Have seen all the articles talking about this but none have actually mentioned what method/course of legal hoops they had to jump through in order to make this happen.
Was this some niche interpretation of law that they were only able to finagle because of how much money is involved and how connected their investors are or is this something any 501c3 that has commercial operations could technically pursue?
Bonus points to anyone who can actually point to the clause or some source that explains how that sort of process can work.
“Converting a non-profit to a for-profit” company is not a construct under US law, and anyone who tells you otherwise is wrong. Non-profits are formed to fulfill a mission, and their assets must always remain to fulfill the mission. If a non-profit dissolves, its proceeds can’t inure or accrue to the private benefit of someone; the assets have to go to other non-profits that fulfill the mission. This is how AG Letitia James was pushing for the de facto dissolution of the NRA a couple of years ago because LaPierre went on a boat. If that had worked, the NRA would have needed to disgorge all its money to other nonprofits that the government would permit them to give it to.
Instead of converting a nonprofit, here’s what you can do: you can form a cash-rich for-profit company, sell all the assets of non-profit company at their fair market value to for-profit company, and continue to operate the nonprofit company with the cash received. OpenAI already has a capped for-profit sub called OpenAI Global, so basically they need to make another company that would buy Global from OpenAI and issue proper shares on a cap table to MSFT and the other guys. Given the sky-high valuation of OpenAI Global in all their capital raises, this implies that the OpenAI nonprofit proper would then have an enormous amount of cash which it would need to use in accordance with its mission. Would it plow it into researching something else AI related? Who knows?
All of this stuff gets hotly negotiated with the state regulators and the AG. It’s not easy and can take years. The government provides its opinions and approvals on what is “fair” and what valuations would deprive the nonprofit estate of value which rightly belongs to furthering the mission.
Source: investment banker who has worked with highly profitable non-profits which were reconstituted using a process like this.
Iste sit quidem et qui omnis culpa assumenda. Quidem atque quo omnis id facere. Reprehenderit iste et aut delectus non.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...