Reasons Why OpenAI Seeks to Unravel Its 'Customized' Corporate Structure
The profit-oriented plan of OpenAI creates some confusion. Below, we attempt to break down its possible implications for the company and its goal of developing general artificial intelligence that is beneficial for everyone.
OpenAI recently announced in a blog its intention to reorganize its for-profit arm into a public benefit corporation (PBC). This plan has generated interest among corporate law experts in the country, who are analyzing its implications for the company's mission of developing safe artificial general intelligence (AGI).
Public benefit corporations are a relatively new type of business entity. They originated from a certification program created by the nonprofit organization B Lab, where companies that complete a self-assessment can use the B Lab logo and label themselves as B-Corps. However, this status lacks legal backing or a specific industry group. Thus, B Lab decided to work with legal experts to create a model statute that recognized benefit corporations as legal entities; Maryland was the first state to pass it in 2010, followed by Delaware in 2013, which called it a PBC.
Delaware is crucial for corporate law in the U.S., home to more than 68% of Fortune 500 companies. Its chancellor court has a reputation for business-friendly laws, leading OpenAI to plan its reincorporation as a PBC in this state. The core of the PBC concept is the recognition that they must balance profit maximization, a defined public benefit in their charter, and the interests of individuals affected by their activities.
One of the reasons OpenAI is seeking this structure is to free its model from the profit distribution restrictions that many nonprofit organizations face. There are speculations that some employees believe a PBC could protect OpenAI from a hostile takeover if it goes public. This type of takeover is regulated by the Revlon doctrine, which requires corporations to sell themselves to the highest bidder under certain conditions. By reorganizing as a PBC, OpenAI could have more flexibility to reject offers that do not align with its social values.
Additionally, OpenAI has expressed the need to secure more investments, arguing that its current structure limits its ability to attract capital. While last year the company raised $6 billion in venture capital funding, they believe that their "capped-profit" model—where investor returns are limited—is hindering access to new funds.
In the context of the restructuring, OpenAI suggests that its nonprofit arm could focus more on charitable initiatives if it is freed from complete control over the for-profit branch, although this could mean a significant loss of control over its assets. However, the effectiveness of laws governing PBCs in ensuring they fulfill their social purpose has been questioned by experts, who note that the company's private agreements play a crucial role in this aspect, and in OpenAI's case, information about its future documents is scarce.
Finally, Elon Musk's recent offer for the assets of the nonprofit organization complicates OpenAI's situation. Although the organization is not obligated to sell to Musk, his proposal could influence the price of any type of transaction that OpenAI contemplates with its restructuring. Furthermore, the temporary pressure OpenAI faces to relinquish control of its nonprofit arm before it becomes a liability is a critical factor in its strategy.
