OpenAI, the firm behind the wildly popular ChatGPT, has finalized a massive corporate overhaul, completing its conversion to a Public Benefit Corporation (PBC). The deal formalizes a new financial and operational structure that clears the way for huge fundraising while cementing its deep partnership with Microsoft, which now holds a 27% stake in the company.
The restructuring assigns OpenAI an astronomical valuation of $500 billion, instantly establishing it as one of the world’s most valuable private technology companies. This new arrangement removes a major constraint on raising outside capital, a limitation that had grown increasingly restrictive since the 2019 partnership deal with Microsoft.
“OpenAI has completed its recapitalization, simplifying its corporate structure,” Bret Taylor, the OpenAI Foundation’s board chair, said in a blog post. “The nonprofit remains in control of the for-profit, and now has a direct path to major resources before AGI arrives.”
New Corporate & Ownership Structure
The restructuring creates a more investor-friendly, yet mission-controlled, entity:
- Public Benefit Corporation (PBC): The for-profit business, now called OpenAI Group PBC, is designed to balance shareholder returns with a commitment to public and social good.
- Non-Profit Control: The original non-profit entity, renamed the OpenAI Foundation, retains control of the for-profit PBC through its board of directors.
- Foundation’s Stake: The OpenAI Foundation holds a roughly 26% equity stake in the new company, valued at approximately $130 billion. This makes it one of the wealthiest foundations globally, and this value is intended to fund its charitable work in areas like health and AI safety.
- Microsoft’s Stake: Microsoft now holds a 27% stake in the Group PBC, valued at about $135 billion. Following an investment of $13.8 billion, this new valuation implies Microsoft has generated a return of nearly ten times its initial investment.
- Equity Holders: As of now, Microsoft holds roughly 27% of OpenAI Group, OpenAI Foundation holds 26% stake and the remaining 47% is held by current and former employees and investors.
Revised OpenAI-Microsoft partnership
The long-standing partnership with Microsoft has been updated with new terms, especially concerning Artificial General Intelligence (AGI) and intellectual property (IP).
In a major gain for OpenAI, Microsoft relinquishes its right of first refusal to be OpenAI’s compute provider. This gives OpenAI the freedom to contract with other cloud companies to meet its immense computational needs.
| Term | Previous Agreement | New Agreement Details |
| Microsoft’s Stake | Roughly 32.5% in the former for-profit arm. | Approximately 27% in the new Group PBC. |
| AGI Verification | OpenAI’s board would declare when AGI is reached. | An independent expert panel must now verify the AGI declaration. |
| Microsoft’s IP Rights | Exclusive rights and Azure API exclusivity until AGI is reached. | Rights for models and products are extended through 2032, and now include models post-AGI with safety guardrails. |
| Compute Exclusivity | Microsoft had the right of first refusal to be OpenAI’s sole cloud provider (Azure). | Microsoft loses the right of first refusal. OpenAI can now work with other cloud vendors, but has contracted to purchase an incremental $250 billion of Azure services. |
| Consumer Hardware | Microsoft’s IP rights included all products. | Microsoft’s IP rights now exclude OpenAI’s consumer hardware, giving OpenAI more independence in this category (relevant to its acquisition of Jony Ive’s AI device startup). |
| Independent AGI | Limited provision for independent pursuit. | Microsoft can now independently pursue AGI alone or with third parties. |
Dual Structure: Mission vs Money
The conversion to PBC is OpenAI’s attempt to balance its original mission to ensure AGI benefits all with the commercial realities of the costly AI race.
Investor Clarity: The new, more traditional structure facilitates further fundraising, which was previously complicated by the hybrid nature and the November 2023 leadership crisis.
Nonprofit Control: The for-profit OpenAI Group PBC remains under the operational control of the original organization, renamed the OpenAI Foundation.
Foundation Wealth: The nonprofit now holds a valuable equity stake, estimated at $130 billion, intended to fund its philanthropic work, which includes a focus on health and minimizing the risks of AGI.
OpenAI Foundation and OpenAI Group will work together to advance solutions to hard problems and opportunities posed by AI progress, such as “making intelligence a tool that everyone can benefit from, building safe and aligned systems, turbocharging scientific discovery, and strengthening global cooperation and resilience,” the company said.
Who is who at OpenAI?
OpenAI Foundation is governed by its board of directors, which comprises independent directors, including Chair Bret Taylor, CEO Sam Altman, Adam D’Angelo, Dr. Sue Desmond-Hellmann, Dr. Zico Kolter, Retired U.S. Army General Paul M. Nakasone, Adebayo Ogunlesi, Nicole Seligman, and Larry Summers.
Implications & Outlook
The conversion to a PBC, which required sign-off from the Attorneys General of both Delaware and California, addresses the significant pressure on OpenAI to fund its skyrocketing compute needs.
Safety and Scrutiny: Despite the positive business developments, the company still faces ongoing scrutiny regarding transparency, data usage, and safety oversight, which was amplified by lawsuits and concerns from regulators about its impact on young people and society.
Fundraising and IPO: This move simplifies the corporate structure, making it easier for the company to raise capital, offer competitive equity compensation to employees, and potentially prepare for a future Initial Public Offering (IPO).
CEO Equity: A notable detail is that CEO Sam Altman will not receive equity in the restructured entity, maintaining his minimal personal financial stake, a detail emphasized by the company amidst public scrutiny.
This new chapter for OpenAI is seen as a necessary move to secure the vast resources needed to pursue AGI, though critics caution that the influence of a multi-hundred-billion-dollar valuation will constantly challenge the nonprofit’s mission-driven mandate.
