Oct 29, 2025 Current Resources

OpenAI non-profit will run for-profit that has yet to make a profit

OpenAI has obtained a new lease on life.

The cash-burning AI biz on Tuesday announced an agreement with Microsoft that will allow it to form a public benefit corporation and recapitalize, meaning it will be more attractive to investors.

The restructuring deal caps more than 18 months of management turmoil and negotiation, unconvincing regulatory saber-rattling, and legal challenges. Under the new structure, Microsoft will own roughly 27 percent of OpenAI Group PBC, a share worth about $135 billion given current starry-eyed market assumptions.

That's roughly a 10x return on Microsoft's $13.8 billion investment in OpenAI. Markets now value the AI upstart at about $500 billion, despite it never producing a profit.

Under the terms of the deal, OpenAI has committed to spend $250 billion on Azure cloud services. But Microsoft will no longer have the right of first refusal for OpenAI compute jobs. And OpenAI will be able to sell API services to US government national security customers, with no requirement to use Azure.

Microsoft will retain its position as OpenAI's "designated frontier model partner" and will have exclusive IP rights (excluding OpenAI's non-existent but touted consumer hardware) and Azure API exclusivity until OpenAI is deemed to have achieved Artificial General Intelligence (AGI).

AGI, as defined by OpenAI, refers to "highly autonomous systems that outperform humans at most economically valuable work." Per the terms of OpenAI's corporate transfiguration, "Once AGI is declared by OpenAI, that declaration will now be verified by an independent expert panel." How OpenAI intends to define "most economically valuable work" and how an independent expert panel will verify an AGI declaration is an exercise left to the reader's imagination.

OpenAI was founded in 2015 as a non-profit and added a for-profit subsidiary in 2019. The arrangement proved controversial due to concerns OpenAI was exploiting the advantages of operating a non-profit – including tax-exempt status – without meeting its public obligations.

You have one week to opt out or become fodder for LinkedIn AI training

Last month, non-profit consumer advocacy group Public Citizen wrote an open letter to California Attorney General Rob Bonta and Delaware Attorney General Kathy Jennings urging them to block the proposed recapitalization plan.

"[T]he new proposed arrangement is one that would both fail to honor OpenAI's nonprofit obligations and would insulate OpenAI For-Profit from the basic shareholder accountability attached to publicly traded firms," Public Citizen co-president Robert Weissman wrote.

On Tuesday, Weissman published a followup missive denouncing OpenAI's plan and calling for the Attorneys General of California and Delaware to dissolve OpenAI's nonprofit and reallocate its resources to charitable organizations.

But Weissman's call to break up the band has gone unheeded. Both Bonta and Jennings endorsed OpenAI's restructure.

"Over the last year and a half, my office has conducted a robust investigation into OpenAI's initial plan to restructure, followed by its revised plan to recapitalize," said Bonta in a statement.

"This included extensive negotiations with OpenAI, and we secured concessions that ensure charitable assets are used for their intended purpose, safety will be prioritized, as well as a commitment that OpenAI will remain right here in California. With these important concessions in place, we will not be in court opposing OpenAI's recapitalization plan."

In a streamed presentation, CEO Sam Altman pitched the new structure as a simplification of OpenAI’s complicated org chart.

"So maybe you saw before this crazy convoluted diagram of all of the OpenAI entities," the AI hype-maestro said. "Now it's much simpler. We have a nonprofit called the Open AI Foundation ... where the board also sits, and owns a slice of our PBC public benefit corporation called OpenAI Group. So nonprofit in control. Public Benefit Corporation sits under it."

The nonprofit, he said, will govern the PBC, and will initially control about 26 percent of PBC equity, a stake worth about $130 billion.

"The PBC will operate more like a normal company," Altman explained. "It will have the same mission. It will be bound to that mission, and in matters of safety, it will only be bound to that mission. But it will be able to attract the resources that we need for that gigantic infrastructure buildout to serve the research and product goals that we have."

What do you buy a $500 billion money-losing company for the holidays? More investment. ®