OpenAI Revises For-Profit Restructuring Plan: Nonprofit to Retain Control Amid Scrutiny

The Dramatic Reversal of OpenAI’s Restructuring Plan

In a significant policy shift, OpenAI has abandoned its controversial restructuring plan that would have separated control of its for-profit arm from the nonprofit board that currently oversees operations. The company announced on Monday that it would maintain nonprofit control over its commercial activities while still transitioning to a public benefit corporation structure, marking a dramatic reversal from its previous position.

Bret Taylor, chairman of OpenAI’s board, explained the decision: “We made the decision for the nonprofit to retain control of OpenAI after hearing from civic leaders and engaging in constructive dialogue with the offices of the Attorney General of Delaware and the Attorney General of California.” This statement indicates that regulatory scrutiny played a significant role in the company’s about-face.

This restructuring decision comes just two months after OpenAI secured $6.6 billion in new investment, bringing its valuation to approximately $157 billion. The company had previously claimed it needed to raise “more capital than we’d imagined” and that investors at this scale “need conventional equity and less structural bespokeness.”

Original Restructuring Proposal and Criticism

OpenAI’s original restructuring plan aimed to substantially alter the power dynamic between its nonprofit foundation and for-profit subsidiary. Under that proposal, the nonprofit would have ceded absolute control of the for-profit arm, retaining only the degree of influence proportional to its shareholding after reorganization.

This proposal faced significant opposition from various stakeholders. Former employees, labor organizations, nonprofit groups, and even Elon Musk—an OpenAI co-founder who has since become a vocal critic—expressed concerns about the plan. Critics worried that the shift away from nonprofit control would compromise OpenAI’s stated mission of ensuring artificial general intelligence (AGI) benefits all of humanity.

“This is not a sale, but a change of structure to something simpler. Instead of our current complex capped-profit structure—which made sense when it looked like there might be one dominant AGI effort but doesn’t in a world of many great AGI companies—we are moving to a normal capital structure where everyone has stock.”

OpenAI CEO Sam Altman justified the restructuring in a letter to employees, suggesting that the company’s original structure was designed for a world where one company might dominate AGI development. As the competitive landscape has evolved with multiple companies working on advanced AI, Altman argues that the original structure has become outdated.

Unanswered Questions About Nonprofit Control

Despite OpenAI’s announcement, legal experts and industry observers have pointed out that many critical questions about how the nonprofit will maintain control remain unanswered. Jill Horwitz, a visiting professor of law at Northwestern University, raised several pertinent questions: “How is the nonprofit going to maintain control? How will that purpose be advanced?”

Horwitz also highlighted governance concerns: “We know from the press that OpenAI plans to appoint all the board members of the operating entity. Will that happen forever? Who will they be? Will it be self-perpetuating? Will the for-profit investors have a say in who those board members are?”

The lack of specificity in OpenAI’s announcement has led to speculation about how the company will structure its corporate governance. Without clear details, it remains uncertain how durable the nonprofit’s control will be, especially as the company continues to raise capital and potentially faces pressure from investors seeking returns.

Possible Governance Structures for OpenAI

Professor Michael Dorff, executive director of the Lowell Milken Institute for Business Law and Policy at UCLA, outlined several potential approaches OpenAI could take to ensure nonprofit control while accommodating investor interests. These options vary in their complexity and level of protection for nonprofit control.

“If you had one class of stock, one vote per share, they would elect a board. You could just give the nonprofit the majority of the shares, and then they would then elect a majority of the board. They would therefore be in charge, at least for a while,” Dorff explained.

However, this simple majority ownership structure could be vulnerable to dilution through future fundraising rounds, stock splits, or other financial maneuvers. To create more durable nonprofit control, Dorff suggested a dual-class share structure: “More stable governance arrangements could be done by having dual class shares, where the nonprofit would have a class of stock and they would be the only owners of that class of the stock that is either super voting shares, again, giving it a majority, or even better, you can define a class of stock and say it has the right to elect a majority of the board.”

Without clear details from OpenAI about which approach it will take, observers can only speculate about how robust the nonprofit’s control will actually be. The specific legal mechanisms chosen will significantly impact the company’s future decision-making and priorities.

Microsoft’s Role in the Restructuring Decision

A critical factor in OpenAI’s restructuring is the position of Microsoft, which has invested nearly $14 billion in the company and maintains special licensing rights to OpenAI’s technology. According to Bloomberg, Microsoft has yet to sign off on OpenAI’s revised proposal, suggesting that negotiations between the two companies continue behind the scenes.

The stakes are high for both parties. Under the terms of OpenAI’s October 2024 funding round, the company has two years to transform itself into a for-profit business. If it fails to meet this deadline, the $6.6 billion it secured would convert into debt—potentially creating significant financial strain for a company that reportedly recorded around $5 billion in losses last year.

The complexity of these negotiations is further increased by the involvement of state attorneys general from California and Delaware, who must approve any restructuring plan. OpenAI acknowledged this ongoing process, stating: “We look forward to advancing the details of this plan in continued conversation with [the state AGs], Microsoft, and our newly appointed nonprofit commissioners.”

Elements of the Plan That Remain Unchanged

While OpenAI has reversed course on the question of nonprofit control, several key aspects of its original restructuring plan remain intact. Most notably, the company still intends to reorganize its for-profit subsidiary as a public benefit corporation (PBC)—a corporate form that legally requires the business to consider societal impact alongside financial returns.

The company also plans to eliminate its current capped profit structure, which limits investor returns to 100 times their original investment, with excess profits reserved for the nonprofit. This cap has been a distinctive feature of OpenAI’s “bespoke” corporate structure but has reportedly made it more difficult to raise capital from traditional investors who expect unlimited upside potential.

According to Altman’s letter to employees, the move to a “normal capital structure where everyone has stock” is intended to simplify OpenAI’s corporate structure while still maintaining some commitment to public benefit. The specific public benefit purpose that OpenAI will declare in its charter has not yet been disclosed.

Implications for AI Governance and the Industry

OpenAI’s restructuring saga has broader implications for the AI industry and the governance of powerful technology companies. As one of the most influential AI organizations in the world, OpenAI’s corporate structure sets precedents that may influence how other companies balance profit motives with responsible development of powerful AI systems.

The company’s decision to maintain nonprofit control while adopting more traditional capital structures represents an attempt to navigate competing pressures: the need for vast amounts of capital to fund AI research and development, investor expectations for returns, regulatory scrutiny, and commitments to developing AI that benefits humanity broadly.

Despite OpenAI’s revised plan, significant questions remain about how effectively the nonprofit’s control will translate into governance practices that prioritize the company’s stated mission over profit maximization. The details of the restructuring—many of which remain undisclosed—will determine whether OpenAI can successfully balance these competing priorities.

As artificial intelligence continues to advance in capability and impact, the structures that govern its development become increasingly important. OpenAI’s evolving corporate form represents a high-profile experiment in how to structure organizations developing powerful technologies with profound societal implications. Whether the revised plan succeeds in maintaining the company’s mission while enabling necessary growth remains to be seen.