OpenAI may transition to public benefit corporation: What does it mean?

OpenAI, currently a nonprofit entity, is contemplating a shift to becoming a Public Benefit Corporation (PBC) in light of its rapid growth and increasing investor interest.

What is a Public Benefit Corporation?

A Public Benefit Corporation is a unique corporate structure under Delaware law in the US that enables a for-profit entity to also commit to societal goals. According to Bloomberg, this structure requires directors and managers to balance both shareholder interests and public benefits. This dual focus helps the company secure funding from investors while ensuring it stays true to its social mission despite any lobbying from shareholders to the contrary.

How Will This Change Affect OpenAI?

Transitioning to a PBC would allow OpenAI to attract more investment, potentially through an Initial Public Offering (IPO). Unlike traditional nonprofits, which do not have owners or shareholders, a PBC has shareholders and must balance profit-making with societal contributions.

Current Structure of OpenAI

Currently, OpenAI operates with a hybrid structure: OpenAI Inc is a nonprofit, while OpenAI LLC, a for-profit subsidiary, has significant investment from Microsoft, which holds a minority stake. This dual structure has allowed OpenAI to grow rapidly while maintaining its commitment to its original mission.

Potential Downsides

A notable downside of the PBC structure is the lack of independent standards for evaluating compliance with social or environmental goals, which can lead to accusations of "ethics washing."

Examples of PBCs

Anthropic and Elon Musk's xAI are both examples of PBCs in the tech industry. Other well-known PBCs include shoe brand Allbirds and eyewear company Warby Parker.