OpenAI Hints at IPO – Will They Become a Public Benefit Corporation?
Key Takeaways:
OpenAI’s consideration of an IPO as a Public Benefit Corporation (PBC) is aligned with its stated mission to develop AI that is “safe and beneficial to mankind.”
Public Benefit Corporations (PBCs) are for-profit entities that incorporate public benefits into their core operations and decision-making processes. They combine profit-making with social good.
Transitioning to a PBC could help OpenAI manage the tension between their stated mission and meeting the expectations of investors and shareholders if they choose to become a public company.
What Happens if OpenAI Becomes a Public Benefit Corporation?
Founded in 2005 with the mission to develop “safe and beneficial” artificial general intelligence, OpenAI has grown significantly, especially after the launch of ChatGPT in November 2022. OpenAI recently made several strategic decisions, indicating it might be preparing for an initial public offering (IPO). As reported by Crunchbase News, the company hired Silicon Valley veteran Sarah Friar as CFO. Friar played a key role in the 2015 IPO of fintech company Square and was the former CEO of Nextdoor. Under the guidance of CEO Sam Altman, who has significant experience in the startup ecosystem, OpenAI has seen its annual revenue double to $3.4 billion.
Currently, OpenAI has a unique corporate structure as a hybrid non-profit/for-profit entity. Recently, however, there have been reports suggesting that OpenAI is considering becoming a for-profit benefit corporation. The potential to IPO and become a Public Benefit Corporation (PBC) could be a transformative move.
PBCs differ from both purely for-profit corporations and Certified B-Corps. So what precisely does becoming a Public Benefit Corporation entail, and how might it benefit humanity?
What is OpenAI’s Current Corporate Structure?
OpenAI operates under a hybrid structure. OpenAI, Inc. is a nonprofit and OpenAI Global, LLC, serves as its for-profit subsidiary. This arrangement includes a “capped-profit” limited partnership (LP) model where investors agree to limit their maximum financial returns while adhering to the nonprofit's charitable goals. Further, OpenAI’s nonprofit board oversees all affiliated entities.
Reports of tension within OpenAI's governance, including a brief ousting of CEO Sam Altman before his reinstatement in late 2023, highlight the complexities of the current structure. This raises the question: Could a PBC structure better align OpenAI's mission with its profit-driven objectives?
What is a Public Benefit Corporation?
A Public Benefit Corporation is a unique corporate structure that allows for-profit entities to pursue social, environmental, or public benefits and financial goals. This contrasts with traditional corporations, which may have public benefit goals but are ultimately legally required to maximize shareholder profits. PBCs are legally obligated to consider the impact of their decisions on all stakeholders, including employees, customers, communities, and the environment, promoting long-term value creation and accountability. Companies like Patagonia and Vital Farms have successfully adopted this model, integrating ethical practices into their business operations. This framework attracts investors and consumers focused on sustainability and ethical business practices.
Public Benefit Corporation (PBC) Defined
A PBC is a for-profit entity legally mandated to pursue public benefits alongside generating profits. Authorized in 35 states and the District of Columbia, PBCs differ from traditional for-profit corporations by embedding public benefit commitments into their corporate charters. For example, in Delaware, where OpenAI nonprofit and LLC were chartered, PBCs are governed by Subchapter XV of the Delaware General Corporation Law. This legal framework requires PBCs to support specific public benefits and report on their progress at least annually.
PBCs are Mission-Driven Organizations
PBCs must fulfill their public benefit commitments and report their progress to shareholders. These commitments can encompass social, environmental, scientific, or other goals and are outlined in the company’s formation documents. This dual mission of generating profit while creating positive societal impacts is central to the Public Benefit Corporation model. For instance, Warby Parker, a retail eyewear company, became a PBC in 2021, shortly before their IPO, and generates an annual Impact Report.
The Legal Framework of Forming a Public Benefit Corporation
The legal requirements to form a PBC vary by state. Currently, 35 states and the District of Columbia recognize PBCs and have laws regarding the formation of such an entity.
Generally, they adhere to the same structural guidelines as traditional for-profit corporations, including having a board and shareholders. However, they must also demonstrate their pursuit of a public benefit purpose and publish annual reports on their progress.
In Delaware, where OpenAI is incorporated, a company’s Certificate of Incorporation as a PBC must specify their public benefit purpose(s) and include provisions regarding director liability as per the Delaware General Corporation Law for PBCs.
The Benefits of OpenAI Becoming a PBC
The strategic benefits of OpenAI becoming a PBC are numerous. As a PBC, OpenAI would be able to prioritize its overarching mission of ensuring that artificial general intelligence (AGI) serves humanity's broader interests.
Becoming a PBC would legally obligate OpenAI to prioritize its mission of safety and public benefit, aligning with their commitment to developing safe and beneficial AI. This may help support OpenAI's alignment of its financial objectives with societal benefits, fostering greater stakeholder trust and transparency. Moreover, the PBC designation attracts investors and partners committed to ethical and responsible AI development, ensuring a cohesive and collaborative effort to tackle global challenges. The legal framework of a PBC also holds OpenAI accountable to its mission, promoting sustainable innovation and reinforcing its position as a leader in the AI sector.
Attract Socially-Conscious Consumers
As a PBC, OpenAI could appeal better to conscious consumers, whose spending reflects a preference for socially responsible brands. The 2023 Conscious Consumer Spending Index states that 71% of consumers believe it is important to support socially responsible brands, and 66% have purchased such products and services in the past year. Younger consumers, particularly, are drawn to brands that align with their values. Per a 2021 Nielsen study, 75% of Millennials are eco-conscious to the point of changing their spending habits to conscious brands and products.
Directors’ Liability
A PBC’s board of directors can make decisions based on the company’s public benefit purpose without fear of liability, even if it negatively impacts profits or shareholder interests. This flexibility allows OpenAI to prioritize its mission of “advancing AI for humanity,” even if short-term profitability is affected.
Certified B Corp versus Benefit Corporation
There is often confusion between Certified B Corps and Benefit Corporations. Certified B Corps, like Keene Advisors (we became a Certified B Corp in 2016), are accredited by B Lab, which sets additional requirements aside from the legal structure of benefit corporations. A company can be a PBC without being a Certified B Corp. B Lab encourages but does not require certified B Corps to meet Public Benefit Corporation legal requirements if available in their state.
While OpenAI has not made its future plans public, the potential shift to a PBC for an IPO represents a strategic opportunity to reconcile its mission with profitability.
As a Certified B Corp, Keene Advisors specializes in working with PBCs and other socially responsible organizations to balance profitability with public benefit goals.
For a complimentary consultation on how Benefit Corporations can integrate ethical practices into their business operations and gain access to impact investors, contact us today:
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