What exactly is a public benefit corporation?

A look at OpenAI’s rare, relatively new company structure.

12/27/24 11:31AM

OpenAI confirmed plans to convert its company structure, adopting a for-profit public benefit corporation model. A PBC is a rare, relatively new company type that’s sort of a mix of a nonprofit and a for-profit, in the sense that it’s meant to balance the impetus to maximize shareholder profits with a mission that benefits other stakeholders, like society, the planet, or employees.

OpenAI is a “for-profit, controlled by the non-profit, with a capped profit share for investors and employees.” Under the plan, the for-profit arm would turn into a PBC, with OpenAI’s mission of “ensuring artificial general intelligence (AGI) benefits all of humanity” as its public benefit interest, while the nonprofit would get shares of that PBC.

“The PBC will run and control OpenAI’s operations and business, while the non-profit will hire a leadership team and staff to pursue charitable initiatives in sectors such as health care, education, and science,” the company wrote in a blog post.

For OpenAI, “a key benefit of the PBC structure is its potential to thwart an unwanted acquisition or an activist’s demands,” according to reporting by the Financial Times. That means that, for example, OpenAI investor Microsoft would have a harder time trying to buy OpenAI, and OpenAI would be less likely to run into trouble from activist investors unhappy with the amount of profit it was turning. OpenAI rivals like Elon Musk’s xAI and Anthropic use the PBC structure as well. It would also ease the restrictions it currently faces from its nonprofit board, like those involving fundraising limitations and profit distribution.

As of last year, there were more than 10,000 public benefit corporations in the US, about 15 of which were publicly traded companies, according to Stanford University Press’s “Becoming a Public Benefit Corporation.” Those include Warby Parker, Allbirds, and Lemonade. The book argues that while there are benefits to PBCs, “enforcement mechanisms around benefit corporations are currently too weak to prevent ‘purpose washing.’”

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