OpenAI Creates Its For-Profit Entity, Signs New Deal With Microsoft Defining AGI Clause

OpenAI made significant headway in its corporate restructuring efforts on Wednesday, which have been ongoing for several months. The San Francisco-based artificial intelligence (AI) giant has completed the creation of its for-profit entity, now called OpenAI Group Public Benefit Corporation (PBC). It will be controlled by the non-profit OpenAI Foundation, which will have direct access to the PBC's capital. Additionally, the company has also struck a new agreement with Microsoft that future-proofs the partnership even if OpenAI reaches artificial general intelligence (AGI).

OpenAI Group PBC Has Been Formalised

In a post, OpenAI announced the completion of its recapitalisation, simplifying its corporate structure and the company's access to larger capital, which is not restricted by the obligations of the nonprofit entity. This is possible because of the creation of the PBC, which the company first mentioned in May.

With this, OpenAI Foundation now holds equity in the for-profit, which is valued at roughly $130 billion (roughly Rs. 11.5 lakh crore). With this increased access to capital, the nonprofit will commit $25 billion (roughly Rs. 2.2 lakh crore) in two focus areas. The first is health, where the company will work to make breakthroughs in better diagnostics, treatments, and cures. The second is developing cybersecurity solutions to protect AI infrastructure.

“The OpenAI mission—ensuring that AGI benefits all of humanity—will be advanced through both the business and the Foundation. The more OpenAI succeeds as a company, the more the non-profit's equity stake will be worth, which the non-profit will use to fund its philanthropic work,” the post added.

The New OpenAI-Microsoft Deal

Central to OpenAI's for-profit ambitions was Microsoft's nod. The Windows maker is a key investor in the company and has a seat on the cap table. As such, the AI firm could not restructure itself without its consent. Over the last few months, the two companies have been at loggerheads with each other. However, in September, the companies announced that a new non-binding agreement had been signed between them, allowing the AI giant to proceed with its PBC plans. Now, both companies have revealed the terms of the new deal.

The deal now marks the next phase of this relationship, with a focus on the future and more flexibility and independence for both parties. But that comes with a set of compromises. For Microsoft, that means giving up a part of the stake in the for-profit. The tech giant now owns roughly 27 percent of the new OpenAI Group PBC on an as-converted basis, down from the 32.5 percent stake it previously held.

In return, Microsoft will remain OpenAI's “frontier model partner”, meaning it will still get priority access to the company's most advanced models. Azure also remains the exclusive cloud platform for OpenAI's application programming interfaces (APIs), at least until AGI officially arrives.

The AGI clause, which was previously vaguely defined, now has greater clarity. The companies have agreed that any formal declaration of AGI by OpenAI will be verified by an independent expert panel. That's significant because AGI has long been an ambiguous goal without clear oversight.

Microsoft's intellectual property (IP) rights, essentially, its rights to use OpenAI's technology, have been extended through 2032, including rights to post-AGI models. However, OpenAI retains more control over its internal research, methods, and experimental systems. Notably, Microsoft's rights now exclude OpenAI's consumer hardware.

But perhaps the most significant development in this new deal is that Microsoft is allowed to develop AGI on its own, either independently or with new partners. Meanwhile, OpenAI can now collaborate with third parties to build certain products, although anything delivered via APIs must still run on Azure.

The deal also deepens the financial ties. OpenAI has agreed to purchase $250 billion (22 lakh crore) in Azure cloud services. As a side, Microsoft no longer has the right to be its exclusive compute provider. The companies have also extended their revenue-sharing arrangement until AGI is verified.