The agreement, still subject to regulatory approval, also secures the nonprofit a stake in the PBC valued at more than $100 billion.

The two companies confirmed they have signed a nonbinding memorandum of understanding (MOU) to revise their partnership. “Microsoft and OpenAI have signed a nonbinding memorandum of understanding (MOU) for the next phase of our partnership,” they said in a joint statement. “We are actively working to finalise contractual terms in a definitive agreement.”

The unusual structure allows OpenAI to operate as a commercial enterprise while maintaining its nonprofit mission at the core.

This setup has impacted the company since its creation and famously led to the removal, and swift reinstatement, of CEO Sam Altman in 2023. With the new arrangement, OpenAI’s nonprofit will hold more financial influence than ever before.

Alongside the restructuring, the nonprofit has launched a $50 million grant initiative to support AI literacy, community-driven innovation, and economic opportunity.

Board chairman Bret Taylor said the recapitalisation “would enable us to raise the capital required to accomplish our mission—and ensure that as OpenAI’s PBC grows, so will the nonprofit’s resources, allowing us to bring it to historic levels of community impact.”

Microsoft remains OpenAI’s largest backer and cloud partner, but the company has been actively reducing its dependency. It recently signed a $300 billion cloud deal with Oracle, set to begin in 2027, and partnered with SoftBank on the Stargate data centre project. These moves point to OpenAI building a more independent, multi-cloud future.

The negotiations between OpenAI and Microsoft have not been without challenges. Reports reveal disagreements over intellectual property linked to Windsurf, a coding startup OpenAI once sought to acquire. The deal collapsed, with Windsurf’s team joining Google and Cognition instead.

Meanwhile, Elon Musk’s lawsuit against OpenAI continues to challenge the company’s for-profit transition, accusing it of abandoning its original nonprofit mission. Earlier this year, Musk offered a $97 billion takeover bid, which the board rejected. Ironically, the nonprofit’s stake in the PBC under the new arrangement is worth more than Musk’s proposal.

Other nonprofits, including Encode and The Midas Project, have also criticised the transition, claiming it weakens OpenAI’s founding ideals. The company has responded by issuing subpoenas and alleging its critics are financed by competitors such as Musk and Meta’s Mark Zuckerberg, allegations strongly denied by the groups.

If regulators approve the deal, OpenAI will stand in rare territory, a company attempting to balance the pursuit of profit with the governance of a mission-driven nonprofit, armed with one of the most valuable stakes in the tech industry.

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The company, which began as a non-profit in 2015, is transitioning to a public benefit corporation (PBC), aligning with its strategy to attract the capital needed for its pursuit of artificial general intelligence (AGI).

Under the new structure, OpenAI’s existing for-profit arm will evolve into the PBC, which will oversee all business operations. 

Meanwhile, the non-profit arm will continue to exist but will focus on charitable initiatives in sectors like healthcare, education, and science, no longer holding direct control over OpenAI’s commercial activities.

This restructuring is driven by the need to raise funding to support the development of AGI, a goal that requires financial backing on a scale far beyond what the current non-profit framework allows. 

OpenAI, valued at $157 billion following its latest $6.6 billion funding round, acknowledged the necessity of adopting more conventional business structures to meet investor expectations.

The move to a PBC aligns OpenAI with other technology companies in the AI sector, such as Anthropic and Elon Musk’s xAI, which operate under similar frameworks. 

This structure allows the company to balance the interests of shareholders, stakeholders, and the public benefit, a key factor in securing the necessary capital to continue its work in AGI development.

While the non-profit arm will retain a stake in the new PBC, the governance of OpenAI will be completely changed, with control handed over to the for-profit entity. 

This change is part of OpenAI’s long-term strategy to build a sustainable organisation capable of supporting AGI research while still pursuing social good.

The decision to restructure has been in the works for several months, with discussions escalating after a period of internal turmoil, including the brief removal and reinstatement of CEO Sam Altman. 

With backing from investors like Microsoft, which has been closely tied to OpenAI’s development, the company is now focused on scaling up its operations to compete in the AI space.

OpenAI’s transition to a for-profit model through the public benefit corporation (PBC) will enable the company to raise the capital needed for its AGI development. 

While the non-profit arm will retain a stake in the PBC, its role will focus on supporting charitable initiatives, rather than driving the for-profit transition. 

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Chief Financial Officer Sarah Friar revealed in an interview with The Financial Times that OpenAI is considering the introduction of advertisements while ensuring a measured and user-focused approach. 

“We aim to be thoughtful about when and where we implement them,” Friar stated, noting the possibility of ads to supplement its revenue stream.

OpenAI has been recruiting advertising talent from tech giants such as Google and Meta. Aimed at strengthening its place in the AI space, hires include Shivakumar Venkataraman, former head of Google’s search advertising team, who joined as vice-president earlier this year, and Kevin Weil, chief product officer, known for his experience at Instagram and X (formerly Twitter). 

Friar described Weil’s leadership as a key advantage in scaling through the difficulties of advertising integration.

OpenAI’s exploration of advertising aligns with strategies employed by companies like Google and Meta, which have successfully leveraged ad-based models to monetise their platforms. 

While OpenAI has not committed to implementing advertisements, the discussions reveal the need to address the escalating costs of developing advanced AI technologies.

Currently valued at $150 billion, the company’s expenses are outpacing its revenues even with commendable growth. 

OpenAI’s annual revenue has surged to approximately $4 billion, driven by the success of its flagship product, ChatGPT, which has over 250 million weekly active users. However, the company anticipates burning through more than $5 billion in cash annually as it scales up its AI capabilities.

A portion of OpenAI’s income comes from access to its application programming interface (API), which enables developers to integrate its technology into their applications, as well as subscriptions for individual and enterprise use of ChatGPT. 

However, these streams are limited by lower profit margins compared to consumer-facing products or advertising models.

Experts note that smaller competitors, such as Perplexity, are already experimenting with ads in their AI-powered search engines, prompting OpenAI to evaluate whether a similar approach could enhance its long-term viability.

Even with the possible benefits of advertising, Friar acknowledged its inherent risks, including sensitivity to economic cycles and the challenge of balancing user satisfaction with advertiser demands. 

She emphasised that OpenAI is prioritising existing revenue opportunities while remaining open to exploring ads in the future. “There’s a lot of low-hanging fruit in the way we are doing things,” she noted.

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