- OpenAI plans to restructure as a for-profit benefit corporation, according to reports.
- Since 2019, the company behind ChatGPT has had what Sam Altman called an "unusual" hybrid structure.
- A legal expert told BI that it could be "better for Altman" if he is a controlling shareholder.
After operating under what Sam Altman called an "unusual" structure for over four years, OpenAI is reportedly preparing to become a for-profit business.
It's a move that could see the OpenAI chief gain more decision-making power, a legal expert told Business Insider.
OpenAI is considering a change under which it would no longer be governed by its nonprofit board, according to reports by Reuters and Bloomberg on Thursday, hours after the sudden exit of the company's CTO Mira Murati triggered a wave of speculation about the company's future.
It comes more than a year after Altman said OpenAI's structure was atypical but a deliberate setup because "AI is an unusual technology."
Altman is also in discussions to receive a 7% equity stake in OpenAI, per Bloomberg, a move that would mark his first ownership claim in the company. However, at an OpenAI all-hands on Thursday, Altman denied that there are plans for him to receive a "giant equity stake" in the company, according to CNBC.
According to Bloomberg, OpenAI could be structured as a public benefit corporation, an entity that balances profit with mission. It's a structure resembling that of rivals Anthropic and Elon Musk's startup xAI.
An OpenAI spokesperson told the outlet that the nonprofit entity "will continue to exist" and was core to its mission.
OpenAI was established as a nonprofit in 2015, but in 2019 created a "capped profit" subsidiary with the creation of OpenAI LP. This allowed it to accept a cumulative investment of more than $13 billion from Microsoft.
Restructuring to a public benefit corporation would likely make OpenAI more attractive to further investment at a time when it is reportedly raising money at a $150 billion valuation. Altman would stand to get as much as $10.5 billion richer from the rumored equity stake.
Altman could have more decision-making power
The new for-profit structure could be "better for Altman" in other ways, Anat Alon-Beck, a researcher focused on corporate law and governance at Case Western Reserve University's School of Law, told BI. It could give "more power to shareholders over decision-making," she said, especially if they are a controlling shareholder, which Altman could become.
Alon-Beck said the new entity's shareholders will need to elect the board of directors members at an annual meeting, and the directors are then responsible for the company's policy and direction and for hiring the officers.
While public benefit corporations and nonprofits share commitments to social or environmental goals, Alon-Beck said their structures and purposes differ. Chief among those is that the new entity would be owned by shareholders who expect the company to make a profit and return some of that money to them as dividends, she said. Unlike OpenAI's previous arrangement, there would be no cap on profits.
OpenAI will no longer enjoy nonprofit tax benefits
OpenAI, which is registered in Delaware, may see its tax status change. Delaware public benefit corporations must submit a report to shareholders every two years, laying out how much progress they've made toward their goal of positively impacting society. Like any other US company, benefit corporations must pay taxes on their profits.
"The emphasis will now be on making a profit, and any tax benefits that it enjoyed as a result of its nonprofit status will go away," Eric Chaffee, a business law professor at Case Western Reserve University, told BI.
Chaffee said that for-profit benefit corporations are a relatively new business entity, and the law surrounding them is still evolving. In his view, the potential restructuring is partly happening to make it easier for investors to cash out and see large returns.
OpenAI didn't immediately respond to a request for comment from Business Insider.
