I don’t get what’s the point of non-profits if you can IPO them. How does that make any sense?
(Actually the subsidiary is everything and the nonprofit is a do-nothing fig leaf but the IRS and Congress seem to not care enough to stop them.)
How is this not illegal? What prevents any nonprofit from doing this to sidestep its filing status and extract profit?
If the private subsidiary was doing semi-unrelated stuff to the goals of the non-profit, and using it to fund the non-profit, then your logic could make sense - for example if a cancer research charity owned a profitable business and funnelled the profits up to spend on research, great.
But in OpenAI's case, the claimed goals of the non-profit were essentially "do AI in a way that puts safety above profits". And whether or not one agrees with their previous approach to safety, or even whether safety needs to be cared about, it's undeniable that the for-profit business isn't acting as useful fundraising for the non-profit's goals, it's literally acting in the opposite direction.
It's generally not up to your or to me, it's up to the donors to the non-profit. If what you find to be undeniable is very much deniable to them, then that is their right.
The only question of public concern is whether OpenAI, Inc., a charity, meets the exemption requirements [1].
[1] https://www.irs.gov/charities-non-profits/charitable-organiz...
The rule is that the nonprofit and disqualified persons (mostly board members), cant own businesses together, well they can but not more than 35% of it together, and a max of 20% can have voting capability
The consequences arent immediate, non profits have 3 years to correct this
Now in the tech industry, getting VCs involved is already the plan from day one and founders get diluted, so getting below 35% is either easy, or easy within 3 years
so they’re fine
there’s a lot of things they can all do to deal with the share consolidation
It can easily be that, if they believe that the capital it raises increases the long-term value of the company by a greater multiple than the proportion of the company that is lost from the nonprofit to outside investors.
The primary example of this is Novo Nordisk (the Ozempic company). Their largest shareholder is, through an intermediary, the Novo Nordisk Foundation, which is one of the largest charities in the world. Nordisk used to be a charity that owned 100% of it's own labs and facilities, but in 1989 they realized that they were just too small, and would get trampled by larger international players without greatly increasing their scope. So they made their subsidiary go public (through a complex merger, not an IPO), and now only own 28% of it, instead of 100%. But, in large part because of the capital that going public brought them, despite constantly distributing money for research and charity, that's 28% of a company that's more than 100x bigger that what they used to be. And they retained 77% voting control.
Similar to Google with "Don't be evil". At least they got the decency to eventually remove it when they realized they were actually doing evil.
1) In order to fund research - this stuff costs 10s of billions of dollars - everyone, from Ilya, to Elon, to Sam - all agreed that they would require a profit-arm to raise money. Nobody was going to sponsor that 10s of billions of dollars to a non-profit.
2) The non profit is still there - and controls the commercial element.
How much has MacKenzie Scott donated to non-profits again?
Seems like such a claim is on thin ice.
That will be especially untrue after IPO when shareholders can claim there are fiduciary responsibilities that conflict with the non profit goals.
The for-profit has fiduciary responsibility to the non-profit as well as other shareholders. The IPO doesn't really change that.
The non-profit hasn't controlled squat since they tried and failed to fire Sam Altman.
The for-profit (OpenAI Group PBC) is what's filing the S-1 Draft.
The OpenAI Foundation also exclusively appoints the board of the OpenAI Group PBC and can replace directors at any time.
https://openai.com/our-structure/
(I work at OpenAI, but I am not a lawyer and am not speaking on behalf of OpenAI - just sharing my personal understanding.)
Isn't it hard to write this with a straight face?
The corporation selling shares is subject to normal corporate tax regime
The real answer to your question is that non profits can own shares, and there is no legal difference between passive investment of other publicly traded companies and highly consolidated shares of a private company. In the US it is seen as merely happenstance that we have such a liquid market where the shares themselves can rapidly change in value and create profits, but there is nothing controversial about that.