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Comment by dragonwriter | Hacker News Reader

> Going fwd, I wonder why they cannot convert the structure to a traditional c-corp. Supposedly: “tax issues”.

Because, IIRC, when a charity nonprofit like OpenAI, Inc.-- a 501(c)(3), other nonprofits are different -- converts to a for-profit (C-corp or otherwise doesn't matter), all the assets acquired while it was a charity must either remain dedicated to and used exclusively for the charitable purpose, be returned, or be donated to charity (or sold, and then the proceeds treated the same way.) For the charity OpenAI, Inc., this would include its interest in OpenAI, LLC (the wholly owned subsidiary through which it exercises control of OpenAI, LP and OpenAI Global, LLC -- the latter being the for profit entity that actually sells product, etc.), and OpenAI, LP (the holding company which in turn is majority owner of OpenAI Global, LLC).

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Just curious: can they legally sell all their assets to themselves (i.e. OpenAI nonprofit sells it to for-profit OpenAI Inc. for market price real $$$) and then use that $$$ for charitable purposes. Would this satisfy IRS by letting them retain the intellectual property rights?

self dealing regulations are to prevent that.

also OpenAI Inc. for profit doesnt exist, a wholly owned LLC subsidiary does. so they would need to divest of that LLC first (by selling the shares)

the way around the self dealing regulations are to reduce their ownership below 20% - 35% (yes, its that range, for multiple reasons)

good thing here is that most venture backed companies subvert this already by simply share dilution and youre breaking into one the best secrets of Silicon Valley. Non-profits pump the value of startups and launder the reputation of the founders because their ideas get so much “validation” so quickly. (non profits they partially control act as lead investors for startups they control. they both sell shares at higher price, ideally: founders get QSBS tax free treatment, non profit retains tax free capital gains too. nothing wrong with that, you just probably cant do it too)

so open ai for profit llc needs to get rid of the PPU’s and bring in outside investors to dilute ownership enough, but two birds one stone: the outside investors have to get a higher valuation

> also OpenAI Inc. for profit doesnt exist, a wholly owned LLC subsidiary does.

The for-profit "OpenAI" (OpenAI Global LLC) is not a wholly-owned subsidiary of anything, it is majority owned by a holding company (OpenAI, LP), which in turn is majority owned by the OpenAI charity (OpenAI, Inc.)

There is a wholly owned LLC subsidiary of the charity (OpenAI GP, LLC), but that is the entity through which OpenAI, Inc., exercises control of OpenAI, LP and OpenAI Global, LLC (why it doesn't do so directly for OpenAI, LP, and either directly or via OpenAI, LP, for OpenAI Global, LLC, don't ask me), it is not the for-profit.

Both OpenAI, LP, and OpenAI Global, LLC have other investors (Microsoft being a big one for OpenAI Globla, LLC) already.

I thought you were being sarcastic at first, but thanks for breaking that down

one explanation is “blockers”. basically regulations imposed on one kind of entity such as the non profit, fail when there is one degree of separation via a “blocker” entity.

LP’s can have undisclosed silent limited partners, intentionally less flexible than an LLC which can do the same

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