Reuters

Published: 28 Dec 2024

ChatGPT creator 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 artificial intelligence (AI) race against companies such as Google.

OpenAI’s new structure aims to potentially make a more investor-friendly company, while maintaining a mission of funding a related charity.

Rivals including Amazon.com-backed Anthropic have also adopted the PBC structure to balance societal interests along with shareholder value.

OpenAI’s planned new corporate structure aims to balance societal interests along with shareholder value. Photo: AFP

What is a PBC?

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.

The state of Delaware amended its general corporation law to allow the formation of PBCs in 2013. 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 organisation, 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,” the San Francisco-based company said.

A smartphone screen shows icons of OpenAI’s AI ChatGPT and other artificial intelligence apps. Photo: TNS

The 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 PBC 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, according to Ann Lipton, a corporate law professor at Tulane Law School in New Orleans, Louisiana.

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 maximisation or that its public benefit goals conflict with the bidder’s objectives.

Elon Musk’s xAI, founded in 2023, raised some US$6 billion in a funding round this year that valued the start-up at around US$18 billion before the deal. Photo: Shutterstock

Some existing PBCs

OpenAI’s rivals, Anthropic and Elon Musk’s xAI, have also adopted PBCs.

Outside the tech industry, Allbirds is a San Francisco-based PBC that sells sustainable shoes and apparel made from natural materials. New York-based PBC Kickstarter maintains a global crowdfunding platform for creative projects.

California-based Patagonia – a retailer of outdoor recreation clothing, equipment and food – is another prominent PBC. The company has contributed over US$230 million to environmental organisations, according to its website.