Openai set up a plan Friday to transform its for-profit division into a Delaware Public Welfare Company (PBC) to help it raise funds and stay ahead of the expensive AI race with companies like Google.
Openai’s new structure is designed to make a more investor-friendly company while maintaining the mission of funding related charities.
Competitors, including humans, also adopted a PBC structure to balance social interests with shareholder value.
What is a public welfare company
Although both PBC and traditional companies are for-profit entities, they are legally required to pursue one or more public interests, including social and environmental goals.
According to research by the University of Texas Jens Dammann, Delaware has amended its general corporate law to allow PBC formation in 2013 on the 19th, and as of December 2023, there were 19 public ones PBC for trading.
Openai describes the current structure in its blog as “for-profit controlled by nonprofit organizations that provide investors and employees with a limited share of profits.”
Under the leadership of the new organization, the nonprofit will own for-profit shares similar to those of external investors, and the for-profit will fund the nonprofit’s charitable mission.
“PBC will run and control OpenAI’s business and business, while nonprofits will hire leadership teams and employees to promote philanthropic programs in areas such as healthcare, education and science,” it said.
Differences between PBC and other company structures
Unlike PBC, nonprofit companies have no shareholders and reinvest profits into their mission rather than assigning them to individuals.
PBC does not receive special tax exemptions or incentives, and nonprofits will generally exempt federal income tax if certain requirements are not met.
Limitations of PBC
Ann Lipton, a corporate law professor at Tulane Law School, said being a welfare company does not guarantee that the company will increase profits by its prescribed mission, because the law only requires the board to “balance” its mission and profit interests.
Lipton said Delaware law does require the company to move towards its goal toward shareholders, and shareholders actually determine the close relationship between PBC and its mission.
“The only reason to choose a welfare form than any other corporate form is to declare it to the public. It doesn’t actually have any real enforcement powers,” Lipton added.
Some legal experts also say publicly traded PBCs are easier to take over because bidders can see the company lack profit maximization, or that its public interest goals conflict with the bidder’s goals.
Some existing PBCs
Humans and XAI: Openai’s competitors, Humans and Elon Musk’s Xai also adopted PBC.
Allbirds: Allbirds is a San Francisco-based PBC that sells sustainable shoes and clothing made from natural materials.
Kickstarter: Kickstarter is a New York-based PBC that maintains a global crowdfunding platform for creative projects.
Patagonia: Patagonia is a California-based retailer of outdoor casual wear, equipment and food. According to its website, the company contributed more than $230 million to environmental organizations.
Warby Parker: Warby Parker is a New York-based glasses product manufacturer and retailer. The company’s “Buy a pair, give a pair” policy is designed to help people in need.
©Thomson Reuters 2024
(This story has not been edited by Tech Word News’s staff and is automatically generated from the joint feed.)
