OpenAI Is Now a Public Benefit Corporation
By now, almost everyone has heard of ChatGPT. For those unfamiliar, ChatGPT is an advanced chatbot powered by artificial intelligence (AI). It offers a wide range of capabilities, including complex problem-solving, reasoning, image generation, image interpretation, and more. The company behind ChatGPT is OpenAI.
OpenAI was originally incorporated in the State of Delaware as a nonprofit corporation. Founded by prominent figures in the tech industry, including Elon Musk and Sam Altman, OpenAI’s initial mission was to provide open-source AI tools to benefit humanity. However, it soon became evident that maintaining and developing AI at such a scale was incredibly costly. To sustain its growth, OpenAI had to explore new funding models.
Since then, OpenAI has grappled with how to balance its commercial ambitions with its original nonprofit mission. Many of OpenAI’s original team members have already left or are considering leaving, as they felt the shift toward a for-profit model conflicted with the organization’s founding principles.
To address this challenge, OpenAI has chosen a hybrid approach. On December 27, the company announced plans to transition its for-profit arm into a Delaware Public Benefit Corporation (PBC). A Delaware PBC is a unique corporate structure that operates as a for-profit entity while being required to pursue a public benefit. This is outlined in its Certificate of Incorporation through a purpose statement, which defines the company's mission beyond generating profit. Some PBCs commit a percentage of profits to charitable causes, while others focus on long-term innovation, sustainability, or shareholder returns. It is worth noting that OpenAI could have chosen anywhere in the United States to incorporate their for-profit arm, but they chose Delaware.
The PBC structure is becoming an increasingly popular choice for companies that want to align financial success with broader social or environmental goals. Prior to 2019, there were just two public companies under the structure of a PBC in the United States. Since then, the number of public corporations that have incorporated or converted to a PBC increased by around 850%.
OpenAI could have incorporated its for-profit arm in any state, but it chose Delaware. Recently, major companies like Meta and Tesla have questioned whether Delaware remains the best state for incorporation. However, OpenAI’s move serves as a strong endorsement of Delaware’s corporate landscape at a time when its dominance is being questioned.
The decision by OpenAI to transition its for-profit arm into a Delaware public benefit corporation (PBC) highlights a growing trend among companies looking to balance profitability with a greater mission. Many businesses today are exploring this hybrid corporate structure as a way to align their goals with social or environmental initiatives while still operating as a for-profit entity.
If you’re considering forming a Delaware PBC, our team at Harvard Business Services is here to help! With decades of experience in Delaware company formations, we make the process seamless and straightforward. Whether you’re a startup, tech firm, or an established business looking to incorporate with a public benefit mission, we can guide you through the formation process efficiently.
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