UPDATE

Not For Private Gain

May 2025

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Introduction

What is new in the updated proposal‬

By default, the updated proposal would not create a legally‬ enforceable obligation to advance the charitable mission above‬ all else

A version of OpenAI’s updated proposal that would address‬ more of our concerns‬

Conclusion

Signatories

Footnotes

Dear Attorneys General Bonta and Jennings:

We write with a brief update to our letter of April 17 regarding OpenAI’s proposed restructuring.¹ On May 5, OpenAI announced that its commercial operations “will continue to be overseen and controlled by [its] nonprofit.”² We discuss below whether and how OpenAI’s updated plans address the concerns raised in our previous letter. Because OpenAI has publicly provided few details about its new proposal, we evaluate the default implementation of its proposal under Delaware law, without assuming any non-standard contractual obligations to which OpenAI has not publicly committed.

OpenAI’s updated proposal might be a step in the right direction, but OpenAI must provide more detail to know whether its updated plans will address any of the concerns raised in our April 17 letter. As shown in Table 1 below—a version of Table 1 from our previous letter that includes the impact of the May 5 update—the update does not change the proposed restructuring’s impact on governance safeguards 4–6. And profit caps (governance safeguard 3) are now explicitly removed under the restructuring plan.³

Governance Safeguards

Status Quo

Proposed Restructuring

Updated Proposed Restructuring

1. Profit motives are subordinate to charitable purpose

Yes

No by default

2. Leadership has a fiduciary duty to advance the charitable purpose, enforceable by the attorneys general

Yes

No by default

3. Investor profits are capped, with above-cap profits owned by the nonprofit

Yes

Rumored no

4. Majority independent board commitment

Yes

Unknown

5. AGI, when developed, belongs to the nonprofit for the benefit of humanity

Yes

No by default

6. Stop-and-assist commitment from Charter

Yes

Unknown

Table 1. Governance safeguards at stake in original proposed restructuring and May 5 update to the proposed restructuring

Most importantly—and the focus of this letter—the updated proposal does not adequately protect governance safeguards 1 and 2, which are collectively about whether OpenAI would continue to have a legally enforceable obligation to advance the charitable mission above all else. This is true for three reasons:

Different fiduciary duties. The directors of the proposed Delaware public benefit corporation (hereafter “OpenAI-PBC”) would not have a primary fiduciary duty to advance OpenAI’s charitable mission above all else, unless OpenAI-PBC’s default obligations are modified in its certificate of incorporation, as is the case today in the operating agreement of OpenAI’s commercial entity (hereafter “OpenAI-LLC”).

Insufficient nonprofit control. As a controlling shareholder, the board of OpenAI’s nonprofit entity (hereafter “OpenAI-nonprofit”) would not have sufficient powers to ensure the board of OpenAI-PBC advances OpenAI’s charitable mission above all else, in contrast to the comprehensive management control the nonprofit board has today.

Inadequate enforceability. Because your authority as Attorneys General to safeguard the charitable mission extends only to that of OpenAI-nonprofit’s board, if the nonprofit board’s authority is insufficient, then so is your oversight authority.

We conclude by offering concrete suggestions for a version of the updated proposed restructuring that would address more of our concerns.

I. What is new in the updated proposal

The updated proposed restructuring is identical in most respects to the original proposal. Under both the original and updated plans, OpenAI-LLC would convert into OpenAI-PBC. The only publicly stated difference between the two plans is that under the updated proposal, OpenAI-nonprofit would have some form of “control” over OpenAI-PBC.⁴

OpenAI has not publicly provided information about the type of “control” OpenAI-nonprofit would have over OpenAI-PBC. OpenAI has not claimed that the nonprofit would be a majority shareholder, stating only that it would be a “large shareholder of the PBC.”⁵ OpenAI-nonprofit could have majority voting control without being a majority shareholder if it received special voting rights, as was rumored to be under consideration earlier this year.⁶ We assume below that OpenAI-nonprofit would have voting control of OpenAI-PBC’s board in some way.⁷ What such control would entail appears to be unsettled, however. For example, credible reporting states that it has not yet been decided whether OpenAI-nonprofit’s board would have the power to fire OpenAI-PBC’s directors or executives.⁸

II. By default, the updated proposal would not create a legally enforceable obligation to advance the charitable mission above all else

Under the current structure, all commercial interests are explicitly subordinate to OpenAI’s mission and Charter.⁹ And importantly, OpenAI’s adherence to the mission and Charter is enforceable by you, the Attorneys General of California and Delaware.

Two components of OpenAI’s current structure combine to create its legally enforceable obligation to advance the charitable mission above all else: (i) OpenAI-LLC has contractually modified its fiduciary duties to match those of OpenAI-nonprofit, specifically, to put the mission and Charter first; and (ii) OpenAI-nonprofit has full management control over OpenAI-LLC, ensuring the board has the authority necessary to discharge its fiduciary duties. And because you each have authority over the decisions of the OpenAI-nonprofit board, you have the power to safeguard OpenAI’s charitable mission.

As discussed in this section, these components would not, by default, exist under the updated proposed restructuring, and therefore OpenAI’s proposal would not preserve the legally enforceable obligation to advance the charitable mission above all else. The following section suggests modifications to the default implementation that would address more of our concerns.

1. OpenAI-PBC’s directors would not have a fiduciary duty to advance the charitable mission over investor interests

Under the current structure, OpenAI-LLC must advance OpenAI’s charitable mission and Charter above all else. OpenAI created this duty by contract, in the LLC operating agreement. As the LLC operating agreement states:

The Company exists to advance OpenAI, Inc.’s [the nonprofit’s] mission of ensuring that safe artificial general intelligence is developed and benefits all of humanity. The Company’s duty to this mission and the principles advanced in the OpenAI, Inc. Charter take precedence over any obligation to generate a profit.¹⁰

OpenAI’s own website prominently highlights that the “primacy of the mission above all is encoded in the operating agreement of the for-profit, which every investor and employee is subject to.”¹¹ OpenAI viewed the inclusion of these terms in the operating agreement as sufficiently important to its current structure that it excerpted relevant passages from the operating agreement in its announcement of the 2019 restructuring.¹²

By contrast, OpenAI has said nothing about OpenAI-PBC’s directors and officers owing a primary fiduciary duty to OpenAI’s charitable mission and Charter under any of its restructuring proposals.

OpenAI claims that OpenAI-PBC would have a public benefit goal that mirrors OpenAI-nonprofit’s charitable purpose: to ensure artificial general intelligence is developed safely and for the benefit of humanity.¹³ But by default, OpenAI-PBC’s directors would be required only to “balance” its public benefit goal against the pecuniary interests of shareholders in making its decisions.¹⁴ A PBC’s obligation to its public benefit goal is toothless in practice, however. Under Delaware law, only significant shareholders are able to enforce a PBC’s public benefit mission, and that has never happened in any reported case since the Delaware public benefit corporation law was passed over a decade ago.¹⁵

Whether OpenAI-nonprofit has a controlling voting interest in OpenAI-PBC has no bearing on the fiduciary duties of OpenAI-PBC’s board. And the nonprofit’s directors cannot require OpenAI-PBC’s directors to adhere to the nonprofit board’s fiduciary duties if those duties are different from the duties of OpenAI-PBC’s directors.¹⁶

2. OpenAI-nonprofit's board would have substantially less control than it has today

Under the current structure, OpenAI-nonprofit has full management control over OpenAI-LLC. OpenAI-nonprofit “wholly owns and controls” an intermediary (OpenAI GP LLC),¹⁷ through which it manages OpenAI-LLC pursuant to an LLC operating agreement.¹⁸ As OpenAI explains on its website:

[T]he for-profit subsidiary is fully controlled by the OpenAI Nonprofit. We enacted this by having the Nonprofit wholly own and control a manager entity (OpenAI GP LLC) that has the power to control and govern the for-profit subsidiary.¹⁹

A controlling voting interest in OpenAI-PBC, by itself, would not give OpenAI-nonprofit nearly the same level of control it has today. As the Delaware Supreme Court has noted:

Shareholders’ control is often latent and indirect in form. Corporate law itself allocates to shareholders only the power to elect directors, and under some circumstances, to remove directors once elected, and to adopt or reject fundamental transactions proposed by directors. Holding a majority of voting power does not in itself place a shareholder in a position of active control.²⁰

OpenAI-nonprofit’s powers as a controlling shareholder would not, by default, include the exclusive right to “control and govern” OpenAI-PBC’s day-to-day operations.²¹ As a controlling shareholder, the most OpenAI-nonprofit might be able to do when faced with a gross undermining of the mission is fire the directors of OpenAI-PBC—and according to press coverage, it is apparently unclear whether it will even have that power.²²

3. You, as Attorneys General, would have limited enforcement oversight

As the Attorneys General of OpenAI-nonprofit’s state of incorporation and the location where its charitable assets are held, you have the authority and responsibility to protect OpenAI-nonprofit’s charitable mission and assets. Because under the current structure, the board of OpenAI-nonprofit has complete and exclusive management control over the commercial entity—OpenAI-LLC—you also have the authority and responsibility to ensure OpenAI-LLC does not subvert OpenAI’s charitable mission.

By contrast, under the updated proposed restructuring, OpenAI-nonprofit would have substantially less control over the commercial entity—OpenAI-PBC—and likely insufficient control to fully safeguard the charitable mission. Accordingly, so would you, as you lack direct authority over a PBC board’s decision to prioritize profit over purpose, short of criminal activity. If OpenAI-PBC’s board failed to uphold its fiduciary duties to the charitable mission, only shareholders would have recourse.²³

III. A version of OpenAI’s updated proposal that would address more of our concerns

Below are concrete suggestions for how OpenAI could implement its restructuring proposal in a manner more consistent with its charitable mission. Suggestion (1) addresses OpenAI’s most foundational obligation, as any restructuring that demotes the role of the charitable mission cannot possibly advance the charitable mission. Suggestions 2(a) and (b) are independent means to ensure that OpenAI-PBC’s primary duty to the charitable mission and Charter is meaningfully enforceable. We respectfully request that you require OpenAI to implement suggestion (1) and either of suggestions (2)(a) or (2)(b).

1. Include a primary fiduciary duty to OpenAI’s charitable mission and Charter in OpenAI-PBC’s certificate of incorporation.

OpenAI-PBC’s certificate of incorporation should explicitly and unambiguously state that the company’s officers and directors owe their primary fiduciary duty to OpenAI’s charitable mission and Charter²⁴ and that all other interests—including those of shareholders—are subordinate. The commitments in the certificate of incorporation should be at least as detailed and robustly favorable to the charitable mission as the commitments in OpenAI-LLC’s operating agreement.²⁵

2(a).Give the OpenAI-nonprofit board powers over OpenAI-PBC sufficient to ensure the OpenAI-PBC board upholds its primary fiduciary duty to the charitable mission and Charter.

By contract, OpenAI should ensure OpenAI-nonprofit has at least the powers granted in OpenAI-LLC’s operating agreement. The most fundamental power that should be explicitly granted is the power to fire executives and directors of OpenAI-PBC. More generally, we reiterate the requests we made at the end of our April 17 letter regarding ensuring the board has the necessary independence, resources, information, and will to discharge its fiduciary duties.²⁶ These powers must be durable and protected from amendment or dilution.

2(b). Alternatively, include an enforcement regime in OpenAI-PBC’s certificate of incorporation.

Giving OpenAI-nonprofit more control over OpenAI-PBC is important to ensure that OpenAI-PBC’s primary duty to the charitable mission and Charter is enforceable by the Attorneys General. Absent giving OpenAI-nonprofit this level of control, OpenAI-PBC should provide for an alternative enforcement regime to provide oversight at least as independent and robust as the oversight you, the Attorneys General of California and Delaware, currently provide.

IV. Conclusion

We are encouraged by OpenAI’s May 5 update to its proposed restructuring as it indicates that OpenAI-nonprofit’s board is open minded and responsive to external concerns. Although the updated plans do not yet address our concerns, they highlight a potential path forward: a way in which OpenAI could simplify its capital structure while continuing to protect the primacy of its charitable mission.

This letter does not discuss the proposed abandonment of OpenAI’s profit caps or its current commitment that artificial general intelligence—when OpenAI creates it—will belong exclusively to the nonprofit for the benefit of humanity. Abandoning these commitments would effectively transfer potentially extraordinary future wealth and power from the public to OpenAI’s investors. We do not mean to minimize the significance of these proposed changes, but rather to underscore the singular importance of ensuring that OpenAI continues to have a legally enforceable obligation to advance the charitable mission above all else.

Respectfully submitted,

Page Hedley

OpenAI 2017-2018

Page Hedley

OpenAI 2017-2018

Page Hedley

OpenAI 2017-2018

Tyler Whitmer