CHANGING OPENAI'S NONPROFIT STRUCTURE COULD HAVE BIG CONSEQUENCES

The artificial intelligence maker OpenAI may face a costly and inconvenient reckoning with its nonprofit origins even as its valuation recently exploded to $157 billion.

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Nonprofit tax experts have been closely watching OpenAI, the maker of ChatGPT, since last November when its board ousted and rehired CEO Sam Altman. Now, some believe the company may have reached — or exceeded — the limits of its corporate structure, under which it is organized as a nonprofit whose mission is to develop artificial intelligence to benefit “all of humanity” but with for-profit subsidiaries under its control.

Jill Horwitz, a professor in law and medicine at UCLA School of Law who has studied OpenAI, said that when two sides of a joint venture between a nonprofit and a for-profit come into conflict, the charitable purpose must always win out.

“It’s the job of the board first, and then the regulators and the court, to ensure that the promise that was made to the public to pursue the charitable interest is kept,” she said.

Altman recently confirmed that OpenAI is considering a corporate restructure but did not offer any specifics. A source told, however, that the company is looking at the possibility of turning OpenAI into a public benefit corporation. No final decision has been made by the board and the timing of the shift hasn’t been determined, the source said.

In the event the nonprofit loses control of its subsidiaries, some experts think OpenAI may have to pay for the interests and assets that had belonged to the nonprofit. So far, most observers agree OpenAI has carefully orchestrated its relationships between its nonprofit and its various other corporate entities to try to avoid that.

However, they also see OpenAI as ripe for scrutiny from regulators, including the Internal Revenue Service and state attorneys general in Delaware, where its incorporated, and in California, where it operates.