Rose Chan Loui explains the current controversy surrounding OpenAI’s decision to abandon its nonprofit status. To learn more about OpenAI’s proposed restructuring, what it means for the race to develop artificial general intelligence, and how it highlights the tricky legal concept of a nonprofit’s “purpose,” listen to Chan Loui’s recent appearance on Capitalisn’t.
What is “purpose”? Is it a goalpost one sets for oneself, a well-intentioned promise between friends, or a legally binding commitment? In the nonprofit world, purpose is a binding commitment made to the public, and the law does not make it easy to abandon it. Therein lies the current controversy surrounding artificial intelligence developer OpenAI as it seeks to change its founding non-profit purpose. How this controversy ultimately resolves has implications for billions of dollars in funding and the future of the development of artificial intelligence.
The California-based company known as OpenAI is actually a web of companies controlled by a nonprofit, which for the intent of this article, we will call “Nonprofit OpenAI.” Nonprofit OpenAI was founded in late 2015 “with the goal of building safe and beneficial artificial general intelligence for the benefit of humanity.” OpenAI defines artificial intelligence as “highly autonomous systems that outperform humans at most economically valuable work”. The company further states, “We will attempt to directly build safe and beneficial AGI but will also consider our mission fulfilled if our work aids others to achieve this outcome.”
Nonprofit OpenAI’s legal purpose, found in its certificate of incorporation, is “to ensure that artificial general intelligence benefits all of humanity, including by conducting and/or funding artificial intelligence research.” The certificate of incorporation further elaborates that “the corporation may also research and/or otherwise support efforts to safely develop and distribute such technology and its associated benefits, including analyzing the societal impacts of the technology and supporting related educational, economic, and safety policy research and initiatives.” Finally, the certificate promises that “[t]he resulting technology will benefit the public and the corporation will seek to distribute it for the public benefit when applicable.”
As former OpenAI employees have represented in a court filing, Nonprofit OpenAI committed to this purpose to attract and retain the best and the brightest in the field of AI research and development.
OpenAI’s unusual structure came about in 2019, when Nonprofit OpenAI’s board decided that philanthropic funding would not be enough to support its development work and they needed a nonprofit structure that allowed for outside investment. In expanding its single-entity structure to the current web of entities, the company committed to giving 100% control of the for-profit corporation (what we shall call “For-Profit OpenAI”) to Nonprofit OpenAI. The company further affirmed that Nonprofit OpenAI’s purpose, not profit-making, would be paramount in For-Profit OpenAI’s operations. Providing further assurance that Nonprofit OpenAI’s purpose would control, Nonprofit OpenAI committed that a majority of its board would be “independent” (defined narrowly as not having equity in For-Profit OpenAI).
The company made this bespoke investment structure crystal clear to investors, even stating in its investor agreements that capital contributions to For-Profit OpenAI should be viewed “in the spirit of a donation.” For-Profit OpenAI would be under no obligation to make a profit and would be free to re-invest any or all of its cash flow into research and development without any obligation (such as distributions) to investors. If profits were made, investors’ interest would be capped at 100 times investment, with the residual value to go to Nonprofit OpenAI. Under this structure, it is estimated that OpenAI attracted over $20 billion in investments.
Towards the end of 2024, however, OpenAI announced that it would be implementing another significant restructure. “We once again need to raise more capital than we’d imagined. Investors want to back us but, at this scale of capital, need conventional equity and less structural bespokeness.” According to a December 2024 blog post by the company, the proposed restructure would remove Nonprofit OpenAI from its controlling position within the company. Nonprofit OpenAI would receive a minority stake in the for-profit enterprise and would support “charitable initiatives in such sectors as health care, education, and science.” For-Profit OpenAI would become a Delaware for-profit public benefit corporation (“PBC”), a structure that allows the firm to consider public good rather than exclusively focusing on maximizing shareholder profits. Notably, a typical Delaware PBC is accountable only to its own board regarding how (or whether) it is serving a public good.
In sum, the OpenAI corporate structure would be turned on its head, with the currently controlling nonprofit parent relegated to being a typical corporate foundation controlled by the for-profit corporation. Depending on how much, and what type of, compensation Nonprofit OpenAI receives in the proposed restructuring, it could be one of the most well-resourced grant-making foundations in the country with the potential to do a lot of good. However, the restructuring would abandon Nonprofit OpenAI’s purpose, in that its primary purpose was to control how OpenAI did its AI development work.
Under nonprofit law, a charity cannot change its overall purpose without jumping through some legal hoops, at least not with regard to assets that were already devoted to that purpose. The legal hoops involve getting a court to authorize the change in purpose, with the relevant state attorney general brought in as a “necessary party” to provide their point of view. The attorneys general with authority over Nonprofit OpenAI are the attorney general of Delaware, where Nonprofit OpenAI is incorporated, and the attorney general of California, where Nonprofit OpenAI conducts its business and holds assets.
In deciding whether the change in purpose should be authorized, the court and the attorneys general of Delaware and California should consider the “cy pres” doctrine. Per the cy pres doctrine, purpose can be changed only if it has become unlawful, impossible, impracticable, or wasteful for the charity to carry out its purposes: quite a high hurdle. If a change in purpose is justified, the assets of the charity must be directed to charitable purposes that reasonably approximate the charity’s original purposes.
Nonprofit OpenAI’s purpose has certainly not become unlawful, impossible, or wasteful. Indeed, with the development of AGI on the horizon, many argue that Nonprofit OpenAI’s purpose has become ever more critical. However, it might be argued by the company that the purpose has become “impracticable”: OpenAI’s management claims that the company cannot raise funding for their pursuit of AGI without removing Nonprofit OpenAI from its control position. On the other hand, AI experts who fear the existential risks of unfettered development of AGI argue that Nonprofit OpenAI and its subsidiaries can pursue AGI, but at a reduced, more thoughtful pace, and that that was exactly the purpose of OpenAI’s nonprofit structure. In short, impracticability does not apply, because Nonprofit OpenAI’s overriding purpose is to ensure that AGI benefits humanity, not to be the first to develop AGI.
The company’s position appears to be that the proposed restructuring is only a change in the activities of the company, not a change in purpose—that by using Nonprofit OpenAI’s share of the profits made by the for-profit operations, the continuing Nonprofit OpenAI will still be benefiting humanity. While this is a plausible argument for nonprofits with a general charitable purpose, Nonprofit OpenAI’s purpose is uniquely and very specifically tied to its control of For-Profit OpenAI’s operations. Nonprofit OpenAI’s primary activity is to oversee the company’s development of AGI to ensure that it benefits humanity. Indeed, the company states that if another company is developing AGI better than OpenAI, Nonprofit OpenAI will support the other company with its resources.
In April 2025, OpenAI completed another round of funding, this time for $40 billion at a valuation of $300 billion. Notably, this round of funding came with conditions: if OpenAI’s for-profit subsidiary is not restructured into a fully for-profit entity by the end of 2025, OpenAI could be required to return $20 billion of the new funding.
Nonprofit OpenAI’s purpose is clear. The question is whether Nonprofit OpenAI’s altruistic purpose to develop AGI for the benefit of all humanity—the purpose that attracted its founding donors and its brilliant AI scientists to the company—can survive the enormous incentives and pressure to allow the company, now valued at $300 billion, to maximize profits without constraint, enriching its employees and investors, while casting aside the control of its nonprofit parent.
Author Disclosure: The author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
