OpenAI is moving forward in its bid to transform the $157 billion (roughly Rs. 13,20,727 crores) company’s non-profit structure into a profitable business by entering preliminary discussions with regulators.
The company is in early talks with the California Attorney General’s Office on the process of changing its corporate structure, according to two people familiar with the matter. The process is likely to involve regulators examining how OpenAI values its portfolio of highly attractive intellectual property, such as its ChatGPT app.
The Attorney General in Delaware has also been in communication about the change from non-profit to for-profit, as described in a letter to OpenAI.
OpenAI, founded in 2015 as a non-profit research organization with the idealistic mission of building artificial intelligence that will be safe and beneficial to humanity, is embarking on a significant shift toward a more traditional profit-based structure. Is thinking. A simplified profit structure is considered more attractive to investors, although it may open the door to questions about whether the company is maintaining its original good-doing public mission.
high prices
OpenAI declined to comment on talks with regulators, but said the nonprofit would remain present in any potential corporate restructuring.
“While our work continues as we continue to consult with independent financial and legal advisors, any potential restructuring will ensure that the non-profit will continue to survive and thrive, and that the for-profit OpenAI will continue to share its interests in OpenAI.” Will receive full value for current stake, with increased potential going forward. Its mission, Brett Taylor, chair of the board of the OpenAI nonprofit, said in a statement to Bloomberg News.
In 2019, OpenAI created a capped for-profit subsidiary to help fund the high costs of AI model development. In 2023, OpenAI’s chief executive officer Sam Altman was fired and reassigned by its former non-profit board. Altman’s ouster followed tensions with the board over balancing AI security with the pressure to commercialize OpenAI’s software, among other issues.
Proprietary ChatGPT
Unlike many other nonprofits, OpenAI has incredibly valuable intellectual property in the form of its proprietary ChatGPAT chatbot and related artificial intelligence technology.
In California, the company has begun a conversation with Attorney General Rob Bonta’s office and will present details of its restructuring plan once the proposal is finalized, according to a person who declined to be identified because the discussions are private. .
A spokesperson for Bonta’s office said in a statement, without commenting on any discussions with OpenAI, that it is “committed to protecting charitable assets for their intended purpose”.
The company plans to convert into a public benefit corporation, Bloomberg previously reported. Jason Kwon, OpenAI’s chief strategy officer, told employees during a staff meeting in late September that the move would allow it to maintain its mission for social good while operating as a for-profit business, according to a person familiar with the matter. Will allow to keep. Kwon told employees that this new structure would preserve a nonprofit arm that would own the physical assets of the for-profit entity, said the person, who declined to be identified.
According to legal experts, how much stake the for-profit nonprofit will get and how OpenAI’s assets will be valued will be key factors in regulatory approval for the restructuring.
“It’s not as simple as closing your nonprofit status,” said Darren Shaver, a San Francisco-based partner at Hanson Bridget LLP. “Whatever the value of those assets is, they must be properly accounted for.”
Intellectual property
The process in California, which would involve going back and forth with Bonta’s office, would typically take a few months for a typical nonprofit, Shaver said. But because California law requires that whatever value is assigned to a nonprofit’s assets must be distributed to charitable causes — and OpenAI’s top asset is its intellectual property — the review could be complicated and lengthy.
“It’s about effectively convincing the attorney general that the assets are going to the right place,” Shaver said.
Delaware state Attorney General Kathleen Jennings asked OpenAI in an October 9 letter to submit its transformation plans for review by attorneys in her office’s Fraud and Consumer Protection Division.
The transition to OpenAI will also require follow-up with the secretaries of state in Delaware and California, as well as state and federal tax authorities on certain processes.
The New York Times reported that under the terms of its latest investment round, OpenAI’s recent funding could be converted into debt if a restructuring does not occur within two years.
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