OpenAI engages in talks with California officials to become for-profit company

OpenAI, led by CEO Sam Altman, is reportedly in preliminary discussions with California’s attorney general’s office to alter its corporate structure and shift towards a for-profit model, according to sources familiar with the matter, as reported by Bloomberg News.

This potential move would represent a major change for the AI innovator, which began as a non-profit research lab in 2015. The restructured model could make OpenAI more appealing to investors, allowing for potentially higher returns and expanding investment opportunities.

Despite the shift, the original non-profit entity would continue to exist, retaining a minority stake in the new for-profit company. Such a change would impact how OpenAI manages AI risks, with adjustments to its governance model likely needed. This plan aligns with an earlier strategy to transform the core operations into a for-profit benefit corporation, removing the non-profit’s direct governance while preserving its mission-oriented foundation.

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OpenAI’s evolution into a mixed model began in 2019 when it introduced OpenAI LP, a for-profit arm under the non-profit umbrella, securing significant funding from tech giant Microsoft to propel its research efforts.

The company gained worldwide recognition following the late 2022 release of ChatGPT, a breakthrough generative AI application that quickly became a global sensation, reaching over 200 million active weekly users and fuelling a competitive surge in the AI market.

In a significant recent development, OpenAI secured $6.6 billion in funding, which could push its valuation to an eye-watering $157 billion, solidifying its position as one of the most valuable private companies.

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This restructuring would also mark a first for Altman, who would receive equity, potentially valued at $150 billion once the transition is complete and any cap on investor returns is lifted. Such a change would pivot OpenAI closer to the conventional startup model, which many investors find more predictable and profitable.

The company has emphasised that its mission remains focused on developing AI for the collective good, with its non-profit arm playing a continuing role. An OpenAI spokesperson underscored the commitment to aligning the business structure with their goal of creating safe artificial general intelligence (AGI) that benefits society.

Previously, OpenAI’s governance drew attention during a dramatic leadership dispute last November. The non-profit board briefly ousted Altman due to communication breakdowns and trust issues, only to reinstate him five days later amid strong support from staff and investors.

The board now includes more experienced tech executives and is chaired by Bret Taylor, former co-CEO of Salesforce and current head of his own AI venture. Approval for significant changes still rests with this refreshed nine-member non-profit board.

While a shift to a for-profit model could make OpenAI’s operations more streamlined and appealing to investors, it also raises questions within the AI safety community. Concerns linger over whether the firm will maintain adequate oversight and accountability, especially since disbanding its superalignment team, which was dedicated to long-term AI risk management, earlier in the year.