What OpenAI’s Public Benefit Shift Means for the Future of AI

OpenAI’s decision to adopt a public benefit corporation model reflects its effort to align profit-making with its mission to drive societal impact in the fast-evolving AI sector.

OpenAI Embraces Public Benefit Corporation Model to Stay Competitive in AI Race

For the purpose of raising funds and maintaining a competitive edge in the expensive artificial intelligence (AI) race against giants like Google, OpenAI detailed on Friday its intention to convert its for-profit division into a Delaware public benefit company (PBC).

With its new organizational structure, OpenAI hopes to become a more investor-friendly firm without sacrificing its commitment to supporting a connected charity.

AI Companies Turn to Public Benefit Corporations for Balance

Anthropic isn't the only competitor that can use the PBC structure to strike a balance between social and shareholder goals.

Although for-profit businesses like PBCs and more conventional corporations both aim to make a profit, PBCs are obligated by law to also work for social and environmental good.

Jens Dammann of the University of Texas found that as of December 2023, there were nineteen publicly listed PBCs, thanks to an amendment to Delaware's general company statute that allowed their establishment in 2013.

How OpenAI’s Structure Combines Profit and Philanthropy

The present setup is "a for-profit, controlled by the non-profit, with a capped profit share for investors and employees," according to OpenAI's blog.

Investing.com points out that the new structure calls for the nonprofit to act as an investor in the for-profit by purchasing shares and the for-profit to provide financial support for the nonprofit's humanitarian endeavors.

"The PBC will run and control OpenAI's operations and business, while the non-profit will hire a leadership team and staff to pursue charitable initiatives in sectors such as healthcare, education, and science," according to the report.

Key Differences Between PBCs and Nonprofit Organizations

In contrast to for-profit businesses, non-profits do not distribute its earnings to shareholders but rather use the money to further their purpose.

While nonprofits are typically excluded from paying federal income taxes if they fulfill specific criteria, PBCs are not eligible for any special tax exemptions or incentives.

Challenges and Risks of Public Benefit Corporations

An expert in corporate law at Tulane Law School named Ann Lipton said that just because a company chooses to become a benefit corporation doesn't mean it will prioritize its stated objective over profit. According to Lipton, the law simply mandates that the board "balance" the company's mission and profit-making interests.

Shareholders, according to Lipton, are the ones who really determine how strictly a PBC follows its purpose, as Delaware law does demand that the corporation inform them of its progress towards the objectives.

"The only reason to choose benefit form over any other corporate form is the declaration to the public. It doesn't actually have any real enforcement power behind it," Lipton continued.

The fact that potential acquirers can claim the public benefit aims of a publicly traded PBC are at odds with their own or that the company does not maximize profits makes it more vulnerable to takeovers, according to some legal experts.

Both Anthropic and xAI, the AI startup founded by Elon Musk, have used PBCs. These companies compete with OpenAI.