3 ms·

How can a non-profit IPO? I know that technically OpenAI is a for-profit company that is owned by a non-profit, but I still don't get it.

swyx 11mo ago
you can IPO the for-profit subsidiary. done before. the main tricky part is resolving the tax issues since as a non profit you are exempt, but obviously a for profit is not exempt from paying taxes
- throwup238 11mo ago
  Mozilla has this same structure (non-profit parent, for-profit subsidiary) because the subsidiary has to pay taxes on the money Google pays to be Firefox's default search engine. As do many gift shops attached to non-profit museums and art galleries.
  - scyzoryk_xyz 11mo ago
    OpenAI - the AGI entity with a gift shop.
  - mdasen 11mo ago
    The difference is that Mozilla’s for-profit arm is owned by the non-profit. The for-profit part of OpenAI is there to make a lot of individuals and for-profit corporations rich. OpenAI’s profit-generating subsidiary isn’t just there to further the non-profit mission like a museum gift shop or Mozilla’s for-profit subsidiary.
    - throwup238 11mo ago
      That’s why this was scrutinized more and the California AG got involved but it’s not that rare either. Novo Nordisk the maker of Ozempic for example IPOd, diluting the Novo Nordisk Foundation’s share (though they still have controlling voting rights due to share classes IIRC) to raise money. SRI International spinoffs often get sold (Siri) or raise money and IPO (Nuance) diluting the nonprofit’s share significantly in the process. A nonprofit that owns a for profit subsidiary is no different than a regular shareholder and can decide that diluting to reward employees or get investors is worth it to grow the value of the whole company.
adastra22 11mo ago
It is being restructured to no longer be a nonprofit, but a for-benefit corporation instead. That is why California's approval was required (and IMO is just as corrupt as it sounds).
- polski-g 11mo ago
  But aren't non profits a federal thing with rules dictated by the IRS? Why is California involved?
  - righthand 11mo ago
    The Usa is divided into states, each with their own legal jurisdictions. Businesses tend to pay taxes to their state. OpenAI is headquartered in San Francisco, California.
  - JumpCrisscross 11mo ago
    > aren't non profits a federal thing with rules dictated by the IRS? Why is California involved? Most states incorporate federal rules for their own exemptions for charities and non-profits. California treating OpenAI to date as a non-profit has revenue implications for Sacramento.
  - wbl 11mo ago
    Because charities are also regulated by states as are all corporations. There is no federal corporate governance statute.
  - mrbabbage 11mo ago
    Corporate law is overwhelmingly state law. Every federally tax exempt entity is a state (or foreign) corporation or other kind of entity, and states (or foreign governments) impose rules on corporations registered in their borders. Plus, many states levy their own corporate taxes. A nonprofit corporation needs to secure tax-exempt status from states as well as the federal government. This is a necessary implication of America's dual-sovereignty system.
  - adastra22 11mo ago
vessenes 11mo ago
There's so, so much misinformation about this out there. For example - every US nonprofit starts as a plain old vanilla C corporation, and then applies for 501(c)3 status which the IRS may or may not grant. It's a privilege to be a nonprofit. The punishment that may be levied on a nonprofit is ... loss of that status and a return to a commercial corporation. That loss of status might have knock-on impacts on things like, say, tax deductions offered to donors, and I guess possibly on corporate income tax to the extent a company's accounting shows a profit. But it's not a thing you're "locked into" somehow and trying to escape. Quite the opposite; it's a thing the Federal government chooses to support financially as a matter of public policy. oAI had a lot of work to do to get recapitalized like it did, but it was not the non-profit status that was the (major) problem. It was (at the least) the investment covenants made with the Microsofts of the world that bound them; the MS deal was the big thing here.
- LudwigNagasena 11mo ago
  A corporation is locked into its nonprofit status due to its articles of incorporation and state law regardless of its federal tax-exempt status.
  - vessenes 11mo ago
    I think it’s generally more accurate to say that charitable assets are likely either locked to charitable purposes or need a fair valuation in case of disposal or wind down. I don’t know all the details here, but I would guess it’s enough of a mess between the parent and the for profit sub that some negotiation was inevitable.

swyx 11mo ago

you can IPO the for-profit subsidiary. done before. the main tricky part is resolving the tax issues since as a non profit you are exempt, but obviously a for profit is not exempt from paying taxes

throwup238 11mo ago
Mozilla has this same structure (non-profit parent, for-profit subsidiary) because the subsidiary has to pay taxes on the money Google pays to be Firefox's default search engine. As do many gift shops attached to non-profit museums and art galleries.
- scyzoryk_xyz 11mo ago
  OpenAI - the AGI entity with a gift shop.
- mdasen 11mo ago
  The difference is that Mozilla’s for-profit arm is owned by the non-profit. The for-profit part of OpenAI is there to make a lot of individuals and for-profit corporations rich. OpenAI’s profit-generating subsidiary isn’t just there to further the non-profit mission like a museum gift shop or Mozilla’s for-profit subsidiary.
  - throwup238 11mo ago
    That’s why this was scrutinized more and the California AG got involved but it’s not that rare either. Novo Nordisk the maker of Ozempic for example IPOd, diluting the Novo Nordisk Foundation’s share (though they still have controlling voting rights due to share classes IIRC) to raise money. SRI International spinoffs often get sold (Siri) or raise money and IPO (Nuance) diluting the nonprofit’s share significantly in the process. A nonprofit that owns a for profit subsidiary is no different than a regular shareholder and can decide that diluting to reward employees or get investors is worth it to grow the value of the whole company.

adastra22 11mo ago

It is being restructured to no longer be a nonprofit, but a for-benefit corporation instead. That is why California's approval was required (and IMO is just as corrupt as it sounds).

polski-g 11mo ago
But aren't non profits a federal thing with rules dictated by the IRS? Why is California involved?
- righthand 11mo ago
  The Usa is divided into states, each with their own legal jurisdictions. Businesses tend to pay taxes to their state. OpenAI is headquartered in San Francisco, California.
- JumpCrisscross 11mo ago
  > aren't non profits a federal thing with rules dictated by the IRS? Why is California involved? Most states incorporate federal rules for their own exemptions for charities and non-profits. California treating OpenAI to date as a non-profit has revenue implications for Sacramento.
- wbl 11mo ago
  Because charities are also regulated by states as are all corporations. There is no federal corporate governance statute.
- mrbabbage 11mo ago
  Corporate law is overwhelmingly state law. Every federally tax exempt entity is a state (or foreign) corporation or other kind of entity, and states (or foreign governments) impose rules on corporations registered in their borders. Plus, many states levy their own corporate taxes. A nonprofit corporation needs to secure tax-exempt status from states as well as the federal government. This is a necessary implication of America's dual-sovereignty system.
- adastra22 11mo ago

vessenes 11mo ago

There's so, so much misinformation about this out there. For example - every US nonprofit starts as a plain old vanilla C corporation, and then applies for 501(c)3 status which the IRS may or may not grant. It's a privilege to be a nonprofit. The punishment that may be levied on a nonprofit is ... loss of that status and a return to a commercial corporation. That loss of status might have knock-on impacts on things like, say, tax deductions offered to donors, and I guess possibly on corporate income tax to the extent a company's accounting shows a profit. But it's not a thing you're "locked into" somehow and trying to escape. Quite the opposite; it's a thing the Federal government chooses to support financially as a matter of public policy. oAI had a lot of work to do to get recapitalized like it did, but it was not the non-profit status that was the (major) problem. It was (at the least) the investment covenants made with the Microsofts of the world that bound them; the MS deal was the big thing here.

LudwigNagasena 11mo ago
A corporation is locked into its nonprofit status due to its articles of incorporation and state law regardless of its federal tax-exempt status.
- vessenes 11mo ago
  I think it’s generally more accurate to say that charitable assets are likely either locked to charitable purposes or need a fair valuation in case of disposal or wind down. I don’t know all the details here, but I would guess it’s enough of a mess between the parent and the for profit sub that some negotiation was inevitable.