[aduffy]

The "coup by MSFT" conspiracy theory made no sense. Microsoft has an insanely good deal with OpenAI:

    * Exclusive access to resell OpenAI's technology and keep nearly all of that revenue for themselves, both cloud and services
    * Receive 75% of OpenAI's profits up to $1 trillion

All they had to do is not rock the boat and let the golden goose keep laying eggs. A massive disruption like this, so soon after DevDay would not fit that strategy.

My guess at this point is financial malfeasance, either failing to present a deal to the board or OpenAI has been in financial straits and he was covering it up.

[IAmNotACellist]

OpenAI shouldn't even be making a profit, as it's a 501(c)3 charity. The whole umbrella for-profit corp they formed when they became popular should be illegal, and is clearly immoral.

[quickthrowman]

You have it backwards, the not for profit entity owns the for profit entity. From Wikipedia:

> OpenAI is an American artificial intelligence (AI) organization consisting of the non-profit OpenAI, Inc.[4] registered in Delaware and its for-profit subsidiary corporation OpenAI Global, LLC.[5]

IKEA [0] and Rolex [1] are structured in a similar manner, although different since they’re not US based.

[0] https://en.m.wikipedia.org/wiki/Stichting_INGKA_Foundation

[1] https://en.m.wikipedia.org/wiki/Hans_Wilsdorf#Hans_Wilsdorf_...

[goodluckchuck]

What’s the point of the subsidiary?

Nonprofits can already raise funds by e.g. selling T-Shirts, baked goods, ai services, etc…

[next_xibalba]

It is hard to attract multi-billion dollar investments and attract elite AI talent when competing with for-profits. This was the stated reason and makes a lot of sense. The comp packages for elite AI talent is now claimed to be in the range of $10M.

[jltsiren]

To maintain a clear separation between for-profit and non-profit activities. If a non-profit operates in a market with for-profit competitors, tax authorities may start considering it a for-profit organization, making all of its income taxable.

And maybe to allow choosing the right people for the right job. If the non-profit has an ideological purpose, its leadership should probably reflect that. At the same time, the for-profit subsidiary probably works better under professional management.

[wmf]

If a nonprofit has mostly revenue and few donations (Mozilla) the IRS revokes their tax exemption. OpenAI could not have done the Microsoft deal as a nonprofit.

[dragonwriter]

> What’s the point of the subsidiary

Closing the huge fundraising gap OpenAI had as a nonprofit by returning profits from commercial efforts instrumental to, but distinct from, the nonprofits charitable purpose, without sacrififing any governance or control of the subordinate entity.

[blackoil]

Lol, 10 billion dollars of cookies and t-shirts. They'll have to be bigger than Nestle and Zara. To sell AI services, they need to build it and for that they need the money.

[Sosh101]

Sounds perverse somehow.

[bastawhiz]

It's literally the exact corporate structure of Mozilla.

[sho_hn]

And Bosch, more or less:

> Robert Bosch GmbH, including its wholly owned subsidiaries, is unusual in that it is an extremely large, privately owned corporation that is almost entirely (92%) owned by a charitable foundation. Thus, while most of the profits are invested back into the corporation to build for the future and sustain growth, nearly all of the profits distributed to shareholders are devoted to humanitarian causes.

> [...] Bosch invests 9% of its revenue on research and development, nearly double the industry average of 4.7%.

(Source: Wikipedia)

I always considered this a wonderful idea for a tech giant.

[falserum]

Note: this structure is for tax purposes. In the spirit of “Own nothing, control everything”.

[gumby]

And IKEA

[asmithmd1]

And Bose. MIT, the nonprofit owns 100% of the for profit company

[moralestapia]

Lol, is this supposed to be an argument in favor of that structure?

Have you read any news about Mozilla's budget in the past 10 years or so?

[Intralexical]

> Have you read any news about Mozilla's budget in the past 10 years or so?

Revenue/Expenses/Net Assets

2013: $314m/$295m/$255m

2018: $450m/$451m/$524m

2021: $600m/$340m/$1,054m

(Note: "2017 was an outlier, due in part to changes in the search revenue deal that was negotiated that year." 2019 was also much higher than both 2018 and 2020 for some reason.)

2018 to 2021 also saw their revenue from "Subscription and advertising revenue"— Representing their Pocket, New Tab, and VPN efforts to diversify away from dependence on Google— Increase by over 900%, from $5m to $57m.

https://foundation.mozilla.org/en/who-we-are/public-records/

Seriously, Mozilla gets shat on all the time, presumably because they're one of the few sources of hope and therefore disappointment in an overall increasingly problematic Internet landscape, and I wish they would be bigger too, but they're doing fine all things considered.

Certainly I wouldn't say their problems are due to this particular apsect of their legal structure.

[numbsafari]

Sounds perverse somehow.

[belter]

Preverse it is: "IKEA’s 15 years of tax evasion and fraud via the Netherlands" - https://www.europarl.europa.eu/doceo/document/E-9-2021-00517...

[dev1ycan]

It is but that's capitalism, the alternative is to have what happens with most corporations where their majority shareholder is blackrock/vanguard etc, a basically souless investment conglomerate, whose majority shareholder is the other of blackrock/vanguard, etc. and then the 3rd biggest and then the fourth so on and so on.

You basically never have a person in the chain actually making decisions for anything but to maximize profit.

[dragonwriter]

> OpenAI shouldn't even be making a profit, as it's a 501(c)3 charity

First, the “OpenAI" whose profits are being discussed isn't a 501(c)3 charity, but a for-profit LLC (OpenAI Global, LLC) with three other organizations between it and the charity.

Second, charities and other nonprofits can make profits (surplus revenue), they just can't return revenues (but they can have for profit subsidiaries that return profit to them and other investors in certain circumstances.)

> The whole umbrella for-profit corp they formed when they became popular should be illegal

The umbrella organization is a charity. The for profit organizations (both OpenAI Global LLC that Microsoft invests in, and its immediate holding company parent which has some other investors besides the charity) are subordinate to the charity and its goals.

> and is clearly immoral.

Not sure what moral principal and analysis you are applying to reach this conclusion.

[HeavyStorm]

> Not sure what moral principal and analysis you are applying to reach this conclusion.

I'm not the parent, but I think it's clear: if I'm a charity, and I have a subordinate that is for profit, then I'm not a charity. I'm working for profit, and disguising myself for the benefits of being a charity.

[dragonwriter]

Not only do I think that that's not obvious, I think its a nonsensical conclusion that really only makes sense as a general statement if you think “for profit” means “to earn revenue” rather than “to return money to an interested party” and invert the parent/subsidiary relationship.

Obviously, the for profit subsidiary ooerates for profit—and where its not a wholly owned subsidiary, it may return some profit to investors that aren't the charity—but neither the subsidiary nor the outside investors getbthe benefits of charity status.

[nativeit]

Profits don’t necessarily have to be used to pad the already overstuffed offshore accounts of wankers. Sometimes organizations choose to use profits to directly fund charitable works. Please wipe up after yourself if this causes your head to explode.

[patmcc]

(I'm going to make some assumptions, just consider the broad point, if you please)

The girl guides are a non-profit; they teach kids about outdoor stuff, community, whatever, they do good works, visit old folks, etc.

If for some legal reasons they had a subsidiary that sold cookies (and made a profit), with all the profits returned to the non-profit parent, I think that'd be ....fine? Right?

[wmf]

If OpenAI hadn't restructured they wouldn't have gotten any money from Microsoft and they would have either run out of money or the team would have left and started ClosedAI. There's no scenario where they developed GPT-3/4 while staying nonprofit.

[theonemind]

I'm guessing that's the point. Ethics required getting out of the 501(c)(3), so the ClosedAI thing sounds more ethical. The 501(c)(3) should've collapsed or not exist.

[thayne]

I'm not really sure what is open about OpenAI.

[BiteCode_dev]

BS, you can still make a deal with microsoft as a non profit, where the deal gives them an exclusive licence to use the result in exchange for financing.

MS doesn't care about how money it cost, they care about the fact it's their ticket back into the fight with google and apple.

[YeBanKo]

Or they would get more money from other donors to build open source models.

[ffgjgf1]

Hard to believe. Nobody is going around throwing billions without any hope of recouping any of it eventually (except the EU of course but giving any money to organizations which actually might be capable of building something useful is against their policy).

[morpheuskafka]

Doesn't Mozilla have an identical structure (which is the inverse of what you said, the nonprofit owns the for-profit--it wouldn't make any sense for a for-profit to own a non-profit due to the no private inurement requirement)?

[dragonwriter]

I think Mozilla Corp is 100% owned by the nonprofit, which is a little different. It allows activity which a nonprofit couldn't directly do, and which has a different tax treatment, but its not returning profits to someone else like OpenAI Global LLC and, as I understand it, its immediate parent holding company both do.

But they are similar in that both involve a nonprofit controlling subordinate for-profit entities.

[jowea]

> it wouldn't make any sense for a for-profit to own a non-profit due to the no private inurement requirement)?

The most obvious example is the corporate foundation, but if we believe the first result from a search you're right in they are controlled but not owned by the for-profit:

> A for-profit cannot own a nonprofit because a nonprofit has no owners. However, a for-profit can set up a structure in which it effectively has control over the nonprofit, subject to applicable laws, including those regarding private inurement, private benefit, and corporate self-dealing

> https://nonprofitlawblog.com/can-a-nonprofit-own-a-for-profi...

[jacooper]

AFAIK that's how OpenAI does it, the non-profit controls the for-profit.

[abigail95]

Illegal to restructure a business?

[AYBABTME]

It's not just "restructuring" a business that's a 501(c)3... to make it a golden goose for MSFT. The whole thing was created to avoid one of Big Tech having a monopoly on AI, and it turns into Big Tech having a monopoly.

Perhaps it's all legal but I think it's very understandable to look at it and think it's a travesty.

[pfannkuchen]

I thought it was created to prevent specifically Google from having a monopoly on AI. So mission accomplished?

[OkayPhysicist]

To restructure a non-profit, that solicited donations, into a for-profit entity? Abso-fucking-lutely.

[sbierwagen]

Easy enough to return the donations.

[arthurcolle]

Money is spent

[username135]

Is this sarcasm?

[EchoReflection]

pretty sure not sarcasm

[speedylight]

I imagine you’d have to either pay back all of the people who donated to the non-profit first, or negotiate a deal with for a stake in the company before you can transform it into a for profit.

[partiallypro]

A non-profit still can't continuously have millions or billions in cash burn with no new income. It's not about profit, it's about surviving at all.

[speedylight]

This is probably a dumb question, but what are some specific scenarios of financial malfeasance that could’ve taken place? Like Altman stealing money from OpenAI?

[fakedang]

That's my unsubstantiated hypothesis. The board going so public of this nature could only mean he was doing some grave shit like embezzlement or intentional financial misreporting.

[disgruntledphd2]

Or the board messed up because they're not strong in corporate governance.

[fakedang]

That's increasingly turning out to be the case.

[irthomasthomas]

Maybe this is the reason?