OpenAI could move forward with new business structure and partnership with Microsoft, regulators say

OpenAI announced Tuesday that it had reorganized its ownership structure and converted its operations into a public benefit corporation and two crucial regulators, the attorneys general of Delaware and California, said they would not oppose the project.

The restructuring makes it easier for ChatGPT’s maker to profit from its artificial intelligence technology, even though it technically remains under the control of a nonprofit organization.

Delaware Attorney General Kathy Jennings and California Attorney General Rob Bonta said in separate statements that they would not oppose the proposal, apparently ending more than a year of negotiations and announcements about the future of OpenAI’s governance and the power that for-profit investors and its nonprofit board will have over the organization’s technology.

The company also announced it signed a new deal with longtime backer Microsoft that gives the software giant a roughly 27% stake in OpenAI’s new for-profit company but changes some details of their close partnership.

The attorneys general of Delaware, where OpenAI is incorporated, and California, where it is headquartered, both said they were investigating the proposed changes.

“We will keep a close eye on OpenAI to ensure it continues to fulfill its charitable mission and protect the safety of all Californians,” Bonta said.

OpenAI said it completed its restructuring “after nearly a year of constructive dialogue” with offices in both states.

“OpenAI has completed its recapitalization, simplifying its corporate structure,” said a Tuesday blog post from Bret Taylor, chairman of the OpenAI board of directors. “The nonprofit retains control of the for-profit and now has direct access to major resources before the AGI arrives.”

AGI stands for artificial general intelligence, which OpenAI defines as “highly autonomous systems that outperform humans at the most economically profitable work.” OpenAI was founded as a nonprofit organization in 2015 with the mission of creating AGI safely for the benefit of humanity. Later, she started a for-profit branch.

Microsoft invested its first billion dollars in OpenAI in 2019, and the two companies entered into an agreement that made Microsoft the exclusive provider of the computing power needed to develop OpenAI technology. In turn, Microsoft has used the technology behind ChatGPT extensively to improve its own AI products.

The two companies first revealed in January that they were modifying that agreement, allowing San Francisco-based OpenAI to build its own computing capacity, “primarily for research and model training.” This coincided with OpenAI’s announcement of a partnership with Oracle and SoftBank to build a massive new data center in Abilene, Texas. Since then, more such projects have been announced in the United States, Asia, Europe and South America, as well as big deals with chipmakers like Nvidia, AMD and Broadcom.

But other parts of its deals with Microsoft remained up in the air as the two companies appeared to drift further apart before reaching a new tentative agreement in September.

OpenAI previously said its own nonprofit board would decide when AGI would be reached, effectively ending its partnership with Microsoft. But it now says that “once AGI has been declared by OpenAI, that declaration will now be verified by an independent panel of experts,” and that Microsoft’s rights to OpenAI’s confidential research methods “will remain until the panel verifies AGI or until 2030, whichever comes first.” Microsoft will also retain certain commercial rights to OpenAI products “post-AGI” and until 2032.

Microsoft released the same joint announcement regarding the revised partnership on Tuesday, but declined further comment. Its shares rose 2% on Tuesday.

In the future, the nonprofit will be called OpenAI Foundation, and Taylor said it will grant $25 billion for health, curing disease and protecting against AI-related cybersecurity risks. He did not specify over what period these funds would be distributed.

Robert Weissman, co-president of the nonprofit Public Citizen, said this arrangement does not guarantee the independence of the nonprofit, comparing it to a corporate foundation that will serve the interests of a for-profit organization.

Even though the nonprofit’s board of directors can technically maintain control, Weissman said that control “is illusory because there is no evidence that the nonprofit ever imposed its values ​​on the for-profit.”

The Delaware Attorney General’s investigation aimed to ensure that OpenAI put its commitment to security ahead of any financial interests. Jennings also said OpenAI promised to keep its nonprofit under the control of the public benefit corporation, including the right to appoint and remove members of its board of directors.

The removal of OpenAI CEO Sam Altman in November 2023 by the nonprofit’s then-board of directors — and subsequent reappointment — kicked off the company’s restructuring efforts.

The nonprofit’s board of directors will continue to include a safety and security committee, which will have the authority to “oversee and review” OpenAI’s technology development. He will even have the power to stop the release of a new product, according to the press release from the Delaware attorney general.

Additionally, within a year, the nonprofit’s board of directors will include at least two members who do not also serve on the utility corporation’s board of directors.

OpenAI still faces a legal challenge from billionaire Tesla CEO Elon Musk, an early investor in OpenAI who now runs his own AI company, xAI, and has accused the startup he co-founded of betraying its original mission.

In March, a federal judge rejected Musk’s request for a court order blocking OpenAI from converting into a for-profit company, but said it could expedite a trial to examine Musk’s claims.