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Startup’s leaders have discussed last-ditch prospect of leaving California if regulators complicate transition to for-profit company

OpenAI executives are growing concerned that mounting political scrutiny in California could stymie their efforts to become a for-profit company and have discussed a last-ditch option of moving out of the state.

Some of California’s biggest philanthropies, nonprofits and labor groups are joining forces to push back on the startup’s high-stakes restructuring plan. Because OpenAI is controlled by a nonprofit, they are asking the state’s attorney general to ensure the new company it creates doesn’t violate the state’s charitable trust law.

Attorneys general in California and Delaware are investigating OpenAI’s proposed plan. The regulators have a legal responsibility to protect their states’ charities. They have the power to sue OpenAI for potentially breaking nonprofit law or require the company to pay a settlement as a condition for the restructure.

An OpenAI spokesman said the company has no plans to leave California.

Failing to restructure could be catastrophic for the world’s most valuable startup, imperiling its future fundraising efforts and a potential public listing. Led by CEO Sam Altman, OpenAI is currently run as a subsidiary that doesn’t issue traditional equity and is controlled by a nonprofit parent. That is an unpopular structure among its investors, who are pushing for the change.

OpenAI’s financial backers have conditioned roughly $19 billion in funding—almost half of the startup’s total in the past year—on receiving shares in the new for-profit company. If the restructure doesn’t happen, they could pull their money, hampering OpenAI’s costly ambitions to build giant data centers, make custom chips, and stay at the bleeding edge of AI research.

The growing political pressure is adding to an array of challenges the company is facing, including how to stem billions of dollars a year in losses, fighting poaching efforts from rivals in an escalating talent war and trying to loosen Microsoft’s grip over its business.

OpenAI executives didn’t expect such intense public blowback to the restructuring plan when they first announced it late last year, according to people familiar with the matter. The outcome of the California attorney general’s investigation has been a particular concern in recent months, the people said.

OpenAI has discussed potentially relocating out of California as a last-ditch option if the state’s attorney general complicates the restructuring, the people said. Such a move would be difficult, given that its AI researchers are heavily concentrated in San Francisco.

“We continue to work constructively with the offices of the Attorneys General of California and Delaware,” an OpenAI spokesman said. He added that the company wants to create one of the best-resourced nonprofits in history.

Seeking support

OpenAI recently hired a slew of advisers with close ties to California Gov. Gavin Newsom, including former Sen. Laphonza Butler, to build support for the plan in Sacramento. The startup spent the summer hosting listening sessions with civil society groups across the state, and pledged to spend $50 million to support nonprofit and community organizations.

In May, OpenAI delivered a major concession to its opponents by announcing that the nonprofit would remain in control of the proposed new company, abandoning an earlier effort to separate the two entirely. It was a major setback for Altman and his investors, but executives privately said the decision was necessary to dent opposition to the conversion.

But political scrutiny is growing. On Friday, the California and Delaware attorneys general wrote to OpenAI with concerns about its commitments to AI safety in light of new reports of recent suicides from people who had prolonged interactions with ChatGPT.

Part of the discussions between OpenAI and the California attorney general are centered on ensuring the nonprofit has robust and independent control over the new company. The office’s regulators see the suicides as a sign OpenAI has prioritized ChatGPT usage and revenue over its mission of creating AI for the public benefit, according to a person familiar with its work.

“The recent deaths are unacceptable. They have rightly shaken the American public’s confidence in OpenAI and this industry,” they wrote in a letter to OpenAI. “OpenAI—and the AI industry—must proactively and transparently ensure AI’s safe deployment. Doing so is mandated by OpenAI’s charitable mission, and will be required and enforced by our respective offices.”

OpenAI has said it is addressing issues around sycophancy—when the programming of AI systems leads them to be agreeable to users—and would introduce parental controls for ChatGPT. “We are fully committed to addressing the Attorneys General’s concerns,” Bret Taylor, chairman of OpenAI’s board, said in a statement.

Growing opposition

OpenAI was founded as a nonprofit in 2015, but created a for-profit subsidiary that allowed it to raise tens of billions of dollars from Microsoft and venture capitalists. The decision enabled it to build and sell its expensive AI technology, but opened it up to criticism that it was illegally diverting nonprofit resources to enrich private shareholders, not the general public.

Investors grew unhappy with the structure, which gave them fewer governance rights and so-called profit-sharing units instead of traditional equity. They pushed for change.

In late 2024, OpenAI said it was converting the subsidiary into an independent, for-profit corporation.

The California attorney general opened an investigation into OpenAI after the restructuring plan was made public, citing its responsibility to “protect assets held in charitable trust” in a December letter to the board of directors. Shortly after, leading nonprofit legal scholars, former OpenAI employees, and industry leaders opposed the plan, arguing that it was an abdication of the nonprofit’s founding mission.

Rival Meta Platforms has urged the California attorney general to block the conversion. And Elon Musk made a bid for control of OpenAI’s assets earlier this year that the startup rejected.

OpenAI is also fighting a lawsuit filed by Musk and his rival AI startup xAI that is seeking to block the conversion, alleging that it violated its nonprofit mission. The case is expected to go to trial next year. OpenAI has said the suit is baseless and without merit.

In April, a coalition of over 60 nonprofits led by the San Francisco Foundation, one of the state’s largest philanthropies, sent a letter to the California attorney general asking it to investigate whether OpenAI violated its federal tax-exempt status.

Absent enforcement action from the attorney general, the coalition wrote that “other startups, looking at OpenAI as a model, are likely to consider whether to take similar advantage of nonprofit status to create accelerated and amplified possibilities for individual financial benefit.”

Lorena Gonzalez, president of the California Federation of Labor Unions, the state’s largest coalition of labor unions, said the organization has spent more than a year discussing the restructuring with the attorney general’s office.

“We have been very clear in our position that they benefitted from being a nonprofit, they’re now going to make massive profits, and that money should come back to the people who it would have gone to in the first place,” she said.

News Corp, owner of The Wall Street Journal and Dow Jones Newswires, has a content-licensing partnership with OpenAI.