OpenAI restructure to give nonprofit over $100 billion stake

OpenAI said it’s closer to converting into a more traditional for-profit company — nearing resolution of painful negotiations with top shareholder Microsoft Corp. and outlining terms of at least $100 billion in equity for its nonprofit arm.

Planned changes will give the existing OpenAI nonprofit control over a new public benefit corporation, Chairman Bret Taylor said in a statement Thursday. And it would give the nonprofit an equity stake that would make it “one of the most well-resourced philanthropic organisations in the world,” he wrote.

“OpenAI started as a nonprofit, remains one today, and will continue to be one — with the nonprofit holding the authority that guides our future,” Taylor said in the statement.

The at least $100 billion stake would represent about 20% of the value of OpenAI if the company completes a share sale at a planned $500 billion valuation, a deal that would make it the most valuable startup in the world.

The $100 billion in equity is a floor and could increase, according to a person familiar with the matter who asked not to be identified because the details are private.

Microsoft shares gained about 1.5% in extended trading following the announcement.

Microsoft and OpenAI have been holding talks for months about reshaping their relationship, in part to secure Microsoft’s assent for the restructuring of the startup. In exchange for massive financial backing, Microsoft has the right to incorporate OpenAI’s AI tools into its products. Winning Microsoft’s approval for the changes has been one of the key roadblocks to OpenAI’s plans.

In recent months, negotiators for the companies have been meeting regularly. And the chief executive officers, OpenAI’s Sam Altman and Microsoft’s Satya Nadella, discussed the restructuring at the Allen & Co. conference in Sun Valley, Idaho.

In a joint statement on Thursday, the companies said they had signed a “non-binding memorandum of understanding (MOU) for the next phase of our partnership.” They also said they are “actively working to finalize contractual terms in a definitive agreement. Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety.”

But gaining Microsoft’s buy-in is not the only hurdle to OpenAI’s attempts to restructure.

California Attorney General Rob Bonta and Delaware Attorney General Kathy Jennings are currently reviewing the company’s proposed financial and governance changes. Last week, both offices released a joint letter to OpenAI’s board raising concerns about recent reports of how OpenAI’s products interact with children, including one Californian who Bonta said died by suicide after interacting with a chatbot.

“It is our shared view that OpenAI and the industry at large are not where they need to be in ensuring safety in AI products’ development and deployment,” the letter from the attorneys general said.

OpenAI is also facing opposition to its restructuring from Elon Musk, an early backer who split with the company and accused the startup of defrauding investors about its commitment to its charitable mission in an active lawsuit. OpenAI has pushed back on Musk’s claims and said the billionaire is trying to slow down the company.

OpenAI was founded in 2015 as a nonprofit dedicated to advancing digital intelligence “in the way that is most likely to benefit humanity as a whole.” Both Altman and Musk, who were OpenAI co-founders, have spoken about the potential existential risk to humans posed by advanced AI, and argued for ethical leadership in the industry.

But OpenAI’s unusual structure became an issue in 2023, when Altman was suddenly fired and then, after several days of chaos, reinstated. As OpenAI has grown into an AI behemoth, it has moved to remake its board and reshape its governance structures.

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