🏛️ OpenAI's nonprofit-to-for-profit conversion becomes a tax and litigation overhang

“the reality is he's identified a loophole and that loophole needs to get fixed ... So the point is that the government really cares about these kinds of things because so much money is on the line. And if OpenAI turns out to be this multi-hundred billion dollar behemoth, this will get figured out in court because there's just too much money at stake.”

“And I think this is where OpenAI is going to get super tripped up. And I think the IRS is going to have a field day here.”

“I think OpenAI is in a little bit of a damned if you do, damned if you don't situation ... they've changed that nonprofit board, they've booted off the nonprofit people, and that may have been the right thing for the for-profit entity, but now it might get them in trouble because it lends credence to Elon's lawsuit that they've completely changed the original mission of this organization.”

“Well, it's important to remember the majority of the IP that exists at OpenAI today was generated after the for-profit was set up. The real question was, was there a fair transfer at the time when it was set up of value into this for-profit entity?”

“The things like device companies or if we were doing some chipfab company, those are not Sam projects. OpenAI would get that equity.”

“All those projects, he said, are part of OpenAI. That's something people didn't know before this and a lot of confusion there.”

“And then the second is the sheer quantum of value capture that the employees have seen through secondaries before a fully functional business has been really created.”

“Yeah, exactly. So my point is just this didn't happen as an accident. Somebody made a strategic business decision to do this because they thought it would be in the company's interest.”

“Well, and here we go. I think that Microsoft will pay the speeding ticket and we'll just all move on.”

“You have government connections. You have no real legal overhang. Then the likelihood that an IRS agent all of a sudden decides to audit OpenAI is basically zero.”

“My argument is that it'd be good for OpenAI to clean up its Byzantine cap table and structure, and it would be good for the public to be able to have the opportunity to invest, so it's a win-win.”

“I don't care if OpenAI is for-profit or nonprofit. It affects a few people that put money in and the employees doesn't affect anyone else.”

“The 501c3 continues to control the mission and destiny and so forth. And so that question about its mission is still guiding things and you're essentially investing in that mission.”

“I mean, at the time he put in the $44 million, it was never going to be a for-profit. Now it's a for-profit. A lot of people are profiting, assuming the paper mark ends up being realized.”

“I think the point is that there's a lot of people that are going to watch this closely, and if it's legal and it's allowed, I just don't understand why everybody wouldn't do this.”

“You're making it into a for-profit. You're giving everyone shares, but the guy who puts in the original seed capital doesn't get anything. That's ridiculous. And what they're basically saying to Elon is, if you don't like it, just sue us.”

“I don't know how they're converting a non-profit to a for-profit. None of us have the details on this. There may be significant tax implications, payments they need to make.”

“There's a new story this week where OpenAI just raised, was it $6 billion at $150 billion valuation? They originally started that enterprise with $50 million or so from Elon. It was a non-profit. Then they became a for-profit. Now, there's a report saying that they're telling investors in this round that they can't invest in any other AI companies, so they're acting like, I mean, they've gone from non-profit philanthropy to piranha for-profit company.”

“So you have Elon filing an injunction, which basically says, you should not allow this conversion to happen until we sort out all of these details, because if you allow it to convert and then I win, it'll be very messy to go backwards. I think that that's a pretty credible legal argument.”

“But even equity, they could give equity to the people building it, but they could still leave it in the control of the non-profit. I just don't understand this conversion. I mean, there was a board coup, right? The board tried to fire Sam, and Sam took over the board. Now it's his hand-picked board, so it also looks like self-dealing, right? And yeah, they'll get an independent valuation, but we all know that game. You hire a valuation expert who's going to say what you're going to say, and they'll check the box.”

“And I'm just hoping that Sam Altman loses this lawsuit and they get an injunction against it. Hey, well, just because he's just such a weasel in terms of like making open AI into a closed thing.”