5 ms·

how is it legally possible to go from non-profit to profit? People who donated time/resources originally, if not happy about it, can't sue for misleading them?

PeterisP 6y ago
The organization is not required to exist forever. The nonprofit has restrictions to spend the donated resources appropriately to the goals, but once they're spent properly, that's it, there's no ongoing obligation. If a company was funded by some large pile of cash, spent half of it, and wanted to divert the other half to something else, then your argument would be valid. But if they get a stream of donations every month, spend all of it every month, and now some donors want to stop funding the old legal entity and start funding a different one, there's nothing preventing the donors from doing so. One way to do that is to establish a new organization, transfer any deals from any partners who want to cooperate to the new organization (no obstacle since all three parties - oldcorp, newcorp and partner - agree). Buy any relevant assets including branding and such from the old one (this would need to be at a fair market value, but you likely don't need many of them), spend all the money at the old company (most likely on salaries for the employees doing whatever the goals were), liquidate the old entity and move on.
- chii 6y ago
  But the intellectual assets created with the donated funding didn't cease to exist. It seems the donors don't have a say in who gets to own the intellectual asset in a new entity. Sounds like bait and switch to me.
  - SergeAx 6y ago
    Donors are not shareholders, they are not eligible to any outcomes of company's activity. That's an unobvious quirk, but it's there.
  - jlokier 6y ago
    If the non-profit's constitution said it could not sell the intellectual assets created from its activity, that might prevent a new for-profit from acquiring them (even a subsidiary of the non-profit), except on licensed terms. I don't know of any non-profit which has a condition like that in their constitution. However, they do often have an "asset lock", which would require assets are sold at fair market value, not given away, profits are not distributed etc. Seems to me, an "intellectual property asset lock" could be constructed along similar lines, if people really wanted to. It might be a bad idea, though, if the non-profit folds, or would benefit from being restructured. Something allowing contribution to Open Invention Network or similar might be better for the long term.
- sanxiyn 6y ago
  Explanation at https://openai.com/blog/openai-lp/ https://openai.com/blog/openai-lp/ is pretty clear. OpenAI profit is controlled by OpenAI nonprofit, OpenAI nonprofit is not liquidated. The structure is actually in many ways similar to Mozilla.
- rizpanjwani 6y ago
  Are there any existing licenses or binding agreements that a non-profit can subscribe to that basically says the organization and all its assets, inventions, etc. will in perpetuity be a non-profit? Otherwise it seems to me like a breach of an implied understanding. Anybody could just start a non-profit, get well-meaning people to help out for free, and then when it becomes lucrative, just change its status.
  - radu_floricica 6y ago
    Sure, but that's usually a winning scenario. It means whatever they're doing is successful enough that it doesn't require donations. In this case people were supporting AI research. Well... it worked :) GPT-3 is likely to open the AI chapter in history books. For another example: you support cancer research and they find a cure. You can't expect everything else (trials, approval process, manufacture, distribution) to work on a donation model as well. I mean, probably there are 15 year olds who'd seriously ask "why not", but leaving them aside - going commercial means you won.
sanxiyn 6y ago
As I understand, it is not possible. Original OpenAI non-profit probably lingers on as a ghost.

PeterisP 6y ago

The organization is not required to exist forever. The nonprofit has restrictions to spend the donated resources appropriately to the goals, but once they're spent properly, that's it, there's no ongoing obligation. If a company was funded by some large pile of cash, spent half of it, and wanted to divert the other half to something else, then your argument would be valid. But if they get a stream of donations every month, spend all of it every month, and now some donors want to stop funding the old legal entity and start funding a different one, there's nothing preventing the donors from doing so. One way to do that is to establish a new organization, transfer any deals from any partners who want to cooperate to the new organization (no obstacle since all three parties - oldcorp, newcorp and partner - agree). Buy any relevant assets including branding and such from the old one (this would need to be at a fair market value, but you likely don't need many of them), spend all the money at the old company (most likely on salaries for the employees doing whatever the goals were), liquidate the old entity and move on.

chii 6y ago
But the intellectual assets created with the donated funding didn't cease to exist. It seems the donors don't have a say in who gets to own the intellectual asset in a new entity. Sounds like bait and switch to me.
- SergeAx 6y ago
  Donors are not shareholders, they are not eligible to any outcomes of company's activity. That's an unobvious quirk, but it's there.
- jlokier 6y ago
  If the non-profit's constitution said it could not sell the intellectual assets created from its activity, that might prevent a new for-profit from acquiring them (even a subsidiary of the non-profit), except on licensed terms. I don't know of any non-profit which has a condition like that in their constitution. However, they do often have an "asset lock", which would require assets are sold at fair market value, not given away, profits are not distributed etc. Seems to me, an "intellectual property asset lock" could be constructed along similar lines, if people really wanted to. It might be a bad idea, though, if the non-profit folds, or would benefit from being restructured. Something allowing contribution to Open Invention Network or similar might be better for the long term.
sanxiyn 6y ago
Explanation at https://openai.com/blog/openai-lp/ https://openai.com/blog/openai-lp/ is pretty clear. OpenAI profit is controlled by OpenAI nonprofit, OpenAI nonprofit is not liquidated. The structure is actually in many ways similar to Mozilla.
rizpanjwani 6y ago
Are there any existing licenses or binding agreements that a non-profit can subscribe to that basically says the organization and all its assets, inventions, etc. will in perpetuity be a non-profit? Otherwise it seems to me like a breach of an implied understanding. Anybody could just start a non-profit, get well-meaning people to help out for free, and then when it becomes lucrative, just change its status.
- radu_floricica 6y ago
  Sure, but that's usually a winning scenario. It means whatever they're doing is successful enough that it doesn't require donations. In this case people were supporting AI research. Well... it worked :) GPT-3 is likely to open the AI chapter in history books. For another example: you support cancer research and they find a cure. You can't expect everything else (trials, approval process, manufacture, distribution) to work on a donation model as well. I mean, probably there are 15 year olds who'd seriously ask "why not", but leaving them aside - going commercial means you won.

sanxiyn 6y ago

As I understand, it is not possible. Original OpenAI non-profit probably lingers on as a ghost.