OpenAI, the company that developed and released ChatGPT, is a capped for - profit and a nonprofit company, together valued at 80 billion dollars.

ChatGPT is a Large Language Model (LLM) chatbot developed by OpenAI which is specifically tailored for conversational interactions with users by generating human-like text based on the input it receives.

As the majority of us are already aware, the release of ChatGPT caught the world by surprise and it very quickly exposed millions of people around the world to the potential of artificial intelligence.

You may remember that ChatGPT was the fastest growing consumer application in history at the time of launch on November 22, 2022. With the release of ChatGPT, Open AI reached 100 million users within 2 months, a incredible milestone that took Instagram 2.5 years and TikTok 9 months to achieve.

To provide a clearer perspective of this achievement and for further comparison, it's worth noting that it took Netflix and Airbnb—two staple applications many of us use today—3.5 years and 2.5 years respectively to reach not 100 million, but 1 million users.

Open AI was incorporated as a NonProfit Corporation in the State of Delaware in 2015 ("OpenAI, Inc.") before it additionally creating a "capped - for - profit" company in 2019 ("Open AI LP").

You may be surprised to hear that OpenAI was incorporated as a non-profit corporation knowing that Microsoft, the world's largest corporation, invested 10 billion dollars into OpenAI or that OpenAI is valued at 80 Billion dollars.

Open AI Inc. introduced itself to the world as a non-profit artificial intelligence research corporation on December 11, 2015.

OpenAI was founded by Sam Altman, the president of Y Combinator, and Elon Musk, the CEO of Tesla and SpaceX, Greg Brockman and Ilya Sutskever, amongst other world class engineers and scientists.

Sam Altman, Elon Musk, and Peter Thiel, a co-founder of PayPal and one of the first investors in Facebook, were some of the funders that committed $1 Billion to the non profit corporation.

At the time of its formation as a nonprofit corporation, OpenAI Inc. announced that its nonprofit status would allow it to focus on benefiting humanity, "unconstrained by a need to generate financial return."

Open AI states that its mission is to ensure that Artificial General Intelligence ("AGI") - AI systems that are generally smarter than humans - benefits all of humanity.

Some of OpenAI's most technologically savvy founders define as "automated (e.g. computer) systems that outperform humans at most economically valuable work," a definition of a complicated term can be interpreted in many ways.

Fortunately, these founders provide an example of what constitutes AGI, "imagine a computer system which can do the following activities with minimal human input:

• Make a scientific breakthrough at the level of the best scientists
• Productize that breakthrough and build a company, with a skill comparable to the best entrepreneurs
• Rapidly grow that company and manage it at large scale

OpenAI announced the formation of a new business structure in 2019 - OpenAI LP - a hybrid of a for-profit and nonprofit - which they termed a “capped-profit” company.

Open AI explained that they have decided to form this business structure because "need to invest billions of dollars in upcoming years into large-scale cloud compute, attracting and retaining talented people, and building AI supercomputers."

According to Open AI - the concept of Open AI Limited Partnership as a "capped for profit company" was designed to protect the the NonProfit's original mission of ensuring the creation and adoption of safe and beneficial AGI - ahead of generating returns for investors.

A Limited Partnership (LP) - a very different business structure from a Nonprofit Corporation - aims to raise capital from investors and provide them with a financial return.

From a Corporate Law perspective, a Limited Partnership was an excellent business structure for combining both for-profit and nonprofit elements, akin to a "Frankenstein" arrangement, as it encompasses both General Partners and Limited Partners.

General Partners are responsible for managing the day-to-day operations of a business and typically have decision-making authority. Many complex corporate structures will incorporate an entity with limited liability as the General Partner, because General Partners are personally liable for the debts and obligations of the Limited Partnership.

Limited partners, on the other hand, contribute capital to a business but have limited involvement in its management and operations. Limited partners typically do not participate in the decision-making process of the business and are more akin to passive investors - their liability is limited to the amount of their investment.

In the case of Open AI, the original nonprofit corporation will act as the General Partner of OpenAI LP - which permits the Board of Directors of the nonprofit entity to have the decision making authority for the "capped for profit" entity.

On its website, OpenAI explains that its unique corporate structure—a combination of a "capped for-profit" entity and a Limited Partnership—enables it to stay true to its mission. Under this structure, financial returns for investors and employees are capped, with limits pre-negotiated on a per-limited-partner basis. The for-profit entity remains controlled by the original Nonprofit Corporation, ensuring alignment with OpenAI’s broader purpose.

As OpenAI describes, this partnership was specifically designed as a "chassis" to support its core mission: building artificial general intelligence (AGI) that is safe and beneficial for all of humanity.

Della Torre Law, PLLC