OpenAI Considers Shift from Nonprofit to For-Profit Structure Amid Soaring Valuation

OpenAI's mission to develop AI that 'benefits all of humanity' is at risk as investors flood the company with cash

This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now. Have an account? Log in. OpenAI announced in 2019 that it was adding a for-profit arm -- to help fund its nonprofit mission -- but that true to its original spirit, the company would limit the profits investors could take home. "We want to increase our ability to raise capital while still serving our mission, and no pre-existing legal structure we know of strikes the right balance," OpenAI said at the time. "Our solution is to create OpenAI LP as a hybrid of a for-profit and nonprofit -- which we are calling a 'capped-profit' company." It was a deft move that, on its surface, appeared intended to satisfy employees and stakeholders concerned about developing the technology safely, and those who wanted to see the company more aggressively produce and release products. But as investment poured into the for-profit side, and the company's notoriety -- and Altman's notoriety -- increased, some got nervous. OpenAI's board briefly ousted Altman last year over concerns that the company was too aggressively releasing products without prioritizing safety. Employees, and most notably Microsoft (with its multibillion-dollar investment), came to Altman's rescue. Altman returned to his position after just a few days. The cultural rift, however, had been exposed. Two of the company's top researchers -- Jan Leike and Ilya Sutskever -- both soon resigned. The duo was in charge of the company's so-called superalignment team, which was tasked with ensuring the company developed artificial general intelligence safely -- the central tenet of OpenAI's mission. OpenAI then dissolved the superalignment team in its entirety later that same month. After leaving, Leike said on X that the team had been "sailing against the wind." "OpenAI must become a safety-first AGI company," Leike wrote on X, adding that building generative AI is "an inherently dangerous endeavor" but that OpenAI was now more concerned with building "shiny products." It seems now that OpenAI has nearly completed its transformation into a Big Tech-stye "move fast and break things" behemoth. Fortune reported that Altman told employees in a meeting last week that the company plans to move away from nonprofit board control, which it has "outgrown," over the next year. Reuters reported on Saturday that OpenAI is now on the verge of securing another $6.5 billion in investment, which would value the company at $150 billion. But sources told Reuters that the investment comes with a catch: OpenAI must abandon its profit cap on investors. That would place OpenAI ideologically distant from its dreamy early days, when its technology was meant to be open source and for the benefit of everyone. OpenAI told Business Insider in a statement that it remains focused on "building AI that benefits everyone" while continuing to work with its nonprofit board. "The nonprofit is core to our mission and will continue to exist," OpenAI said.

OpenAI is reportedly going all-in as a for-profit company

OpenAI's 2025 plans involve a complete corporate restructuring. Credit: Anadolu / Contributor / Anadalou via Getty Images OpenAI may be overhauling its complex nonprofit structure in favor of a traditional for-profit push in 2025, the key to a potential $150 billion valuation as the AI leader veers down a similar profit-seeking path to that of its Silicon Valley peers. The news was first reported by Fortune, based on comments made by CEO Sam Altman in a weekly OpenAI employee meeting. Altman gave employees little detail, but reiterated that OpenAI was "set" to move away from non-profit control as it had "outgrown" its founding arrangement. Currently, OpenAI operates as a "capped" for-profit LLC controlled by a non-profit. It was this structure that allowed OpenAI's board of directors, part of the non-profit parent structure, to fire Altman as CEO in Nov. 2023. The board accused Altman of lying to and obstructing the work of the non-profit board and OpenAI's safety measures, including omitting the nature of his ownership of the OpenAI startup fund. Altman was later reinstated and took leadership control of OpenAI's revamped internal safety team. Heading into the new year, Altman and OpenAI's leadership are now navigating a growing, billion-dollar business. Last month, Apple was rumored to be investing in the AI startup, joining other big backers like Microsoft in what would inform the more than $100 billion valuation. According to a Reuters report from the same day as the Fortune story, anonymous sources said investors are making capital injections contingent on OpenAI abandoning its profit cap, which may require the non-profit controlling entity to be changed or abolished. An OpenAI spokesperson told Fortune and Reuters that the company's non-profit arm is "core to our mission and will continue to exist," as OpenAI stays "focused on building AI that benefits everyone."

OpenAI could shake up its nonprofit structure next year

It's looking increasingly likely that OpenAI will soon alter its complex corporate structure. Reports earlier this week suggested that the AI company was in talks to raise $6.5 billion at a $150 billion pre-money valuation. Now Reuters says the deal is contingent on whether OpenAI can restructure and remove a profit cap for investors. In fact, according to Fortune, co-founder and CEO Sam Altman told employees at a company-wide meeting that OpenAI's structure is likely to change next year, bringing it closer to a traditional for-profit business. OpenAI is currently structured so that its for-profit arm is controlled by a non-profit, which seems to frustrate investors. "We remain focused on building AI that benefits everyone and as we've previously shared we're working with our board to ensure that we're best positioned to succeed in our mission," OpenAI said in a statement. "The nonprofit is core to our mission and will continue to exist."

Sam Altman told OpenAI staff the company's non-profit corporate structure will change next year

Altman, OpenAI's co-founder and CEO, touched on the impending changes in one of his weekly meetings with the entire staff, where employees are free to ask him questions in real-time, according to two people familiar with the exchange. He admitted that the company had effectively outgrown its convoluted structure, wherein a nonprofit arm is in control of a for-profit arm, which itself has control of a holding company, which controls another for-profit entity. That last for profit entity is what outside investors like Microsoft are putting billions of dollars of investment into. Altman has admitted OpenAI's structure is "unusual," saying last year it was done intentionally "because AI is an unusual technology." While Altman did not get into specifics with staff about what exactly a new company structure for the ChatGPT maker will look like, he said the company is set to move away from being controlled by a non-profit, and it will happen sometime next year, according to the people familiar. This would make OpenAI a more traditional for-profit company. A spokesperson for OpenAI said: "We remain focused on building AI that benefits everyone and we're working with our board to ensure that we're best positioned to succeed in our mission. The non-profit is core to our mission and will continue to exist." Such a change has been rumored for a few months, with reports of Altman considering restructuring the company to a more traditional for-profit entity -- mainly to appease investors -- that would align OpenAI with the structure of most other large businesses in the tech industry. Altman's comments to staff, which have not been previously reported, suggest that the company is moving forward with the restructuring. With the company in the process of raising new funds at a valuation somewhere north of $100 billion, the non-profit structure is proving increasingly awkward. For investors, a change means a more certain potential return on their investment. And given that much of OpenAI's staff is focused on work that goes into commercial products, the non-profit label is confusing. Beyond that, OpenAI insiders have expected such a structural change to take place since Altman's dramatic ouster and return last year spurred new regulatory scrutiny of its investors and operations in the U.S. and abroad.

OpenAI's $150B valuation requires it to change its corporate structure: Reuters

OpenAI's latest funding round is expected to come in the form of convertible notes, with its $150 billion valuation dependent on whether the startup can change its corporate structure and remove a profit cap for investors, Reuters reported Saturday, citing two sources with direct knowledge of the matter. The $6.5 billion funding round conditions highlight the evolution of the ChatGPT-maker since its founding in 2015 as a research-based non-profit creating cutting-edge AI technologies that would "benefit humanity as a whole, unconstrained by a need to generate financial return." If the restructuring is unsuccessful, the world's largest artificial intelligence startup will need to renegotiate its valuation with investors at which their shares will be converted, possibly at a lower number, the report added. OpenAI did not immediately respond to a Seeking Alpha request for comment. According to the report, OpenAI has also discussed with its lawyers about converting its non-profit structure to a for-profit benefit corporation. Only a few years later, the non-profit formed a "capped profit" subsidiary, which eventually helped it attract the billions of dollars in investment that were needed to develop its large language models, ChatGPT, and other expensive generative AI offerings. Last year, the OpenAI's board booted out chief executive Sam Altman over a growing schism on corporate expansion. Altman returned a week later with a new board featuring former Salesforce (CRM) co-CEO Bret Taylor as chairman, former Treasury Secretary Larry Summers, and Quora co-founder and CEO Adam D'Angelo.

OpenAI is reportedly moving away from its complicated non-profit structure next year

It will be a more traditional for-profit company, though it will still have a non-profit division. Sam Altman has told OpenAI staff members during their weekly meeting that the company is changing its rather convoluted non-profit corporate structure next year, according to Fortune. The CEO said OpenAI will move away from being controlled by a non-profit entity and will transition into a more traditional for-profit organization. He didn't delve into the specifics of how the company will achieve that goal and what OpenAI's corporate structure will look like exactly. A spokesperson only told Fortune that it remains "focused on building AI that benefits everyone" and that non-profit is "core to [its] mission and will continue to exist." OpenAI started as a non-profit organization in 2015 that relied on money from donors. In a page explaining its structure, it said that it only raised $130.5 million in total donations over the years, which it says made it clear that "donations alone would not scale with the cost of computational power and talent required to push [its] core research forward." The then-purely non-profit organization created a for-profit subsidiary in order to solve that problem. As Fortune explains, OpenAI's non-profit entity currently controls its for-profit arm, which in turn controls a holding company that takes investments from companies like Microsoft. Under this structure, the profit that can be allocated to investors, including Microsoft, has a cap. Anything OpenAI makes beyond the cap will go to its non-profit division. And the company's revenue is booming, according to a report by The Information published in June. OpenAI reportedly doubled its annualized revenue in the first half of the year, thanks to the subscription version of ChatGPT. The company's complex structure also allowed OpenAI's non-profit board of directors to oust Altman in 2023, because they "no longer [have] confidence in his ability to continue leading OpenAI." Five days later, however, the board was disbanded and replaced, while Altman was reinstated as CEO.