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OpenAI retains nonprofit control amid criticism and legal

challenges

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Nonprofit to control public benefit corporation, easing

capital-raising restrictions

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Concerns remain over balancing profit with AI mission,

Musk's

lawsuit ongoing

(Adds details on equity stake in paragraph 8, comment from Elon

Musk lawyers 18-20)

By Krystal Hu, Arsheeya Bajwa and Aditya Soni

May 5 (Reuters) - OpenAI has dialed back a significant

restructuring plan, with its nonprofit parent retaining control

in a move that is likely to limit CEO Sam Altman's power over

the pioneering maker of ChatGPT.

The announcement follows a storm of criticism and legal

challenges, including a high-profile lawsuit filed by rival and

co-founder Elon Musk, who has accused OpenAI of straying from

its founding mission to develop artificial intelligence for the

benefit of humanity.

"OpenAI was founded as a non-profit, is today a non-profit

that oversees and controls the for-profit, and going forward

will remain a non-profit that oversees and controls the

for-profit. That will not change," Altman said in a blog post on

Monday.

OpenAI had outlined plans in December to convert its

for-profit arm into a public benefit corporation, a structure

designed to balance shareholder returns with social goals,

unlike nonprofits, which are solely focused on public good.

Under that proposal, the nonprofit parent would have been a big

shareholder in the PBC but would cede control over the startup.

On Monday, OpenAI said the nonprofit parent would continue

to control the PBC and become a big shareholder in it. The

company will push ahead with plans to change the structure of

its for-profit arm to allow more capital-raising to keep pace in

the AI race.

The move to an outright for-profit was intended to help

OpenAI raise more capital and ease restrictions tied to its

nonprofit parent. But it sparked concerns over whether the

company would fairly allocate assets to the nonprofit and how it

would balance profit-making with its mission to develop AI for

the public good.

"We made the decision for the nonprofit to stay in control

after hearing from civic leaders and having discussions with the

offices of the Attorneys General of California and Delaware,"

Bret Taylor, chairman of OpenAI's board, said in a blog post,

adding that the new announcement meant the startup would

continue to have a structure "extremely close" to the current

one.

Altman called the move a compromise "that (works) well enough

for investors that they're happy to continue to fund us to a

degree we think we will need." He said OpenAI would work with

major backer Microsoft ( MSFT ), regulators and newly appointed

nonprofit commissioners to finalize the updated plan, and decide

how much equity stake in the for-profit business each party

would receive.

"We believe this is well over the bar of what we need to be

able to fundraise," Altman said, adding there were "no changes

to any existing investor relationships" and that the company

would proceed with the earlier plan to remove caps on the profit

that investors can earn.

But questions remain over what exactly was changing, and what

level of control the non-profit will have under the newly

proposed plan, which lacks details. Currently, OpenAI's

nonprofit fully owns the for-profit entity, and the nonprofit

board's mission is ensuring that "artificial general

intelligence benefits all of humanity," instead of providing

value for shareholders.

"We're glad that OpenAI is listening to concerns from civil

society leaders ... but crucial questions remain," said Page

Hedley, OpenAI's former policy and ethics adviser, and lead

organizer of the group Not For Private Gain.

"Will OpenAI's commercial goals continue to be legally

subordinate to its charitable mission? Who will own the

technology that OpenAI develops? The 2019 restructuring

announcement made the primacy of the mission very clear, but so

far, these statements have not," he said. He added he was

concerned that in the PBC structure, the board would be

obligated to maximize shareholder value.

MUSK SUIT TO PROCEED

As the expensive pursuit of artificial general intelligence,

or AI that surpasses human intelligence, heats up, OpenAI has

been looking to make changes to attract further investment.

It announced in March it would raise up to $40 billion in a new

funding round led by SoftBank Group ( SFTBF ), at a $300 billion

valuation. The round was contingent on the AI firm transitioning

to for-profit status by the end of the year, a structure that

drew attention in November 2023 during one of the biggest

boardroom dramas in Silicon Valley, where members of the

nonprofit board ousted Altman over a breakdown in communication

and loss of trust. He was reinstated after five days, following

an outpouring of support from employees and investors.

Altman said OpenAI would still be able to receive funding

from the Japanese tech investor after Monday's move.

SoftBank did not immediately respond to a request for

comment, while Microsoft ( MSFT ) declined to comment.

The announcement also came amid a bitter legal battle

brought by OpenAI co-founder Elon Musk, which sought to block

OpenAI's transition away from nonprofit control, among other

claims. A jury trial had been scheduled for March 2026.

Musk's lawyer said there was no plan to drop the lawsuit against

OpenAI.

"The announcement obscures critical details about the supposed

'non-profit control' arrangement, and particularly the sharply

reduced ownership stake the non-profit will receive in Altman's

for-profit enterprise - where the non-profit currently holds

majority equity."

A consortium led by Musk had also made an unsolicited $97.4

billion bid for OpenAI earlier this year that was swiftly

rebuffed by Altman with a "no thank you."