On the day following Christmas, OpenAI released a blog post titled “The Evolution of OpenAI: Adapting Our Structure to Propel Our Mission Forward.” Within this announcement, the organization laid out its strategy to transition its for-profit subsidiary into a public benefit corporation (PBC). In the subsequent weeks, I consulted several top corporate law experts across the country to deepen my understanding of OpenAI’s initiative and its potential implications for their goal of creating safe artificial general intelligence (AGI).
What Constitutes a Public Benefit Corporation?
“Public benefit corporations represent a relatively new category in business entity types,” explains Jens Dammann, who teaches corporate law at the University of Texas School of Law. While perspectives on PBCs may vary, many credit their conception to B Lab, a nonprofit that initiated a certification program. Businesses that undergo self-evaluations and pay an annual fee can proudly display the B Lab logo on their websites and products as certified B-Corps. However, it’s crucial to note that B Corp status is not legally binding; it simply reflects approval from this particular nonprofit.
Feeling that certification alone was insufficiently impactful, B Lab sought something more enduring rooted in legal statutes. They collaborated with legal professionals to devise model legislation aimed at establishing benefit corporations. This effort culminated in Maryland becoming the first state to recognize such entities in 2010; Delaware followed suit with similar legislation three years later but referred to them as public benefit corporations.
Delaware holds significant importance within U.S. corporate law due primarily to its esteemed Chancery Court and extensive body of pro-business precedents. As of 2022, 68.2% of Fortune 500 firms—including various technology titans—are incorporated there while functioning elsewhere; notably, this is also where OpenAI seeks reclassification as a PBC.
The fundamental principle underlying public benefit corporations is balancing profit generation with explicit commitments stated in their charters towards social initiatives and stakeholder concerns.
“This marks somewhat of a paradigm shift,” notes Professor Dammann but emphasizes that one shouldn’t confuse PBCs with nonprofits. “A distinguishing feature between nonprofits is what we term non-distribution constraints—nonprofits cannot distribute profits among shareholders.” Conversely, forming a public benefit corporation frees entities from this limitation while maintaining profitability at its core.
Reasons Behind OpenAI’s Shift Toward PBC Formation
A primary rationale for adopting the PBC framework—regardless if private or publicly traded—would liberate OpenAI from existing distribution restrictions. Yet there might be other factors influencing this decision.
Sourced internally but unconfirmed by official channels within OpenAI indicates some employees believe transitioning into a PBC could safeguard against hostile takeovers should they decide to go public eventually. A recent Financial Times article referenced an anonymous employee suggesting this move provides ”a protective barrier” against aggressive acquisition attempts by competitors.
This protective measure seems particularly relevant concerning what’s called the Revlon doctrine—a concept derived from an influential 1986 Delaware Supreme Court case focused on Revlon Inc., which dictates conditions under which publicly traded companies must accept offers made during takeover scenarios instead favoring profit maximization above all else.
Navigating Potential Threats
Professor Dammann observes:
Theoretically undermined by emerging structures like PBCs might provide boards flexible options when rejecting bids not aligned with fundamental social values originally established by these companies even if no prior litigation has solidified these presumptions.
Moreover:
Doubts remain whether converting into any format truly enhances defenses against buyouts compared now—as noted too—that current nonprofit status likely does offer some insulation previously untested concerning hostile bids.
OpenAI also cited urgent needs for significant capital acquisition publicly on numerous occasions stressing ongoing investments are stymied amid traditional structure hurdles.”
| Type | Description |
|---|---|
| PBC | Lesser constraints balancing profit-making goals alongside community benefits detailed explicitly within charter documents precisely outlining scope parameters regarding operating intentions ahead; |
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Pursuing Capital Enhancement Amidst Structural Limitations
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