Musk Pushes for Auction of OpenAI’s Nonprofit Stake Amid Lawsuit

Elon Musk, through his legal team, is escalating efforts to challenge OpenAI’s governance and plans to convert into a public benefit corporation (PBC). His lawyer, Marc Toberoff, has called on California and Delaware attorneys general to force OpenAI to auction off a significant ownership stake, a move that could reshape the AI company’s trajectory.

The dispute touches on critical issues of governance, nonprofit missions, and competition in the rapidly evolving AI industry, raising questions about how organizations like OpenAI can balance ethical commitments with business goals.

Musk’s Legal Actions and OpenAI’s Transition

Musk co-founded OpenAI with Altman in 2015, initially as a nonprofit dedicated to ensuring AI benefits humanity. After stepping down from the board in 2018, citing disagreements with CEO Sam Altman, OpenAI restructured in 2019 to include a for-profit subsidiary. This shift allowed the company to raise significant capital, including over $13 billion from backers like Microsoft.

Now, OpenAI is planning to transition to a PBC—a for-profit entity designed to prioritize societal benefits—while maintaining its nonprofit arm to focus on charitable initiatives like healthcare, science, and education. The nonprofit would retain a stake in the for-profit, but governance would transfer to the PBC to manage the operations and business.

Musk’s legal actions center on this governance shift. His team argues that the nonprofit’s stake in the PBC, reportedly worth tens of billions of dollars, should be subject to an open auction to maximize its value. Musk’s letter to the attorneys general states that such a sale would ensure fiduciary duties are met and prevent what he describes as OpenAI’s “deviation” from its original mission.

If successful, this could enable an outside investor to acquire a substantial stake in the start-up and gain significant influence over its operations.

Broader Implications for AI Governance

OpenAI has defended its plans, arguing that the transition will create one of the “best-resourced nonprofits in history,” enabling it to multiply early backers’ contributions for greater societal impact. The company also stated that the process is being overseen by independent financial advisers to ensure fairness.

However, the case raises several key issues:

• Governance and Accountability: The transition from nonprofit to for-profit raises questions about how AI companies balance their missions with the need for funding. Critics argue that governance changes like these could dilute ethical commitments or introduce profit-driven motives.

• Competition in AI: Musk, who now leads his own AI venture, xAI, has accused OpenAI and Microsoft of creating a monopoly targeting his startup. This reflects growing competition in the AI space, with high stakes for companies aiming to dominate advanced technologies like large language models.

• Precedent for Nonprofit Conversions: The outcome of this legal battle could set a precedent for how nonprofits transition to for-profit structures. If Musk’s push for an auction succeeds, it may encourage other organizations to reevaluate the transparency and fairness of their governance processes.

Balanced Perspectives

While Musk’s legal efforts have drawn attention, critics of his approach argue that it introduces unnecessary conflict. A spokesperson for OpenAI described Musk’s actions as “lawfare,” asserting that the company remains focused on its mission despite these challenges.

At the same time, the case highlights the broader need for clarity in nonprofit-to-for-profit conversions, especially in sectors like AI where societal impact is significant. The complexity of balancing competing interests underscores the importance of transparency and accountability in such transitions.

Kathleen Jennings, Delaware’s attorney general, has stated that her office is responsible for ensuring OpenAI’s conversion aligns with the public interest and determining if the transaction is at a fair price.

Meanwhile, Musk’s camp has raised concerns about Delaware’s handling of the conversion, citing a lack of confidence in the state’s approach to corporate governance. They have argued that the process should instead take place in California, where OpenAI is headquartered, to better align with the company’s operational base.

As a reminder, Delaware is involved because OpenAI is incorporated there, a common choice for companies due to the state’s business-friendly legal framework and specialized courts for corporate matters.

The outcome of this case could shape how AI organizations balance ethical commitments with financial structures, setting a precedent for transparency and accountability in future nonprofit-to-for-profit transitions.

What This Means

This legal battle underscores the tension between mission-driven AI development and the need for sustainable funding. The conversion to a PBC is aimed at helping OpenAI raise additional funding to support its ambitious projects. By transitioning to a for-profit structure, the company can attract significant investments while maintaining a focus on societal impact.

If successful, Musk’s push for an ownership auction could lead to increased transparency in nonprofit conversions—but it also risks creating instability in an industry already facing scrutiny over governance and ethics.

As OpenAI moves forward with its plans, the case serves as a reminder of the challenges in aligning corporate structures with ambitious societal goals. The outcome will likely influence how future AI ventures balance profitability, competition, and their commitments to benefiting humanity.

Editor’s Note: This article was created by Alicia Shapiro, CMO of AiNews.com, with writing, image, and idea-generation support from ChatGPT, an AI assistant. However, the final perspective and editorial choices are solely Alicia Shapiro’s. Special thanks to ChatGPT for assistance with research and editorial support in crafting this article.