7 ms·

I know nothing about companies (esp. in the US), but I find it weird that a company can go from non-profit to for-profit? Surely this would be taken advantage o

by phito 2y ago

I know nothing about companies (esp. in the US), but I find it weird that a company can go from non-profit to for-profit? Surely this would be taken advantage of. Can someone explain me how this work?

kupopuffs 2y ago
Time to go open source
csomar 2y ago
I am not a tax specialist but from my understanding a non-profit is a for-profit that doesn't pay dividends. Why would the government care?
- deleted 2y ago
  [deleted]
- jprete 2y ago
  That's not correct, they also have tax advantages and a requirement to fulfill their charter.
- freedomben 2y ago
  No, a non-profit is one in which there are no shareholders. The non-profit entity can own a lot and be extremely successful and wealthy, but it cannot give that money to any shareholders. It can pay out large salaries, but those salaries are scrutinized. It doesn't prevent abuse, and it certainly doesn't prevent some unscrupulous person from becoming extremely wealthy with a non-profit, but it is a little more complicated and limiting than you would think. Also, you get audited with routine regularity and if you are found in violation you lose your tax-exempt status, but you still are not a for-profit.
  - bbor 2y ago
    Yes: non-profits usually have members, not shareholders. And, most importantly: non-profit charities (not the only kind of nonprofit, but presumably what OpenAI was) are legally obligated to operate “for the public good”. That’s why they’re tax exempt: the government is basically donating to them, with the understanding that they’re benefiting the public indirectly by doing so, not just making a few people rich. In my understanding, this is just blatant outright fraud that any sane society would forbid. If you want to start a for-profit that’s fine, but you’d have to give away the nonprofit and its assets, not just roll it over to your own pocketbook. God I hope Merrick Garland isn’t asleep at the wheel. They’ve been trust busting like mad during this administration, so hopefully they’re taking aim at this windmill, too.
    - philwelch 2y ago
      > God I hope Merrick Garland isn’t asleep at the wheel. They’ve been trust busting like mad during this administration, so hopefully they’re taking aim at this windmill, too. Little chance of that as Sama is a big time Democrat fundraiser and donor.
      - bbor 2y ago
        So are Google and Facebook :shrug: Can’t find a good source for both rn but this one has alphabet in the top 50 nationwide for this election: https://www.opensecrets.org/elections-overview/top-organizations https://www.opensecrets.org/elections-overview/top-organizat... edit: and Sam Altman isn’t exactly donating game changing amounts — around $300K in 2020, and seemingly effectively nothing for this election. That’s certainly nothing to sneeze at as an individual politician, but that’s about 0.01% of his net worth (going off Wikipedia’s estimate of $2.8B, not counting the ~$7B of OpenAI stock coming his way). https://www.dailydot.com/debug/openai-sam-altman-political-donations-senators-ai-regulation/ https://www.dailydot.com/debug/openai-sam-altman-political-d...
        philwelch 2y ago
        > So are Google and Facebook When you see any numbers for corporations contributing to political campaigns, that's actually just measuring the contributions from the employees of those corporations. That's why most corporations "donate to both parties"--because they employ both Republicans and Democrats.
  - antaviana 2y ago
    Has OpenAI been profitable so far? If not, is there any subtantial tax that you have to pay in the US as a for-profit organization if you are not profitable?
  - whamlastxmas 2y ago
    I’m not sure extreme wealth is possible with a non-profit. You can pay yourself half a million a year, get incredible kickbacks by the firms you hire to manage the nonprofits investments, have the non-profit hire outside companies that you have financial interests in, and probably some other stuff. But none of these things are going to get you a hundred million dollars out of a non profit. The exception seems to be OpenAI which is definitely going to be netting at least a couple people over a billion dollars, but as Elon says, I don’t understand how or why this is possible
    - freedomben 2y ago
      Yes definitely that is the far majority. I actually had Mozilla and their CEO in mind when I was thinking of "extreme" wealth. Also I've heard some of the huge charities in the US have some execs pulling down many millions per year, but I don't want to name any names because I'm not certain.
      - blendergeek 2y ago
        In the USA, the salaries of execs of non-profits are publicly listed in their form 990s they file with the IRS. Name names. We can look it up.
  - csomar 2y ago
    > No, a non-profit is one in which there are no shareholders. Again, I am not a lawyer but that makes no sense. Otherwise, anyone can claim the non-profit? So clearly there are some beneficial owners out there somehow.
    - blackhawkC17 2y ago
      The nonprofit is controlled by trustees and bound by its charter, not shareholders. Any profit a nonprofit organization makes is retained within the organization for its benefit and mission, not paid out to shareholders.
- brap 2y ago
  Isn’t transferring all of your value to a for-profit company that can pay dividends, kinda the same thing?
- sotix 2y ago
  A non-profit is a company that for accounting purposes does not have shareholders and therefore keeps nothing in retained earnings at the end of the period. The leftover money must be distributed (e.g. as salaries, towards the stated mission, etc.). Their financial statements list net profit for the period and nothing is retained.
  - matwood 2y ago
    The money doesn't have to be used. Many non-profits have very large balance sheets of cash and cash equivalent assets. The money just won't be paid out as dividends to shareholders.
    - sotix 2y ago
      Correct. They carry a net assets balance at the end of the period. But they do not retain earnings because there are no shareholders to pay out.
- moralestapia 2y ago
  Non-profits are tax-exempt, that's why they're carefully[1] regulated. 1: In principle; in practice, well, we'll see with this one!
Havoc 2y ago
That was the point musk was complaining about. In practice it’s doable though. You can just create a new legal entity and move stuff and/or do future value creating activity in the new co. IF everyone is on board with the plan on both sides of the move then that’s totally doable with enough lawyers and accountants
- 0xDEAFBEAD 2y ago
  ICYMI, Elon Musk restarted his lawsuit a month or two ago: https://www.reuters.com/technology/elon-musk-revives-lawsuit-against-sam-altman-openai-nyt-reports-2024-08-05/ https://www.reuters.com/technology/elon-musk-revives-lawsuit... I'm wondering if OpenAI's charter might provide a useful legal angle. The charter states: >OpenAI’s mission is to ensure that [AGI ...] benefits all of humanity. >... >We commit to use any influence we obtain over AGI’s deployment to ensure it is used for the benefit of all, and to avoid enabling uses of AI or AGI that harm humanity or unduly concentrate power. >Our primary fiduciary duty is to humanity. We anticipate needing to marshal substantial resources to fulfill our mission, but will always diligently act to minimize conflicts of interest among our employees and stakeholders that could compromise broad benefit. >... >We are committed to doing the research required to make AGI safe, and to driving the broad adoption of such research across the AI community. >We are concerned about late-stage AGI development becoming a competitive race without time for adequate safety precautions. [...] >... https://openai.com/charter/ https://openai.com/charter/ I'm no expert here, but to me, this charter doesn't appear to characterize OpenAI's behavior as of the year 2024. Safety people have left, Sam has inexplicably stopped discussing risks, and OpenAI seems to be focused on racing with competitors. My question: Is the charter legally enforceable? And if so, could it make sense for someone to file an additional lawsuit? Or shall we just wait and see how the Musk lawsuit plays out, for now?
  - mminer237 2y ago
    It would think it is legally enforceable, but I suspect Kathy Jennings is the only person who has standing to sue over it.
    - 2y ago
moralestapia 2y ago
It's not weird, it's illegal. There's a lot of jurisdiction around preventing this sort of abuse of the non-profit concept. The reason why the people involved are not on trial right now is a bit of a mystery to me, but could be a combination of: * Still too soon, all of this really took shape in the past year or two. * Only Musk has sued them, so far, and that happened last month. * There's some favoritism from the government to the leading AI company in the world. * There's some favoritism from the government to a big company from YC and Sam Altman. I do believe Musk's lawsuit will go through. The last two points are worth less and less with time as AI is being commoditized. Dismantling OpenAI is actually a business strategy for many other players now. This is not good for OpenAI.
- tomp 2y ago
  > Dismantling OpenAI is actually a business strategy for many other players now. Which ones exactly? NVIDIA is drinking sweet money from OpenAI. Microsoft & Apple are in cahoots with it. Meta/Facebook seems happy to compete with OpenAI on a fair playing field. Anthropic lacks the resources. Amazon doesn't seem to care. Google is asleep.
  - moralestapia 2y ago
    >NVIDIA is drinking sweet money from OpenAI. NVIDIA makes money from any company doing AI. I would be surprised if OpenAI was a whole digit percentage of their revenue. >Microsoft & Apple are in cahoots with it. Nope. Apple is using OpenAI to fill holes their current model is not good at. This doesn't sound like a long-term partnership. >Meta/Facebook seems happy to compete with OpenAI on a fair playing field. They want open source models to rule, obliterating proprietary models out of existence, while at it. >Anthropic lacks the resources. Hence why it would be better for them if OpenAI would not exist. It's the same with all other AI companies out there. >Amazon doesn't seem to care. Citation needed, AWS keeps putting out products which are their market leaders, they just don't make a big fuzz about it. >Google is asleep. I'll give you this one. I have no idea why they keep Pichai around.
    - 2y ago
blackeyeblitzar 2y ago
It is going to be taken advantage of. Musk and others have criticized this “novel” method of building a company. If it is legal then it is a puzzling loophole. But another way to look at it is it gives small and vulnerable companies a chance to survive (with different laws and taxes applying to the initial nonprofit). If you look at it as enabling competition against the big players it looks more reasonable.
- entropi 2y ago
  >But another way to look at it is it gives small and vulnerable companies a chance to survive (with different laws and taxes applying to the initial nonprofit). I feel like this is quite a slippery slope, though. Should we also give small companies a right to violate trademarks? Copyright? Kill people? These could also give them a chance to compete against big players.
xwowsersx 2y ago
At first, I thought, “Wow, if companies can start as nonprofits and later switch to for-profit, they’ll exploit the system.” But the more I learned about the chaos at OpenAI, the more I realized the opposite is true. Companies will steer clear of this kind of mess. The OpenAI story seems more like a warning than a blueprint. Why would any future company want to go down this path?
- xiphias2 2y ago
  It's quite simple: the talent pool that had already enough money that they quit their well paying job at a for profit company in part because they wanted to continue working at a non-profit high impact. As OpenAI found its product-market fit, the early visionaries are not needed anymore (although I'm sure the people working there are still amazing)
  - cdchn 2y ago
    I think OpenAI took this play right out of one of its founding donors playbooks. Pretend your company has lofty goals and you can get people to compromise to moral relativism and work superduper hard for you. These people definitely have framed posters with the “If you want to build a ship, don’t drum up the men to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea" quote somewhere in their living places/workspaces.
- insane_dreamer 2y ago
  > Why would any future company want to go down this path? most would happily sell their soul and deal with any mess to reach $150B valuation
m3kw9 2y ago
The NFL used to be a nonprofit and now for profit. OpenAI can use similar routes
- walthamstow 2y ago
  Not an accountant but there are different kinds of nonprofits, OpenAI is a 501c3 (religious/charitable/educational) whereas the NFL was a 501c6 (trade association). Obviously we all think of the NFL as a big money organisation, but it basically just organises the fixtures and the referees. The teams make all the money.
  - FireBeyond 2y ago
    If you want to be pedantic, in legal terms, no, the NFL is a big money org ($13B+/yr in revenue, with a commissioner earning $65M/yr). They pay dividends to the teams, however, yes. But all that revenue (which is distinct from team revenue) is actually legally earned by the NFL itself.
    - walthamstow 2y ago
      65m a year... Wow! Richard Masters, the chief exec of the most watched, most popular sports league in the world is on about 2m a year.

by phito 2y ago

kupopuffs 2y ago

Time to go open source

csomar 2y ago

I am not a tax specialist but from my understanding a non-profit is a for-profit that doesn't pay dividends. Why would the government care?

deleted 2y ago
[deleted]
jprete 2y ago
That's not correct, they also have tax advantages and a requirement to fulfill their charter.
freedomben 2y ago
No, a non-profit is one in which there are no shareholders. The non-profit entity can own a lot and be extremely successful and wealthy, but it cannot give that money to any shareholders. It can pay out large salaries, but those salaries are scrutinized. It doesn't prevent abuse, and it certainly doesn't prevent some unscrupulous person from becoming extremely wealthy with a non-profit, but it is a little more complicated and limiting than you would think. Also, you get audited with routine regularity and if you are found in violation you lose your tax-exempt status, but you still are not a for-profit.
- bbor 2y ago
  Yes: non-profits usually have members, not shareholders. And, most importantly: non-profit charities (not the only kind of nonprofit, but presumably what OpenAI was) are legally obligated to operate “for the public good”. That’s why they’re tax exempt: the government is basically donating to them, with the understanding that they’re benefiting the public indirectly by doing so, not just making a few people rich. In my understanding, this is just blatant outright fraud that any sane society would forbid. If you want to start a for-profit that’s fine, but you’d have to give away the nonprofit and its assets, not just roll it over to your own pocketbook. God I hope Merrick Garland isn’t asleep at the wheel. They’ve been trust busting like mad during this administration, so hopefully they’re taking aim at this windmill, too.
  - philwelch 2y ago
    > God I hope Merrick Garland isn’t asleep at the wheel. They’ve been trust busting like mad during this administration, so hopefully they’re taking aim at this windmill, too. Little chance of that as Sama is a big time Democrat fundraiser and donor.
    - bbor 2y ago
      So are Google and Facebook :shrug: Can’t find a good source for both rn but this one has alphabet in the top 50 nationwide for this election: https://www.opensecrets.org/elections-overview/top-organizations https://www.opensecrets.org/elections-overview/top-organizat... edit: and Sam Altman isn’t exactly donating game changing amounts — around $300K in 2020, and seemingly effectively nothing for this election. That’s certainly nothing to sneeze at as an individual politician, but that’s about 0.01% of his net worth (going off Wikipedia’s estimate of $2.8B, not counting the ~$7B of OpenAI stock coming his way). https://www.dailydot.com/debug/openai-sam-altman-political-donations-senators-ai-regulation/ https://www.dailydot.com/debug/openai-sam-altman-political-d...
      - philwelch 2y ago
        > So are Google and Facebook When you see any numbers for corporations contributing to political campaigns, that's actually just measuring the contributions from the employees of those corporations. That's why most corporations "donate to both parties"--because they employ both Republicans and Democrats.
- antaviana 2y ago
  Has OpenAI been profitable so far? If not, is there any subtantial tax that you have to pay in the US as a for-profit organization if you are not profitable?
- whamlastxmas 2y ago
  I’m not sure extreme wealth is possible with a non-profit. You can pay yourself half a million a year, get incredible kickbacks by the firms you hire to manage the nonprofits investments, have the non-profit hire outside companies that you have financial interests in, and probably some other stuff. But none of these things are going to get you a hundred million dollars out of a non profit. The exception seems to be OpenAI which is definitely going to be netting at least a couple people over a billion dollars, but as Elon says, I don’t understand how or why this is possible
  - freedomben 2y ago
    Yes definitely that is the far majority. I actually had Mozilla and their CEO in mind when I was thinking of "extreme" wealth. Also I've heard some of the huge charities in the US have some execs pulling down many millions per year, but I don't want to name any names because I'm not certain.
    - blendergeek 2y ago
      In the USA, the salaries of execs of non-profits are publicly listed in their form 990s they file with the IRS. Name names. We can look it up.
- csomar 2y ago
  > No, a non-profit is one in which there are no shareholders. Again, I am not a lawyer but that makes no sense. Otherwise, anyone can claim the non-profit? So clearly there are some beneficial owners out there somehow.
  - blackhawkC17 2y ago
    The nonprofit is controlled by trustees and bound by its charter, not shareholders. Any profit a nonprofit organization makes is retained within the organization for its benefit and mission, not paid out to shareholders.
brap 2y ago
Isn’t transferring all of your value to a for-profit company that can pay dividends, kinda the same thing?
sotix 2y ago
A non-profit is a company that for accounting purposes does not have shareholders and therefore keeps nothing in retained earnings at the end of the period. The leftover money must be distributed (e.g. as salaries, towards the stated mission, etc.). Their financial statements list net profit for the period and nothing is retained.
- matwood 2y ago
  The money doesn't have to be used. Many non-profits have very large balance sheets of cash and cash equivalent assets. The money just won't be paid out as dividends to shareholders.
  - sotix 2y ago
    Correct. They carry a net assets balance at the end of the period. But they do not retain earnings because there are no shareholders to pay out.
moralestapia 2y ago
Non-profits are tax-exempt, that's why they're carefully[1] regulated. 1: In principle; in practice, well, we'll see with this one!

Havoc 2y ago

That was the point musk was complaining about. In practice it’s doable though. You can just create a new legal entity and move stuff and/or do future value creating activity in the new co. IF everyone is on board with the plan on both sides of the move then that’s totally doable with enough lawyers and accountants

0xDEAFBEAD 2y ago
ICYMI, Elon Musk restarted his lawsuit a month or two ago: https://www.reuters.com/technology/elon-musk-revives-lawsuit-against-sam-altman-openai-nyt-reports-2024-08-05/ https://www.reuters.com/technology/elon-musk-revives-lawsuit... I'm wondering if OpenAI's charter might provide a useful legal angle. The charter states: >OpenAI’s mission is to ensure that [AGI ...] benefits all of humanity. >... >We commit to use any influence we obtain over AGI’s deployment to ensure it is used for the benefit of all, and to avoid enabling uses of AI or AGI that harm humanity or unduly concentrate power. >Our primary fiduciary duty is to humanity. We anticipate needing to marshal substantial resources to fulfill our mission, but will always diligently act to minimize conflicts of interest among our employees and stakeholders that could compromise broad benefit. >... >We are committed to doing the research required to make AGI safe, and to driving the broad adoption of such research across the AI community. >We are concerned about late-stage AGI development becoming a competitive race without time for adequate safety precautions. [...] >... https://openai.com/charter/ https://openai.com/charter/ I'm no expert here, but to me, this charter doesn't appear to characterize OpenAI's behavior as of the year 2024. Safety people have left, Sam has inexplicably stopped discussing risks, and OpenAI seems to be focused on racing with competitors. My question: Is the charter legally enforceable? And if so, could it make sense for someone to file an additional lawsuit? Or shall we just wait and see how the Musk lawsuit plays out, for now?
- mminer237 2y ago
  It would think it is legally enforceable, but I suspect Kathy Jennings is the only person who has standing to sue over it.
  - 2y ago

moralestapia 2y ago

It's not weird, it's illegal. There's a lot of jurisdiction around preventing this sort of abuse of the non-profit concept. The reason why the people involved are not on trial right now is a bit of a mystery to me, but could be a combination of: * Still too soon, all of this really took shape in the past year or two. * Only Musk has sued them, so far, and that happened last month. * There's some favoritism from the government to the leading AI company in the world. * There's some favoritism from the government to a big company from YC and Sam Altman. I do believe Musk's lawsuit will go through. The last two points are worth less and less with time as AI is being commoditized. Dismantling OpenAI is actually a business strategy for many other players now. This is not good for OpenAI.

tomp 2y ago
> Dismantling OpenAI is actually a business strategy for many other players now. Which ones exactly? NVIDIA is drinking sweet money from OpenAI. Microsoft & Apple are in cahoots with it. Meta/Facebook seems happy to compete with OpenAI on a fair playing field. Anthropic lacks the resources. Amazon doesn't seem to care. Google is asleep.
- moralestapia 2y ago
  >NVIDIA is drinking sweet money from OpenAI. NVIDIA makes money from any company doing AI. I would be surprised if OpenAI was a whole digit percentage of their revenue. >Microsoft & Apple are in cahoots with it. Nope. Apple is using OpenAI to fill holes their current model is not good at. This doesn't sound like a long-term partnership. >Meta/Facebook seems happy to compete with OpenAI on a fair playing field. They want open source models to rule, obliterating proprietary models out of existence, while at it. >Anthropic lacks the resources. Hence why it would be better for them if OpenAI would not exist. It's the same with all other AI companies out there. >Amazon doesn't seem to care. Citation needed, AWS keeps putting out products which are their market leaders, they just don't make a big fuzz about it. >Google is asleep. I'll give you this one. I have no idea why they keep Pichai around.
  - 2y ago

blackeyeblitzar 2y ago

It is going to be taken advantage of. Musk and others have criticized this “novel” method of building a company. If it is legal then it is a puzzling loophole. But another way to look at it is it gives small and vulnerable companies a chance to survive (with different laws and taxes applying to the initial nonprofit). If you look at it as enabling competition against the big players it looks more reasonable.

entropi 2y ago
>But another way to look at it is it gives small and vulnerable companies a chance to survive (with different laws and taxes applying to the initial nonprofit). I feel like this is quite a slippery slope, though. Should we also give small companies a right to violate trademarks? Copyright? Kill people? These could also give them a chance to compete against big players.

xwowsersx 2y ago

At first, I thought, “Wow, if companies can start as nonprofits and later switch to for-profit, they’ll exploit the system.” But the more I learned about the chaos at OpenAI, the more I realized the opposite is true. Companies will steer clear of this kind of mess. The OpenAI story seems more like a warning than a blueprint. Why would any future company want to go down this path?

xiphias2 2y ago
It's quite simple: the talent pool that had already enough money that they quit their well paying job at a for profit company in part because they wanted to continue working at a non-profit high impact. As OpenAI found its product-market fit, the early visionaries are not needed anymore (although I'm sure the people working there are still amazing)
- cdchn 2y ago
  I think OpenAI took this play right out of one of its founding donors playbooks. Pretend your company has lofty goals and you can get people to compromise to moral relativism and work superduper hard for you. These people definitely have framed posters with the “If you want to build a ship, don’t drum up the men to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea" quote somewhere in their living places/workspaces.
insane_dreamer 2y ago
> Why would any future company want to go down this path? most would happily sell their soul and deal with any mess to reach $150B valuation

m3kw9 2y ago

The NFL used to be a nonprofit and now for profit. OpenAI can use similar routes

walthamstow 2y ago
Not an accountant but there are different kinds of nonprofits, OpenAI is a 501c3 (religious/charitable/educational) whereas the NFL was a 501c6 (trade association). Obviously we all think of the NFL as a big money organisation, but it basically just organises the fixtures and the referees. The teams make all the money.
- FireBeyond 2y ago
  If you want to be pedantic, in legal terms, no, the NFL is a big money org ($13B+/yr in revenue, with a commissioner earning $65M/yr). They pay dividends to the teams, however, yes. But all that revenue (which is distinct from team revenue) is actually legally earned by the NFL itself.
  - walthamstow 2y ago
    65m a year... Wow! Richard Masters, the chief exec of the most watched, most popular sports league in the world is on about 2m a year.