4 ms·

> to buy the nonprofit that controls OpenAI What does it mean to buy a nonprofit? Who owns it now? Does anyone?

mcshicks 2y ago
Exactly what I want know! A non profit is a corporation for public benefit. They bylaws state how the board gets elected, but there is no such thing as voting shares. So there is no owner. When you close a non profit you have to disperse the assets to another entity that supports the non profits mission statement.
bjackman 2y ago
Yeah this is another question I had and another source of frustration with the journalists that write these pieces. Either they know more about this stuff than me and it's their job to predict that gap and explain this key detail... Or they don't know more than me so it's their job to be curious about it! The quotes and stuff just strike me as so lazy. Why are you telling me that a thing happened and then not even taking 3 sentences to scratch the surface of what that thing actually means? I guess they have to pump stories like this out in just a few minutes...
throwup238 2y ago
Nonprofits generally have to break out unrelated business income [1] into for-profit companies that pay tax and pass the post-tax profit to the non-profit. In this case OpenAI the nonprofit owns OpenAI Global, LLC which is the entity that operates their API/ChatGPT and receives the investments from Microsoft et al. Other examples include Mozilla Foundation and Mozilla Corporation, which receives the payments from Google for default search engine placement and hires Firefox engineers, and the Smithsonian museum gift shop. It’s a very common corporate structure for nonprofits that run some kind of business because it derisks accounting and management. Musk is offering to buy the forprofit from the nonprofit, which would mean a $97.4 billion endowment for the latter to carry out their mission. It’s not necessarily a bad deal because it converts an optimistic VC valuation into hard assets, unless the rumored new round at a $300 billion valuation with Softbank is true. [1] https://www.irs.gov/charities-non-profits/unrelated-business-income-tax https://www.irs.gov/charities-non-profits/unrelated-business...
- mcshicks 2y ago
  Honest question. What's happens to Microsoft's investment then?
  - throwup238 2y ago
    That depends entirely on the final contracts they signed with OpenAI Global, LLC and I think there have been at least two deals so far (and latter ones might have amended the previous ones). Based on their blog post [1] and various rumors in the press, it sounds like Microsoft has some contingencies in place. I assume their investments will just convert to hard equity in case of a sale (if they haven’t already). [1] https://openai.com/index/why-our-structure-must-evolve-to-advance-our-mission/ https://openai.com/index/why-our-structure-must-evolve-to-ad...
- Ajedi32 2y ago
  > Musk is offering to buy the forprofit from the nonprofit But that's not what the article says. It specifically says he's offering "to buy the nonprofit that controls OpenAI", not the for-profit that it owns. That's why I'm confused.
  - throwup238 2y ago
    I think the journalist that originally reported the story for the Wall Street Journal, that got sent the press release, is just misinformed about nonprofits and that has been parroted by every downstream outlet. It’s a pattern I’ve noticed a lot with reporting on OpenAI over the last year (and tons in HN comments any time the topic comes up). Either that or Musk has a really bad lawyer or this is a publicity stunt. There is a process to turn a nonprofit back into a forprofit but it’s very complicated, probably requires dissolution of the entity altogether, would almost certainly involve California regulators, and might require that the nonprofit divest its assets to a different nonprofit (which would defeat the purpose since OpenAI Global likely has all the IP).

Exactly what I want know! A non profit is a corporation for public benefit. They bylaws state how the board gets elected, but there is no such thing as voting shares. So there is no owner. When you close a non profit you have to disperse the assets to another entity that supports the non profits mission statement.

bjackman 2y ago

Yeah this is another question I had and another source of frustration with the journalists that write these pieces. Either they know more about this stuff than me and it's their job to predict that gap and explain this key detail... Or they don't know more than me so it's their job to be curious about it! The quotes and stuff just strike me as so lazy. Why are you telling me that a thing happened and then not even taking 3 sentences to scratch the surface of what that thing actually means? I guess they have to pump stories like this out in just a few minutes...

throwup238 2y ago

Nonprofits generally have to break out unrelated business income [1] into for-profit companies that pay tax and pass the post-tax profit to the non-profit. In this case OpenAI the nonprofit owns OpenAI Global, LLC which is the entity that operates their API/ChatGPT and receives the investments from Microsoft et al. Other examples include Mozilla Foundation and Mozilla Corporation, which receives the payments from Google for default search engine placement and hires Firefox engineers, and the Smithsonian museum gift shop. It’s a very common corporate structure for nonprofits that run some kind of business because it derisks accounting and management. Musk is offering to buy the forprofit from the nonprofit, which would mean a $97.4 billion endowment for the latter to carry out their mission. It’s not necessarily a bad deal because it converts an optimistic VC valuation into hard assets, unless the rumored new round at a $300 billion valuation with Softbank is true. [1] https://www.irs.gov/charities-non-profits/unrelated-business-income-tax https://www.irs.gov/charities-non-profits/unrelated-business...

mcshicks 2y ago
Honest question. What's happens to Microsoft's investment then?
- throwup238 2y ago
  That depends entirely on the final contracts they signed with OpenAI Global, LLC and I think there have been at least two deals so far (and latter ones might have amended the previous ones). Based on their blog post [1] and various rumors in the press, it sounds like Microsoft has some contingencies in place. I assume their investments will just convert to hard equity in case of a sale (if they haven’t already). [1] https://openai.com/index/why-our-structure-must-evolve-to-advance-our-mission/ https://openai.com/index/why-our-structure-must-evolve-to-ad...
Ajedi32 2y ago
> Musk is offering to buy the forprofit from the nonprofit But that's not what the article says. It specifically says he's offering "to buy the nonprofit that controls OpenAI", not the for-profit that it owns. That's why I'm confused.
- throwup238 2y ago
  I think the journalist that originally reported the story for the Wall Street Journal, that got sent the press release, is just misinformed about nonprofits and that has been parroted by every downstream outlet. It’s a pattern I’ve noticed a lot with reporting on OpenAI over the last year (and tons in HN comments any time the topic comes up). Either that or Musk has a really bad lawyer or this is a publicity stunt. There is a process to turn a nonprofit back into a forprofit but it’s very complicated, probably requires dissolution of the entity altogether, would almost certainly involve California regulators, and might require that the nonprofit divest its assets to a different nonprofit (which would defeat the purpose since OpenAI Global likely has all the IP).