OpenAI, the creator of ChatGPT, is reportedly in preliminary talks with California and Delaware regulators with the goal of transforming the firm into a for-profit structure.

The company, which is currently valued at $157 billion, has opened a dialogue with the office of Attorney General Rob Bonta in California and his counterpart in Delaware, according to Bloomberg, citing sources familiar with the matter. 

Reuters first reported in September that OpenAI was working on a plan to restructure its core business into a for-profit company that would no longer be controlled by its nonprofit board.

A simplified for-profit structure is more attractive to investors than a nonprofit research organization, though a key challenge in the discussions is valuing OpenAI’s intellectual property, which includes the highly lucrative large language model chatbot.

The process could be complex due to California law, which requires value assigned to nonprofit assets to be distributed to a charitable cause, but OpenAI’s primary assets are its intellectual property.  

The transformation could also raise questions about whether the company, founded in 2015, is upholding its original benevolent public mission of building AI products safe and beneficial to humanity.

In May 2023, tech billionaire Elon Musk questioned the legality of the transition to for-profit following a $50 million investment into the firm. 

“OpenAI was created as an open-source, nonprofit company to serve as a counterweight to Google, but now it has become a closed-source, maximum-profit company effectively controlled by Microsoft,” he said at the time. 

Musk sued OpenAI and CEO Sam Altman in February 2024 for breach of contract but dropped the lawsuit in June.

In a statement to Bloomberg, OpenAI nonprofit board chairman Bret Taylor said the nonprofit would continue to exist as part of any new corporate structure, adding:

“Any potential restructuring would ensure the nonprofit continues to exist and thrive and receives full value for its current stake in the OpenAI for-profit with an enhanced ability to pursue its mission.”

The firm is “committed to protecting charitable assets for their intended purpose,” said a spokesperson for Bonta’s office. 

The company created a capped for-profit subsidiary to help fund the high costs of AI model development in 2019. 

A period of turmoil followed, including CEO Sam Altman’s brief firing and rehiring. Tensions on the nonprofit board mounted over balancing AI safety with the pressure to commercialize. 

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On Oct. 23, long-time OpenAI safety researcher Miles Brundage quit the firm, saying that he planned to start a new nonprofit or join an existing one to work on AI policy research and advocacy.

In early October, it was reported that OpenAI was unlikely to turn a profit until 2029 after it hit $100 billion in revenue. It was projected to incur a loss of about $5 billion in 2024. 

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