OpenAI secures Microsoft’s blessing to transition its for-profit arm

OpenAI revealed on Thursday that it has reached a non-binding agreement with Microsoft, its largest backer, on a revised partnership that paves the way for the startup’s for-profit division to be restructured into a public benefit corporation (PBC).

If approved by state regulators, the shift would give OpenAI the opportunity to attract new investors and potentially move toward becoming a publicly traded company.

In a blog update, Bret Taylor, OpenAI’s Board Chairman, explained that under this arrangement, the nonprofit overseeing OpenAI would remain in place and maintain control of the organization’s operations. The nonprofit would also receive a stake in the PBC valued at over $100 billion, he noted. Specific details of the deal were not made public.

“Microsoft and OpenAI have signed a non-binding memorandum of understanding (MOU) for the next phase of our partnership,” the two companies stated jointly. MOUs, while not legally enforceable, outline each side’s intent and expectations. “We are actively working to finalize contractual terms in a definitive agreement,” the statement added.

The development appears to bring closure to lengthy negotiations between Microsoft and OpenAI over the ChatGPT maker’s restructuring plan. Unlike most startups, OpenAI is overseen by a nonprofit board — the same governance model that enabled directors to dismiss CEO Sam Altman in 2023 before reinstating him days later, a move that also led to board resignations. That framework remains in effect today.

Currently, Microsoft holds preferred access to OpenAI’s technology and serves as its primary cloud provider. But since Microsoft’s initial investment in 2019, ChatGPT has grown into a much larger enterprise, and OpenAI has reportedly been pushing to ease Microsoft’s control as part of these discussions.

Over the past year, OpenAI has signed several high-profile agreements that reduce its reliance on Microsoft. According to the Wall Street Journal, OpenAI committed to spending $300 billion with Oracle for cloud infrastructure over a five-year period beginning in 2027. The company has also teamed up with Japanese conglomerate SoftBank on its Stargate data center project.

Taylor confirmed that OpenAI and Microsoft are “continuing to work with the California and Delaware Attorneys General” on the transition plan, signaling that regulatory approval is still pending. Officials from both offices did not immediately respond to TechCrunch’s inquiries.

Reports suggest that tensions between Microsoft and OpenAI flared during these negotiations. The Wall Street Journal noted that Microsoft sought rights to technology from Windsurf, an AI coding startup OpenAI had planned to acquire earlier this year. OpenAI resisted, wanting to keep Windsurf’s intellectual property separate. That deal ultimately collapsed — Windsurf’s founders joined Google, while the rest of its team was absorbed by another AI startup, Cognition.

Meanwhile, Elon Musk’s lawsuit against OpenAI — which accuses Sam Altman, Greg Brockman, and others of abandoning the company’s nonprofit mission — also cites the for-profit transition as a central issue. Musk even submitted an unsolicited $97 billion takeover bid earlier this year, which OpenAI’s board rejected. Analysts pointed out that his offer may have driven up the valuation of the nonprofit’s eventual stake.

The nonprofit’s equity share in the PBC under the Microsoft deal surpasses Musk’s bid.

In recent months, nonprofit groups including Encode and The Midas Project have voiced opposition to OpenAI’s shift toward a for-profit model, claiming it jeopardizes the mission to develop AGI for the benefit of humanity. OpenAI countered by issuing subpoenas, alleging that these groups were financed by rivals such as Musk and Meta CEO Mark Zuckerberg. Both organizations denied the allegations.