OpenAI's for-profit plan questioned by Delaware Attorney General
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The Delaware attorney general sent a letter to OpenAI's lawyers earlier this month asking for more information about the nonprofit company's plan to convert to a for-profit entity, Axios has learned.
Why it matters: Billions of dollars in investments are on the line for OpenAI — and because the nonprofit is incorporated in Delaware, the state's AG could in theory challenge its plan and gum up the works.
Zoom in: In the letter, AG Kathleen Jennings says she's writing in response to reports that OpenAI is contemplating converting to a for-profit entity.
- "If these reports are true, it is important that my office have an opportunity to review the terms of any such transaction prior to its consummation," she writes.
- "The current beneficiaries of OpenAI have an interest in ensuring that charitable assets are not transferred to private interests without due consideration."
Catch up fast: OpenAI began as a nonprofit research institution — pledged to ensure that artificial general intelligence "benefits all of humanity" — but over time Microsoft and others have invested in a for-profit subsidiary.
- This year the software giant and other investors demanded changes, as Axios' Ina Fried writes.
- OpenAI has promised investors it will convert to a for-profit entity over the next two years or they can get their money back, Axios has reported.
The other side: OpenAI has received the letter and looks forward to continuing discussions with the AG, "addressing their questions as we continue our ongoing work on this plan," a company representative said in an email.
- "The Board of Directors of OpenAI Inc., the non-profit, is focused on fulfilling our fiduciary obligation by ensuring that the company is well-positioned to continue advancing its mission of ensuring AGI benefits all of humanity," Bret Taylor, Open AI's board chair, said in a statement.
- "[W]e continue to consult independent financial and legal advisors, any potential restructuring would ensure the nonprofit continues to exist and thrive, and receives full value for its current stake in the OpenAI for-profit with an enhanced ability to pursue its mission."
Between the lines: Just turning a nonprofit into a for-profit isn't so easy — there are meant to be strong safeguards around nonprofit status. Still, legal experts believe that Open AI could figure out a way.
- And Delaware is seen to be fairly hands off in regulating both for-profit and non-profit entities, as this recent paper explained earlier this year.
