Pressure Grows on OpenAI as Restructuring Deadline Nears

Leading philanthropic, non-profit, and labor groups in OpenAI’s home-state of California have joined forces to press the state’s attorney general to ensure the new entity does not violate the Golden State’s charitable trust law, the Journal reports. At the same time, both the California and Delaware attorneys general are scrutinizing the restructuring plan for signs that it could harm their states’ charities. Both must sign off on the plan for the deal to go through.

In addition to concerns over the restructuring’s impact on state charities, the two attorneys general wrote to OpenAI on Friday to raise concerns over its commitments to safety following recent reports of suicides by people who had prolonged interactions with ChatGPT, including a Connecticut murder-suicide last month.

Per the Journal, the pressure has grown intense enough that OpenAI officials privately discussed a possible move out of California to try to salvage the deal, although the company denied any such plan.

Any delay or derailing of the restructuring plan could be devastating to the world’s largest startup. The company was founded as a non-profit in 2015, with the stated aim to develop cutting edge AI technology and share it with the world. It later created a for-profit subsidiary to enable it to raise funds from investors, but the non-profit board retained ultimate control over the entire enterprise.

Investors, led by Microsoft, were given “profit-sharing units” in the subsidiary in lieu of traditional equity and have limited governance input. That arrangement never fully satisfied the investors, however, and they have pushed OpenAI to make changes to give them greater control.

Read more: FTC Prepares to Investigate How OpenAI, Meta, Character.AI Affect Minors

In September 2024, OpenAI announced plans to convert its subsidiary into an independent for-profit entity. Since then, investors have conditioned roughly $19 billion in funding on OpenAI completing the restructuring by the end of 2025 and receiving traditional equity shares in the new for-profit company.

Should OpenAI fall short, some of those funds would convert to debt, and some could be lost altogether. Both would undermine the company’s plans to build new data centers and develop its own custom chips, as well as hindering its ability to raise additional funds in the future.

Questions were raised about the spinoff plan for the start, however. Among those was how existing stakes in the company, including the nearly $14 billion in funding previously provided by Microsoft, would translate into equity stakes in the new entity. The California attorney general also wrote to OpenAI’s board in December seeking information on how assets now held in charitable trust by the non-profit entity would be treated.

In April, a coalition of more than 60 non-profits wrote to the California attorney general asking it to investigate whether OpenAI violated its federal tax-exempt status. Lorena Gonzalez, president of the California Federation of Labor Unions, told the Journal the organization has spent more than a year discussing the restructuring with the attorney general’s office.

“We have been very clear in our position that they benefited from being a nonprofit, they’re now going to make massive profits, and that money should come back to the people who it would have gone to in the first place,” she said.