OpenAI recently secured $6.6 billion from investors — but there’s a catch. In raising the money, the company reportedly promised investors that it would abandon its current corporate structure within two years, becoming a public-benefit corporation instead. This presents a thorny problem: to do so, someone needs to compensate OpenAI’s non-profit, which currently controls the company. Recent reports suggest that OpenAI plans to give the non-profit a stake in the for-profit worth around $37.5 billion. But is that fair?

Legally, “OpenAI” is several interlocking organisations. At the top is a charitable non-profit, whose board of directors oversee everything. At the bottom, a for-profit LLC holds the assets, such as the intellectual property to OpenAI’s models. Investors and employees, rather than owning traditional equity stakes in the company, instead own profit-sharing interests in the LLC. That entitles them to a portion of the LLC’s returns, capped at 100x their original stake. Any profit above that 100x cap flows back to the non-profit.

Assets owned by a charitable non-profit are legally required to serve its charitable purpose. As OpenAI transitions to a traditional for-profit, investors will reportedly get a traditional equity stake, and the profit cap will be removed — in effect taking assets away from the non-profit. To buy those assets for private gain, the buyer needs to pay full market value. In this case, that will reportedly happen by giving the non-profit an equity stake in the for-profit. But while OpenAI as a whole is worth $157 billion, it’s not clear what the value of the non-profit itself is, as we don’t know what exactly it owns. Even valuation experts can’t pinpoint whether the non-profit is owed closer to $1 billion or $100 billion.

The biggest clue comes from OpenAI’s recent tax filing, which claims that OpenAI does not have any “controlled entities,” as defined by the tax code. According to Rose Chan Loui, the director of UCLA Law's non-profit program, this likely means that the non-profit has the right to no more than 50% of the company’s future profits. If that alone were the basis for its share of the for-profit's value, that would cap the non-profit's share of the valuation at $78.5 billion.

However, despite owning a minority stake, the non-profit has the legal right to control the company. According to UCLA law professor Jill Horwitz, OpenAI’s legal arrangement was “very carefully structured” to protect the non-profit’s ultimate control of the for-profit company. Loui concurred, saying that the unusual commitments made through the operating agreements ensure that the non-profit’s purpose — producing AI that “will benefit the public” —  is prioritised above profit-making goals. 

That control, despite seemingly being weakened after last year’s failed ouster of Sam Altman, might still be the non-profit’s biggest asset. Michael Labriola, a partner at Wilson Sonsini who advised Stability AI on its recent funding round, told Transformer that removing the charity’s control would significantly improve OpenAI’s value to investors. Investors’ desire to remove that control certainly suggests they value it highly: if OpenAI does not change its structure within two years, it must repay the $6.6 billion plus 9% interest.

Yet experts disagree on whether the charity must be compensated for giving up what’s potentially its most valuable asset. There is no legal obligation for any buyout to compensate the non-profit for this right of control separately from the non-profit's share of the valuation, according to Karen Blackistone, general counsel at investment firm Hangar Management. While the non-profit should benefit from the change in control, she said, “from the reports, it's not entirely clear whether that will happen or not.” On the other hand, Loui and Horwitz believe there is a legal obligation to compensate the non-profit for everything of value it loses, including the loss of control and dedication to charitable purposes. 

Resolving this will probably happen in the valuation process. But there are concerns that the non-profit’s board of directors might not fight very hard to protect its interests during that process. In an ideal world, the charity’s board would bring in valuation lawyers to argue it out with the for-profit’s and investors’ lawyers, until they agree on how to divvy up the assets. But such an approach seems unlikely with the current board makeup. “I think the common understanding is they're friendly to Sam Altman and the ones who were trying to slow things down or protect the non-profit purpose have left,” Loui said.

The fact that this conversion is happening at all suggests that the non-profit may have already lost control, Loui speculated. “There’s just too much third-party for-profit investment to sustain this model.” Perhaps the best the non-profit can hope for, she said, is to “take the money and run.” If the restructuring goes ahead, the non-profit would reportedly use its new funds to continue supporting AI research, funded by selling its shares in the for-profit or using them as collateral. 

But the elephant in the room is enforcement. OpenAI’s board of directors is legally required to uphold the best interests of the non-profit. If they fail to do so, California Attorney General Rob Bonta can step in and sue the company. Some think that he might act. But that’s far from guaranteed. “When you’re talking about numbers like $150 billion,” Horwitz warned, “the law has a way of getting weak.”

Disclosure: The author’s partner works at Google DeepMind.