Dec 27 (Reuters) - OpenAI on Friday laid out a plan to

transition its for-profit arm into a Delaware public benefit

corporation (PBC) to help it raise capital and stay ahead in the

costly AI race against companies such as Google.

OpenAI's new structure aims to potentially make a more

investor-friendly corporation, while maintaining a mission of

funding a related charity.

Rivals including Anthropic have also adopted the PBC

structure to balance societal interests along with shareholder

value.

WHAT IS A PUBLIC BENEFIT CORPORATION?

While both PBCs and traditional corporations are for-profit

entities, PBCs are legally required to pursue one or more public

benefits, including social and environmental goals.

Delaware amended its general corporation law to allow the

formation of PBCs in 2013 and as of December 2023, there were 19

publicly traded PBCs, according to research by Jens Dammann of

the University of Texas.

In its blog, OpenAI described the current structure as "a

for-profit, controlled by the non-profit, with a capped profit

share for investors and employees".

Under the new organization, the non-profit will own shares

in the for-profit, similar to outside investors, and the

for-profit will fund the charitable mission of the non-profit.

"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," it said.

DIFFERENCE BETWEEN A PBC AND OTHER CORPORATE STRUCTURES

Unlike PBCs, non-profit corporations do not have

shareholders and reinvest profits into their mission rather than

distributing them to individuals.

PBCs do not receive special tax exemptions or incentives,

while non-profits are generally exempted from federal income

taxes if they meet certain requirements.

LIMITATIONS OF PBCs

Becoming a benefit corporation does not guarantee a company

will put its stated mission above profit, as the law only

legally requires the board to "balance" its mission and

profit-making interests, said Ann Lipton, a corporate law

professor at Tulane Law School.

Delaware law does require the company to report on its

progress towards the goals to shareholders, who, in practice,

dictate how closely a PBC sticks to its mission, Lipton said.

"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

added.

Some legal experts also say that publicly traded PBCs are

more susceptible to takeovers, as bidders can argue the company

lacks profit maximization or that its public benefit goals

conflict with the bidder's objectives.

SOME EXISTING PBCs

Anthropic and xAI: OpenAI's rivals, Anthropic and Elon Musk's

xAI have also adopted PBCs.

Allbirds ( BIRD ): Allbirds ( BIRD ) is a San Francisco-based PBC that

sells sustainable shoes and apparel made from natural materials.

Kickstarter: Kickstarter is a New York-based PBC that maintains

a global crowdfunding platform for creative projects.

Patagonia: Patagonia is a California-based retailer of outdoor

recreation clothing, equipment and food. The company has

contributed over $230 million to environmental organizations,

according to its website.

Warby Parker ( WRBY ): Warby Parker ( WRBY ) is a New York-based

manufacturer and retailer of eyewear products. The company's

"Buy a Pair, Give a Pair" policy aims to help people in need.