OpenAI today detailed plans to turn its for-profit arm, which oversees its artificial intelligence development efforts, into a standalone company.

The move is not unexpected. Rumors that OpenAI plans to spin off its for-profit arm have been swirling since August. The restructuring was reportedly a condition of the ChatGPT developer’s recently closed $6.6 billion funding round: investors can ask for their money back if OpenAI doesn’t complete the reorganization within two years.

OpenAI launched in 2015 as a nonprofit AI research lab. It raised $137 million in cash donations to support its development efforts, plus more than $100 million worth of cloud credits and discounts from the major infrastructure-as-a-service providers. Four years later, OpenAI formed the for-profit arm that currently leads its AI development and commercialization efforts.

The launch of the for-profit arm paved the way to the two multibillion-dollar funding rounds that OpenAI has closed since the start of 2023. Before its latest $6.6 billion raise, the ChatGPT developer nabbed a $10 billion investment from Microsoft Corp. in January 2023.

Under OpenAI’s current nonprofit structure, there is a cap on the returns that its backers can realize. Additionally, investors reportedly had to sign an agreement that states it “would be wise to view any investment in [OpenAI’s for-profit subsidiary] in the spirit of a donation.”

As part of the planned restructuring, OpenAI will incorporate its for-profit arm as a standalone public benefit corporation, or PBC. This is a type of company that balances shareholder interests with a public benefit interest. According to OpenAI, the move will make it easier to raise the capital necessary to support its AI development efforts.

The nonprofit parent organization that currently oversees the for-profit arm’s work will receive shares in the new PBC. “Our plan would result in one of the best resourced non-profits in history,” OpenAI stated today. “The non-profit will hire a leadership team and staff to pursue charitable initiatives in sectors such as health care, education, and science.”

Before it proceeds with the restructuring, OpenAI will have to convince a federal court that the move should be approved.

Some of the $137 million in donations that OpenAI raised at the time of its 2015 launch was provided by Elon Musk. In August, Musk sued the AI provider for alleged breach of contract. According to the complaint, OpenAI’s launch of a for-profit arm breached a commitment it had made to operate as a nonprofit developer of open-source AI models.

In late November, Musk asked the federal court presiding over the case to block OpenAI from turning into a for-profit company. A few days later, Meta Platforms Inc. submitted a similar request to California Attorney General Rob Bonta.

Last year, Musk launched a large language model startup called xAI Corp. that competes with OpenAI. Meta, in turn, offers a line of open-source LLMs called Llama that competes with products from both OpenAI and xAI.

Image: OpenAI