What does Openai’s restructuring plan mean for its company’s future

Openai said Monday that it is developing a new restructuring plan after talking to the Delaware and California attorneys general, as they are watching closely as Openai tries to get rid of its strange company structure.

Currently, OpenAI’s nonprofit committee manages the organization’s for-profit operations. Under the new plan, OpenAI's for-profit division will become a public welfare company (PBC), but will still be controlled by OpenAI's nonprofit organization.

The new restructuring plan may be enough to appease regulators and OpenAI investors who have invested billions of dollars in companies in hopes of one day being able to return. But that could also put Openai's future plans on the wrench, especially if the company seeks a day to reveal the situation.

IPO route

Last December, Openai outlined a pathway that would allow it to remove its for-profit arm from the control of its nonprofit committee, which is subject to certain obligations, including provisions in its charter, to ensure that artificial general intelligence benefits all humanity.

The plan is out on Monday. Now, OpenAI intends to own non-profit control and is also the major shareholder of the aforementioned PBC.

In addition to allowing Openai to operate more like a regular company, a simpler structure can open the door to raising additional funds through an IPO. Given the size of Openai, the massive cash it burns, and the huge public interest, it seems that the IPO may eventually explore.

Stephen Diamond, a corporate governance professor at Santa Clara University, told TechCrunch that Openai is a narrow path to becoming a public company under its newly proposed transition plan. Although nonprofits cannot be made public, PBC can.

But there yes What Openai's PBC will have is a question about IPO.

“My feeling is that there is a huge intellectual property value at the OpenAI nonprofit level,” Diamond said in an interview. “But if the PBC doesn't own and control the core IP, but is just licensed to use it, then what is an IPO? That's the challenge.”

Diamond noted that we don't know the exact details of the Openai plan, and it's unclear whether it will eventually succeed. OpenAI spokesman Steve Sharpe said in an email to TechCrunch that OpenAI's nonprofit will continue to control the company's technology, and that while Openai is currently not intended to be public at this time, under the proposed structure, it can “theoretically” an IPO.

Rose Chan Louis, founding executive director of UCLA's charity and nonprofits, said shareholders wouldn't have much say in the company's decisions if OpenAI's nonprofits do control the organization's key technologies. Unlike a typical company that buys stocks, Openai shareholders must know that their impact on the company is limited.

“In this case, I think an IPO is much harder,” Louis said in an interview with TechCrunch.

Bending pressure

During the attempt to reorganize, Openai was squeezed on all targets.

Just last week, a group of former Openai employees asked AGS in California and Delaware to block the conversion of startups, claiming that this was inconsistent with Openai's philanthropic roots. Both AGSs told TechCrunch that they are reviewing Openai's new plans.

Openai's proposal also needs to appease the company's largest private investors, including Microsoft and Softbank, whose multibillion-dollar investment reportedly depends on Openai, with some sort of restructuring on the finish line. OpenAI's new plan provides companies with a more traditional capital structure, which means employees, investors and nonprofits will hold directly on equity.

Microsoft has not yet expressed its blessing on the new company structure, Bloomberg reported on Monday. Cloud providers want to ensure the new structure fully protects its multi-billion dollar investment in OpenAI. It is unclear whether other key stakeholders approved the deal.

No one puts more pressure on Openai's reorganization than Elon Musk. The billionaire, co-founded with others, is now competing with it through his AI startup XAI, submitting a $97 billion acquisition bid to increase the price of Openai’s nonprofit assets and boost Chatgpt Maker’s for-profit transition. Musk also reorganized Openai as a focus in the lawsuit against the startup and Microsoft. Musk's lawsuit accuses Openai of giving up its nonprofit mission to develop AGI and distribute it widely.

Last week, a federal judge denied several motions to dismiss the claim in Musk's lawsuit. According to Diamond, this was a modest win for Musk and probably played a role in Openai's ever-changing process. But in a briefing with members of the press on Monday, Altman reportedly denied that the lawsuit had any impact on Openai's plans.

Musk's lead attorney in the case against Openai, Marc Toberoff, told TechCrunch that the new company restructuring plan “has changed nothing”, which means Musk wouldn't give up the case so quickly.