OpenAI plans to shift its for-profit arm to a Public Benefit Corporation (PBC) to attract investors while supporting a related charity. Here's why.
OpenAI, the creator of ChatGPT, unveiled plans on Friday to transition its for-profit arm into a Delaware Public Benefit Corporation (PBC). This move aims to make the company more attractive to investors while maintaining its commitment to funding a charitable mission.
The transition to a PBC is designed to help OpenAI stay competitive in the high-stakes AI race, particularly against tech giants like Google, while continuing to support causes such as healthcare, education, and science.
What is a Public Benefit Corporation?
Public Benefit Corporations (PBCs) are a new breed of business entity. Unlike traditional for-profit companies, PBCs are legally required to pursue one or more public benefits, alongside generating profits for shareholders. While both PBCs and traditional corporations are for-profit entities, PBCs must also integrate social and environmental goals into their business strategies.
Delaware amended its corporation law in 2013 to allow the formation of PBCs, and by December 2023, there were 19 publicly traded PBCs, according to research by Jens Dammann of the University of Texas.
OpenAI explained its new structure as "a for-profit, controlled by the non-profit, with a capped profit share for investors and employees." Under the new arrangement, the non-profit will own shares in the for-profit company, similar to how outside investors hold shares. The for-profit arm will continue to fund the charitable mission of the non-profit.
The Role of the Non-Profit in OpenAI's New Structure
In this new structure, the PBC will handle OpenAI's business and operations, while the non-profit will oversee charitable initiatives in areas like healthcare, education, and scientific research. The non-profit will also hire a leadership team to manage these projects, maintaining the company’s mission-driven focus.
Difference Between a PBC and Other Corporate Structures
Unlike PBCs, non-profit corporations do not distribute profits to shareholders but reinvest them into their mission. Non-profits are generally exempt from federal income taxes if they meet certain criteria. In contrast, PBCs are not entitled to special tax exemptions, even though they are required to balance their mission with the pursuit of profit.
Limitations of PBCs
However, there are limitations to the PBC structure. Becoming a benefit corporation does not guarantee that a company will prioritize its stated mission over profit. Under Delaware law, PBCs are required to "balance" mission and profit-making interests, but there is no enforcement mechanism to ensure this balance is maintained.
Corporate law expert Ann Lipton from Tulane Law School notes that the law only requires PBCs to report their progress toward public goals to shareholders. In practice, shareholders influence how closely a PBC follows its mission.
Some experts argue that publicly traded PBCs are more vulnerable to takeovers, as potential bidders could claim that the company's mission conflicts with their profit-maximizing objectives.
Existing Public Benefit Corporations
Several notable companies have adopted the PBC model, including OpenAI’s competitors:
- Anthropic: A leading AI company focused on safety and alignment.
- xAI: Founded by Elon Musk, xAI is also a PBC.
- Allbirds: A PBC selling sustainable footwear and apparel.
- Kickstarter: A crowdfunding platform for creative projects.
- Patagonia: A retailer known for environmental contributions.
- Warby Parker: A socially-conscious eyewear company with a “Buy a Pair, Give a Pair” policy.
These companies balance profit with social and environmental goals, demonstrating that the PBC structure can work in a variety of industries.
Conclusion
OpenAI's shift to a Public Benefit Corporation represents an important step in its ongoing mission to remain at the forefront of AI development while maintaining its commitment to societal benefit. By choosing the PBC structure, OpenAI follows in the footsteps of other innovative companies that prioritize both profits and public good. While there are risks and challenges associated with this model, it offers OpenAI the flexibility to continue making advancements in AI while funding its charitable initiatives.