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OpenAI said Friday that it plans to spin off its for-profit arm into a Delaware Public Benefit Corporation (PBC) to raise capital and gain an edge in expensive artificial intelligence competition with companies like Google. OpenAI's new organization aims to become a potentially more capital-intensive company while maintaining its mission of funding related charities. Competing companies such as Entropic also use PBC structures to balance shareholder value and social benefits. Although both PBCs and traditional corporations are for-profit businesses, PBCs are legally required to pursue one or more public interests, including social and environmental objectives. Delaware changed its corporation law in 2013 to allow the formation of PBCs, and as of December 2023, 19 PBCs were listed, according to research by Jens Daman of the University of Texas. In a blog post, OpenAI described its current structure as a for-profit, nonprofit organization with limited distribution of profits to investors and employees.

Under the new structure, nonprofit organizations will own shares in for-profit organizations such as foreign investors, and for-profit organizations will fund nonprofit philanthropic activities. “PBC will lead and manage OpenAI’s operations and business, while the nonprofit will hire a leadership team and staff to advance its philanthropic efforts in areas such as healthcare, education and science,” the organization said. Unlike a PBC, a nonprofit corporation has no shareholders and reinvests profits into its mission rather than distributing them to individuals. Although there are no specific tax exemptions or benefits for PBCs, nonprofit organizations are generally exempt from federal income tax if certain conditions are met. Ann Lipton, a professor of corporate law at Tulane Law School, said the law only requires boards to balance their responsibilities and business interests, making companies public interest entities that prioritize profits over profits.

Under Delaware law, the company must report to shareholders on its progress toward its goals, and in practice, shareholders will decide how closely the PBC follows its mission, Lipton said. “The only reason to choose the service form over other forms of business is to announce it to the public. There’s really no real enforcement behind it,” Lipton added. Some legal experts also argue that listed PBCs may be less affected by the takeover effect, as bidders may argue that the company lacks profit maximization or that public interest objectives are inconsistent with bidder objectives.

Anthropic and XAI: OpenAI competitors Anthropic and Elon Musk's XAI have also taken over the BBC.

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