OpenAI Transforms Into For-Profit Entity, Microsoft Takes 27% Stake

OpenAI has finalized its transition into a for-profit entity, transforming its for-profit division into the OpenAI Group Public Benefit Corporation. This move is still under the oversight of its nonprofit foundation. As part of this groundbreaking agreement, Microsoft has acquired a remarkable 27% stake in the company, alongside continued access to OpenAI's innovative technology until 2032. This includes any artificial general intelligence (AGI) models that receive validation from an independent panel. The arrangement also eliminates longstanding restrictions on capital and concludes Microsoft's exclusive rights to OpenAI's cloud services.

In a joint announcement, OpenAI and Microsoft revealed that they have successfully executed a deal to transition OpenAI into a more conventional for-profit structure.

As a result of this partnership, Microsoft, an early investor, has secured a 27% ownership stake in OpenAI, estimated to be worth approximately $135 billion. Moreover, Microsoft will maintain access to OpenAI's technological advancements until 2032, covering any models that achieve the significant milestone of AGI, which will now be verified by an independent expert panel. Following the announcement, Microsoft’s stock experienced a notable uptick, rising about 2% on Tuesday and pushing its market capitalization back above the $4 trillion threshold.

Business Additionally, Microsoft will retain rights to OpenAI's research intellectual property, defined as "confidential methods utilized in the development of models and systems," until either AGI validation or the year 2030, whichever occurs first. However, it is important to note that Microsoft’s intellectual property rights will not extend to OpenAI’s consumer hardware. In a significant shift, the tech giant has also ceded its exclusive cloud rights with OpenAI, a noteworthy concession, although they have confirmed that OpenAI is committed to purchasing an additional $250 billion in Azure services.

The restructuring plan has successfully navigated crucial regulatory scrutiny, with the Attorney General of Delaware announcing a "statement of no objection" regarding OpenAI’s proposed corporate restructuring.

California Attorney General Rob Bonta expressed his office's decision not to contest OpenAI's recapitalization plan. He stated to Fortune, "Over the last year and a half, my office has conducted a robust investigation into OpenAI’s initial plan to restructure, followed by its revised plan to recapitalize. We secured concessions that ensure charitable assets are used for their intended purpose, safety will be prioritized, as well as a commitment that OpenAI will remain right here in California.”

Lessons from the Trenches: Insights for Entrepreneurs OpenAI's chair, Bret Taylor, noted that the recapitalization process was completed after nearly a year of “engaging in constructive dialogue with the offices of the attorneys general of California and Delaware.” He emphasized that the company made several adjustments as a result of those discussions.

The negotiation of this restructuring has reportedly been a source of tension between OpenAI and Microsoft, spanning nearly a year to finalize. The new agreement removes critical restrictions on OpenAI's capacity to raise capital, a limitation that had been in place since its partnership with Microsoft in 2019, which granted the tech giant extensive rights over OpenAI's innovations in exchange for the substantial cloud computing resources necessary to support its work.

In a blog post announcing the deal, Taylor stated, "The OpenAI mission—ensuring that AGI benefits all of humanity—will be advanced through both the business and the foundation. The more OpenAI succeeds as a company, the more the nonprofit’s equity stake will be worth, which the nonprofit will use to further its mission.”

The completion of OpenAI's for-profit restructuring marks a significant milestone in its evolution, establishing a new framework for collaboration with Microsoft, while aiming to ensure that the benefits of AGI are shared widely across humanity.