OpenAI outlines new for-profit structure to stay ahead in costly AI race

New Delhi: OpenAI has laid out plans to revamp its corporate structure, transitioning its for-profit arm into a Public Benefit Corporation (PBC) to facilitate easier capital raising and remove some of the restrictions imposed by its nonprofit parent.

This move, announced via a blog post on December 27, 2024, comes as OpenAI seeks to secure the vast amounts of funding required to maintain its lead in the fiercely competitive AI development race. 

The company stated, "We once again need to raise more capital than we'd imagined. Investors want to back us but, at this scale of capital, need conventional equity and less structural bespokeness."

Under the proposed restructuring, OpenAI's existing for-profit entity will become a Delaware-based PBC, a type of company designed to balance profit-making with broader societal interests. This change aims to align OpenAI more closely with its competitors like Anthropic and xAI, which have already adopted similar structures to attract substantial investments.

The restructuring has not been without controversy. Elon Musk, a co-founder of OpenAI who later distanced himself from the organisation, has filed a lawsuit against OpenAI, alleging that this transition to a for-profit company violates the original mission of benefiting humanity over profit. OpenAI has countered these claims by arguing that Musk initially supported the for-profit status before his departure.

Moreover, Meta Platforms has urged California's Attorney General to block this conversion, highlighting concerns over how OpenAI would allocate its assets between the nonprofit and for-profit arms. Critics argue that becoming a PBC does not inherently ensure that the company will prioritise public good over profit, as it only requires the board to balance these interests.

OpenAI started in 2015 as a nonprofit with a mission to ensure artificial general intelligence (AGI) benefits all of humanity. However, the high costs associated with AI research led to the creation of a for-profit subsidiary in 2019 to attract the necessary capital. The latest funding round, which valued OpenAI at $157 billion, was contingent on restructuring to remove a profit cap for investors.