk first supported OpenAI’s for-profit status before leaving the firm after failing to secure a majority ownership share and complete control.

According to a copy of a letter seen by Reuters, Meta Platforms (META.O) is also pleading with California’s attorney general to prevent OpenAI from becoming a for-profit business.

According to Ann Lipton, a corporate law professor at Tulane Law School, becoming a benefit corporation does not automatically mean that a business will prioritize its declared mission over profit because the legal requirements for such status simply require the board to “balance” the company’s mission and profit-making interests.