OpenAI Said to Plan Restructure into Public Benefit Corporation to Avoid Hos...

TMTPost -- OpenAI is planning a reorganization that will turn the ChatGPT developer into a public benefit corporation (PBC), a form of for-profit company, according to a recent report from U.K. newspaper the Financial Times.

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As part of the reorganizatio plan, OpenAI will establish an independent PBC and hold its shares, while remaining its status of non-profit entity, , the Financial Time cited sources. In other words, if the reported restructuring proceeds as planned, the non-profit entity that has governed OpenAI since its inception will continue to exist, but it will relinquish control over the firm’s day-to-day operations. An entity with PBC structure operates as a for-profit company while also pursuing a pubilc benefit purpose to help make the world a better place. Such hybrid structure has not been widely adopted, but OpenAI’s artificial intelligence (AI) rivals like Amazon-backed Anthropic and Elon Musk’s startup xAI have are created under the structure.

It was reported that the abovementioned plan is designed to protect CEO Sam Altman and his team from potential hostile takeovers and leadership challenges. The leadership of the PBC, led by Altman, may be different with that of the non-profit OpenAI since the new entity will reportedly focus on developing technology, building products and “everything else that needs to be done to achieve commercial success.” This transition is designed to allow OpenAI to take a “multipronged approach to fiduciary obligations,” potentially insulating the company from activist investors and external efforts to challenge Altman’s leadership.

People close to the plan told the Financial Times that OpenAI’s board is discussing the plan and any changes could take place in the future as it has not made final decision yet. OpenAI hopes to continue fulfilling its mission and responsibilities for social benefits while creating cutting-edge technology, according to the report.

OpenAI was reported to mull restructure into a for-profit business during its latest funding round that raised $6.6 billion with a post-money valuation of $157 billion. OpenAI is making a restructure plan to transform its core business into a for-profit benefit corporation that will not be under the control of its non-profit board, Reuters reported on September 25, citing people with knowledge of the matter. The OpenAI non-profit will exist and hold a minority stake in the for-profit company, which could impact how the AI startup manage AI risks, according to the report.

OpenAI was reported to give Altman equity in the for-profit company, for the first time receiving OpenAI equity. And the company could be worth $150 billion when the restructure completes as it works to remove the cap on returns for investors, the people said.

A Bloomberg report the same day echoed the abovementioned Reuters report. Bloomberg learned from anonymous sources that OpenAI is weighing turning into a public benefit corporation, tasked with turning a profit and also helping society. The company is also reportedly discussing giving Altman a 7% equity stake, a major shift that would for the first time granted the chief executive ownership in the startup.

Altman said the plans to give him a “giant equity stake” in OpenAI is “just not true”, CNBC cited a person who attended an all-hands meeting on September 26. Altman also said “there are no current plans here” about his potential attaining a stake, the person said.At the meeting, Altman and OpenAI Chief Financial Officer Sarah Friar said investors have raised concerns about Altman not obtaining any equity in the company since he co-founded almost nine years ago, said the person.

OpenAI Chair Bret Taylor said the company's board has discussed whether to compensate Altman with equity but no decision has been made. “The board has had discussions about whether it would be beneficial to the company and our mission to have Sam be compensated with equity, but no specific figures have been discussed nor have any decisions been made,” Taylor said in a statement on September 26.