There is a lot in here but turning a non-profit into a for-profit definitely should be challenged. Otherwise why wouldn't everyone start as a non-profit, develop your IP, and then switch to 'for-profit' mode once you got something that works? You don't pay income taxes and your investors get write offs.
This. Even when we ignore the whole ethical aspect of "AI for benefit of humanity" and all that philosophic stuff, there are very real legal reasons why OpenAI should never have been allowed to switch to for profit. They were only able to circumvent this with their new dual company structure, but this should still not be legal.
The point of their charter is not to make money, it's to develop AI for the benefit of all, which I interpret to mean putting control and exploitation of AI in the hands of the public.
The reality: we don't even get public LLM models, let alone source code, while their coffers overfloweth.
Awesome for OpenAI and their employees! Every else goes without. Public benefit my arse.
If that's the case the name should come with an asterisk and footnote. Keeping "Open" in the name is not genuine. Its would be like a superhero group called themselves "Hero Squad" and decided being superheros is not profitable as villainy, but still calling themselves Hero Squad despite the obvious operational changes.
While I completely agree, I think we've seen enough to realize that something as powerful as what OpenAI is developing shouldn't be freely released to the public. Not as a product, nor as source code.
Dangerous and powerful things like weapons and chemicals are restricted in both physical and informational form for safety reasons. AI needs to be treated similarly.
I can download the Firefox sources and everything else they produce.
That they make money incidentally to that is really no problem and a positive because it provides reasonable funding.
What if Firefox made a world beating browser by accident. Would they be justified in closing the source, restricting access and making people pay for it?
Anyway, to answer your question, no, not okay to close up the nonprofit and go 100% for-profit in that case.
Concisely, in any human matteres:
Do what you say you'll do, or, add qualifiers/don't say it.
Take funds from a subset of users who need support services or patch guarantees of some kind, use that to pay people to continue to maintain and improve the product.
They had one of the best browsers in the world at one point.
Their sell-out path was hundreds of millions of dollars from GOOG to make their search engine the default, and, unspoken: allow FF to become an ugly, insecure, red-headed stepchild when compared to Chrome.
Likely part of what took priority away from Thunderbird, at the time, too.
Not since the beginning. They made it that way after beef with the IRS.
I wish they hadn't because they are thinking too commercial (extremely high paid CEO) for instance but they have a foundation to answer to which doesn't manage them like shareholders would (eg not rewarding the CEO for dropping marketshare!). This model is the worst of both worlds imo.
That's the same basic structure, on paper, as OpenAI, it didn't “switch to for-profit” in terms of taking the nonprofit entity and converting it to a for-profit.
They already have a massive moat. Try competing with them, let me know what the bill looks like. Only a few companies on the planet can realistically attempt it at this point. Let me know how many GPUs you need and where you plan to get them from.
They have the same moat that Google search has. Including as it pertains to usage and data.
You also can't train a new competitor like OpenAI was able to jumpstart GPT, the gates have already been raised on some of the best data.
Very few companies will be able to afford to keep up with the hyper scale models that are in our future, due to the extreme cost involved. You won't be able to get enough high-end GPUs, you won't be able to get enough funding, and you won't have a global brand that end users recognize and or trust.
The moat expands as the requirements get ever larger to compete with them. Eventually the VC money dries up because nobody dares to risk vaporizing $5+ billion just to get in the ring with them. That happened in search (only Microsoft could afford to fund the red ink competition with Google), the exact same thing will happen here.
Google search produces $100+ billion in operating income per year. Venture capital to go after them all but dried up 15+ years ago. There have been very few serious attempts at it despite the profit, because of the cost vs risk (of failure) factor. A lot of people know how Google search works, there's a huge amount of VC money in the tech ecosystem, Google mints a huge amount of profit - and yet nobody will dare. The winner/s in GPT's field will enjoy the same benefit.
And no, the open source at home consumer models will not come even remotely close to keeping up. That'll be the latest Linux consumer desktop fantasy.
The replies that say "well the profits go to the non-profit, all's good" miss the reality of these high profit nonprofits: the profits invariably end up in the pockets of management. Most of those are essentially scams, but it doesn't mean that OpenAI isn't just a more subtle scam.
The hype and the credulity of the general public play right into this scam. People will more or less believe anything Sam the Money Gushing Messiah says because the neat demos keep flowing. The question is what's we've lost in all this, which no-one really thinks about.
If your beef with this structure is that executives get paid handsomely I have bad news about the entire category of nonprofits, regardless of whether they have for-profit arms or not.
>I really wouldn't give a shit how much they were paid if we got something more than vague promises.
"We" got a free-as-in-beer general knowledge chat system leagues better than anything at the time, suitable for most low-impact general knowledge and creative work (easily operable by non-technical users), a ridiculously cheap api for it, and the papers detailing how to replicate it.
The same SOTA with image generation, just hosted by Microsoft/Bing.
Like, not to defend OpenAI, but if the goal was improving the state of general AI, they've done a hell of a lot - much of which your average tech-literate person would not have believed was even possible. Not single-handedly, obviously, but they were major contributors to almost all of the current SOTA. The only thing they haven't done is release the weights, and I feel like everything else they've done has been lost in the discussion, here.
> The only thing they haven't done is release the weights.
Not at all. With GPT-3 they only released a paper roughly describing it but in no way it allowed replication (and obviously no source code, nor the actual NN model, with or without weights).
GPT-4 was even worse since they didn't even release a paper, just a "system card" that amounted to describing that its outputs were good.
Not many people seem to understand this. Here's an example from a previous rabbit hole.
The Sherman Fairchild Foundation (which manages the post-humous funds of the guy who made Fairchild Semiconductor) pays its president $500k+ and chairman about the same. https://beta.candid.org/profile/6906786?keyword=Sherman+fair... (Click Form 990 and select a form)
I do love IRS Form 990 in this way. It sheds a lot of light into this.
Getting paid $500k, while it is a lot of money, is not at all the same as someone benefiting from the profit of a company and making 100s of millions of dollars. $500k doesn't at all seem like an unreasonable salary for someone who is a really good executive and could be managing a for-profit company instead.
$1bn in assets isn’t much, at the high end you can charge maybe $20mm a year (hedge fund), at the low end a few million (public equity fund). That needs to pay not just execs but accountants, etc.
Put another way, a $1bn hedge fund is considered a small boutique that typically only employs a handful of people.
One cool thing is that the these funds don’t actually need active management and that in itself is a form of predatory graft. You could stick them all in a diverse array of index funds and call it a day, as pretty much no fund managers outperform those.
I have no idea if the fund is actively managed. I assume the president is mostly fundraising, deciding how to spend the proceeds, and dealing with administration. That's a job, right? Or should we just have robo-foundations?
I am a lot more offended or pleased by whether the leader manages a 60MM budget and a 1B endowment than their 500k salary.
There's this weird thing where charities are judged by how much they cost to run and pay their employees to even a greater degree than other organizations, and even by people who would resist that strategy for businesses. It's easy to imagine a good leader executing the mission way more than 500k better than a meh one, and even more dramatically so for 'overhead' in general (as though a nonprofit would consistently be doing their job better by cutting down staffing for vetting grants or improving shipping logistics or whatever).
> In 2003 the Internal Revenue Service revoked VSP's tax exempt status citing exclusionary, members-only practices, and high compensation to executives.[3]
> In 2005, a federal district judge in Sacramento, California found that VSP failed to prove that it was not organized for profit nor for the promotion of the greater social welfare, as is required of a 501(c)(4). Instead, the district court found, VSP operates much like a for-profit (with, for example, its executives getting bonuses tied to net income) and primarily for the benefit of its own member/subscribers, not for some greater social good and, thereafter, concluded it was not entitled to tax-exempt status under 501(c)(4).[16]
The Mozilla management seems to be disinterested in doing anything to improve Firefox market share (by for example doing what users want: customization), they waste money on various "investments" and half-bake projects that are used by developers to stat-pad their CVs - and at the end of the day, they are paid millions.
IMO you could cut the CEOs salary from 6 million to 300k and get a new CEO - and we probably wouldnt see any difference in Firefox results. Perhaps improvement even. Since the poorly paid CEO would try to demonstrate value - and this best is done by bringing back firefox market share.
The D Language Foundation is a non-profit. We formed it so that businesses could have a proper legal entity to donate to. The executives don't get any compensation.
the way openai structure their pay is dubious to say the least. maybe they will find a way to make money someday but rn everything they are doing is setting my alarm bells off.
"In conversations with recruiters we’ve heard from some candidates that OpenAI is communicating that they don’t expect to turn a profit until they reach their mission of Artificial General Intelligence"
https://www.levels.fyi/blog/openai-compensation.html
Not to speak about OpenAI specifically, but people who know what they’re doing still cost a buttload of $$$$.
Even I as a software engineer have a minimum salary I expect because I’m good at my job.
Just because it’s a non-profit doesn’t mean I’m going to demand a smaller salary.
And if the non-profit can’t afford me and gets a more junior dev and they’re not very good and their shit breaks… well, they should have paid full price.
That said, there ARE a lot of dirty non-profits that exist just to pay their executives.
You're thinking about the wrong thing. It's not about salaries for staff. The fact that it's a non-profit means no corporate taxes. That's where the profits go into the pockets of management, practically.
The total revenue of the NFL has been steadily increasing over the years, with a significant drop in 2020 due to the impact of the COVID-19 pandemic12. Here are some figures:
Every dollar of income generated through television rights fees, licensing agreements, sponsorships, ticket sales, and other means is earned by the 32 clubs and is taxable there. This will remain the case even when the league office and Management Council file returns as taxable entities, and the change in filing status will make no material difference to our business.
Gee... I wonder if that had anything to do with the internet and so many people becoming aware of their Mega Church Model due to the Information SuperHighway?
> Update April 28, 2015: In the midst of several National Football League scandals last October, PublicSource asked freelance writer Patrick Doyle to take a look at the nonprofit status of the league. On April 28, NFL Commissioner Roger Goodell said the league will no longer be tax exempt, eliminating a “distraction.”
A non-profit simply has to spend all of the earnings, and it makes sense as a joint org for a number of for-profit enterprises (clubs) who all take part in the earnings.
Even if it was for profit company and it paid out all the surplus earnings to shareholders (owning clubs), it would be taxed zero on zero earnings (they'd just have to ensure all payouts happen within the calendar year).
Take a look at Sarah Palin's Daughter's' charity foundation Against Teen Pregnacy - founded after she, herself, was impregnated as a teen and it was a scandal on Sarah Palin's political shenanigans.... (much like boabert - his Drug/Thievery ~~guild~~ Addiction Foundation, soon to follow)....
Sarah Palins daughter got pregnant as a team, caused shame on the campaign - and started a foundation to help "stop teen pregnancy"
Then when the 503 filed, it was revealed that the Daughter was being paid ~$450,000 a year plus expenses from "managing the foundation" for the donations they solicited.
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If you dont know how "foundation" is the Secret Financial Handshake For "Yep, Ill launder money for you, and you launder money for me!... donate to my TAX DEDUCTABLE FOUNDATION/CHARITY... and Ill do the SAME to yours with the Money you "donated" to me! (excluding my fee of course)
This is literally what Foundations do.
(if you have never looked into the SEC filings for the Salvation Army (I have read some of their filings cover to cover.... biggest financial scam charity in the country, whos finances are available...)
money laundering is a game. Like Polo.
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>>>The company remains governed by the nonprofit and its original charter today.
"
Because a non-profit is just a class of business structure no different from an LLC or S-Corp and every company will incorporate based on which is the most advantageous to their business goals. It's average people who have conflated this idea that NPs only exist to serve as charitable heroes for humanity.
The reality was that nobody could have predicted the A.I breakthroughs when OpenAI first got started. It was a moonshot. Thats why Musk gave $50m dollars without even asking for a seat at the board.
OpenAI had to start as a non profit because there was no clear path forward. It was research. Kind of like doing research with the goal of curing cancer.
The unexpected breakthroughs came a bit quicker than anticipated and everybody was seeing the dollar signs.
I believe OpenAIs intial intention at the beginning was benign. But they just couldn't let go of the dollars.
Training LLMs requires a lot of text, and, as a practical matter, essentially all LLMs have committed copyright infringement on an industrial scale to collect training data.
The US has a fair-use exception with a four-part test:
The second and third parts (nature of the work (creative) and how much of the work is used (all of it)) strongly favor copyright owners. The fourth part (which SCOTUS previous said is the most important part, but has since walked back) is neutral to slightly favoring the copiers: Most LLMs are trained to not simply regurgitate the input, so a colorable argument exists that an LLM has no impact on the market for, say, NY Times articles.
Taken together, parts 2 through 4 are leaning towards impermissible use. That leaves us with the first part: Could it make the difference? The first part really has two subparts: How and what are you using it for?
"How" they are using it is clearly transformational (it defeats the purpose of an LLM if it just regurgitates the input), so that argues in favor of copiers like OpenAI.
But where I think Altman had a brilliant/evil flash of genius is that the "what" test: OpenAI is officially a non-profit, dedicated to helping humanity: That means the usage is non-commercial. Being non-commercial doesn't automatically make the use fair use, but it might make the difference when considering parts 2 through 4, plus the transformativity of the usage.
Non-profits, the big ones at least, are a scam by rich people to privatize what should essentially be nationalized government services. They get to pretend they're helping the public at a fraction of their capability to paper over their ill gotten gains elsewhere. It's like a drug lord buying a church, but they get to take the spend out of their taxes. Alternatively, they are a way to create a tax free pool of money for their children to play with by putting them on the board.
Non-profits weren't really as much of a thing until the neoliberal era of privatizing everything.
Of course, there are "real" non-profits, those kinds of activities are a real thing, such as organizing solely member funded organizations to serve the people, but in America, this is a marginal amount of the money in the system.
Unprofitable businesses of every sort don't pay income taxes. Startups like OpenAI don't pay income taxes because they don't have income. And investors don't get a writeoff merely for investing in a nonprofit; it's not like a donation to a nonprofit (which would be deductable).
Taxes are payed on net income not on individual transactions (barring sales tax).
If I make $100 in a year and spend $1000 that year, my income is ($900). How can I spend $1000? Generally through loans and bonds. How do I secure said loans? Generally simply by showing how much VC and income comes in with a business plan that banks accept.
But that's the secret to the money flow. That's also partially why the collapse of SVB was such a blow to the tech industry. A LOT of loans were issued by them.
Revenue. Your $20/month is going on the revenue line of accounting. The income line on the accounting can be negative despite your generous $20 donation.
This is a great point but has me realizing I don't know how to square this with the idea that quite a few people are making enormous profits from unprofitable businesses.
It feels like there should be a way to tax these startups that exist as vehicles for cash grabs, but are not profitable.
Do you have examples of people making enormous profits you are thinking of?
If you literally mean people (as in employees, executives, ect), they already are being taxed on income.
Unprofitable businesses always have expenses for labor, materials, ect. The distinction is that the company and owners arent making money, so they dont pay taxes. Those that do make money naturally do pay taxes.
Agree, I believe Elon gave $50M or so in 2018 with the intent that giving this money to the non-profit openAI was going to benefit people with open access to AI systems. Sam Altman has completely thrown out any semblance of law and how non-profits work and closed down the companies whitepapers(GPT papers after 2019 no longer published) and embedded it into Microsoft. This should be a slamdunk legal ruling against this ever happening again.
They didn't "turn it into" a for-profit though, they created a separate for-profit arm. This one is unusually successful but that's not an unusual thing for even "regular" charities to do in order to engage in some activities that they wouldn't normally be able to.
Perhaps the regular charity version of this should also be challenged. This case looks somewhat egregious as the for profit arm was able to fire the board of the non-profit parent. Likewise, openAI is selling "PPU" units, it's entirely unclear if anybody knows what these actually are.
It's highly likely in my uneducated opinion that OpenAI will be told to adopt a standard corporate structure in the near term. They will likely have to pay out a number of stakeholders as part of a "make right" setup.
They didn't actually fire the board of the non-profit. They just said they'd all quit in protest because of an action of the board they all felt was egregious. The board could have stayed and been a non-profit that did nothing ever again. They decided it was better to step down.
I believe it was Helen Toner who claimed an OpenAI lawyer said they were at risk of breaching fiduciary duty if the company fell apart because of the ouster.
I don't think that's very likely at all! But I suppose we'll see.
For a good point of comparison, until 2015, when public scrutiny led them to decide to change it, the NFL operated as a nonprofit, with the teams operating as for-profits. Other sports leagues continue to have that structure.
They basically did, though. The nonprofit does nothing except further the interests of the for-profit company, and all employees get shares of of the for-profit company.
It's not unusual for nonprofits to have spinoffs, but it is unusual for the nonprofit to be so consumed by its for-profit spinoffs.
That argument will be tested in court. It certainly looks like things are the other way around as of now.
Most non-profit employees receive their compensation in the form of a salary. If you need to pay "market rate" competing with organizations that offer equity, you pay a bigger salary. When non-profits spin for-profits off (eg research spinoffs), they do it with a pretty strict wall between the non-profit and the for-profit. That is not the case for OpenAI.
And transferred everything they did to that arm. I'm all for tax avoidance, but the rules should apply to everyone equally. Small ma and pa businesses don't have the money to hire armies of lawyers for these legal machinations
I guess "mom-and-pop businesses" are probably not started as charities in the first place in most cases so I don't really get what you are trying to say.
He’s making a (valid) point having to do with tax avoidance.
Want to open a bakery in your small town? Start it as a 501(3)(c) and promise it’s a charitable endeavor for the local community. Then invest your $500k into the bakery maybe even from your local community (it’s a tax deductible donation!) to get the bakery up and running.
Then once it’s turning a profit, ditch the original 501(3)c and replace it with a LLC, S-Corp or C-corp and start paying taxes. (And hope you don’t get sued or audited)
His point is mom and pop bakeries aren’t typically sophisticated enough to pull of schemes like this, even if it would save tens of thousands on taxes.
In general the the 501(3)c isn't replaced by a for-profit corp though. The 501(3)c remains and a new for-profit corp is established under its ownership.
IANAL but I think the tax issue would likely hinge on how well that $500k was isolated from the for-profit side. If the non-profit has no substantial operations and is just a shell for the for-profit, I could see getting in trouble for trying to deduct that as a donation. But if there's an audit trail showing that the money is staying on the non-profit side, it would likely be fine.
Yes if the for-profit was the entire operation, I think you could definitely have issues with the IRS. It would ultimately depend on your ability to convince either the IRS or a judge that there is some purpose to the nonprofit apart from giving investors in the for-profit side tax deductions.
I mean they effectively did. They created a for-profit, moved the bulk of employees there, and when the board attempted to uphold its founding principles they were threatened and forced to resign.
What's next? Can the OpenAI nonprofit shell divest itself of the for-profit OpenAI and spend the remainder of its cash on "awareness" or other nonsense?
University spinoffs are pretty common, but the university tends to be a small minority owner of the spinoff (unless the shares are donated back to them later), exercise no control of the operation of the company, and don't transfer IP to the spinoff after the spinning-off has happened. OpenAI is not doing any of that with its for-profit.
The research is an inconsequential percentage of the development cost, essentially a rounding error. Those commercial development organizations foot almost the entire bill and take all of the risk.
Can you explain more what you mean by this, with some numbers? This is not my understanding, but maybe we are thinking of different things. For example, NIH in 2023 spent over $30B of public funds on research^0, and has been spending in the billions for decades.
$30B is trivial, people don’t grasp the scale of investment in these areas. Total research investment alone in the US is 10x that. There was a time when the US government was a major contributor to this R&D but that was half a century ago. Private investment dwarfs government investment at every stage with only a few exceptions.
Some of the most productive areas of US government biomedical research have not come from NIH but from DoD. Most people do not realize that virtually all modern trauma medicine was invented by US military research as a very active ongoing program. If you get in a bad automobile accident, most things that happen will be the product of US military research. But interestingly, these programs have very sparse research budgets, literally just single millions of dollars in many cases. But that is trauma medicine, not drug development.
Drug trials in particular are extremely expensive. People like to pretend these don’t exist. A few million in research costs doesn’t write off billions of dollars in development costs. There is no mathematical way to argue otherwise.
According to CBO pharma spends ~$90B on R&D (https://www.cbo.gov/publication/57126) so $30B I would not call trivial or a rounding area, but your points still stands that it is the minor share.
> A few million in research costs doesn’t write off billions of dollars in development costs. There is no mathematical way to argue otherwise.
There could be an important distinction between infra R&D and last mile R&D. The cost of developing a drug in our current system might be $3B today on average, but if you also had to replace all the infra R&D USG invested in over decades (GenBank, PubMed, and all the other databases from NCBI and the like) that these efforts depend on, it might be much higher. So I could still see an argument that the government pays for the research needed by all the drugs, then private sectors builds on that and pay for the last mile for each one.
However, I think you've put forward strong points against the argument "the research is done using public funds, and then privatized and commercialized later".
> Drug trials in particular are extremely expensive. People like to pretend these don’t exist.
I think in general people are frustrated because for all the money going into pharma people have not been getting healthier in the USA, in fact, in the median case, the opposite. So some big things are going wrong. I think you've shown that the problem is not that government is paying for high drug development costs and industry is coasting.
They do and they would. This is exactly the argument in tech of startup acquisitions. Sometimes it is just simpler and more efficient to outsource the early bits if there is an ecosystem that supports those early bits. The early stages of development, while cheap, often requires something from the team that is not available in a big company. R&D works this way generally.
Transitioning from “nice idea” to “consumer product” is a vast chasm. Most people that do not actually have experience taking things from research to production grossly under-estimate the amount of effort involved. From a purely economic perspective, the “research” part of the total bill is dwarfed by the activity required to turn it into a salable product.
This is a huge problem in the US. Tax-payers are subsidizing a lot of medical advances, then the US government gives it to the private sector, privatizing whatever medical advances were paid by tax-dollars.
Socialism seems to create a lot of markets for the Capitalist private sector.
Do the private companies get some special IP rights on the public sector research? It seems like in a competitive market, those private companies would have thin margins. What stops a lower cost competitor from using the same public IP? I’m clearly missing something important here.
I suspect that's due to the misleading nature of the 'public research, privitized profits' trope. The reality is that publically-funded biomedical (for the lack of better word) science does not generate anything production-ready.
Academia produces tens of thousands of papers per year; many of these are garbage, p-hacking or low value - the rest are often contradictory, misleading, hard to interpret or just report a giant body of raw-ish data. It is a very valuable process - despite all the waste - but the result of this is too raw to be actionable.
This body of raw 'science' is the necessary substrate for biotechnology and drug development - it needs to be understood, processed, and conceptualised into a hypothesis (which most likely fail) strong enough to invest billions of dollars into.
Pharmaceutical industry is the market-based approach to prioritising investment into drug development (what is it, 100B$ p/y?) - and even a leftist who might want to debate in favour of a different economic model would have to agree that this job is hard, important, and needs to be done.
And yet a big portion of my paycheck is still going right into the private companies hands. Let that be clear: the government takes money from you and siphons it off to corporations and earns itself backchannel $$$ from those corporations.
It would be hard to get investors though. Non-profits can only take donations and not investment. So you would have to develop your IP using your own funds. Plus, most companies are loss making in the early years so it is actually more tax-efficient to have an entity that can recognize those losses for tax purposes and offset them against future losses.
I'm not at all clear on what a "not for profit" status even does, tax wise. In any jurisdiction.
They are still able to actually make a profit (and quite often will, because careful balancing of perfect profit and loss is almost impossible and loss is bad), and I thought those profits were still taxed because otherwise that's too obvious as a tax dodge, it's just that profit isn't their main goal?
NAL, my understanding: The profits aren't taxed, and the shareholders aren't allowed to take dividends out (there effectively are no "shareholders" per se, just donors); all profits have to be reinvested back into the business.
In the case of many/most (honest) non-profits, the operating costs are paid out of a combination of the dividends of an invested principal (endowment, having been previously donated by donors) and grants/current donations. Any operating profit could then be returned to the endowment, allowing the organization to maintain higher operating costs indefinitely, thus giving the organization more capacity to further their mission.
Nonprofits can make profits. They aren’t taxed, but they can’t issue dividends. In theory there is some reasonable limit (in the millions) of how much they can pay out via salary compensation etc. they can’t issue dividends because they have no shareholders and no equity. Therefore the profit must simply be used towards their goal, basically.
Well, you're confused because of your erroneous determination that they're "able to make a profit." They are not. They are able to have positive cash flow but the money can only be reinvested in the nonprofit rather than extracted as profit.
Positive cash flow and profit are almost synonyms although there can be subtleties they are not relevant to this discussion.
The parent comment is making a common mistake that non-profits can not make profits, that is false. Non-profits can't distribute their profits to their owners and they lack a profit motive, but they absolutely can and do make a profit.
This site points out common misconceptions about non-profits, and in fact the biggest misconception that it lists at the top is that non-profits can't make a profit:
It's all quite confusing. A non-profit can as you say turn a profit but isn't supposed to distribute it to owners.
There is a difference between positive cash flow and profit as profit has differences in accounting rules. If you invest in some asset (let's say a taxi car) today, all of that cash flow will happen today. But there will be no effect on the profit today, as your wealth is considered to have just changed form, from cash into an asset. For the purposes of profit/loss, the cost instead happens over the years as that asset depreciates. This is so that the depreciation of the asset can be compared to the income it is generating (wear and tear on car vs ride fare - gas).
That's not the case in the US. Depending on corporate structure, if your business makes more revenue than expenses, even if none of it is paid out and it's all kept in the business, you will either owe corporate taxes on that amount (C-Corp or non-pass through LLC) or the full personal income tax rate (pass through LLC).
"Unrealized profit" is a term used for investments or assets afaik, when the paper value has increased but the gains haven't been realized by selling.
For a business, revenue minus expenses in a given accounting period is considered profit. The only question is whether it gets treated as corporate profit or personal income.
It certainly can be confusing. I generally use the term "nonprofit" to mean a corporate entity formed under a nonprofit corporation act, e.g., one derived from the Model Nonprofit Corporation Act. This says nothing about the tax status of the entity, and unless other circumstances also apply the entity would be subject to taxes in the same way as a for profit company on its net income. But many nonprofits also take steps to qualify for one of several tax exemptions, the most well known being section 501(c)(3). Not all of the familiar tax advantages apply to all tax exempt organizations. For example, donations to an organization exempt under 501(c)(3) are deductible by the donor, but donations to a 501(c)(4) are not.
I think this is a different case. The purpose of OpenAI could not have been achieved had it not been converted to a for-profit organization. Profits are necessary since they incentivize the innovation that AI calls for. Non-profits can never achieve these.
Today we all benefit from OpenAI, but its the for-profit Open AI that made it possible. How else would they spend billions on compute and take those large risks, on whose money?
Actually a good point that exposes the potential opportunism of having used the work everyone involved added as mere MVP-product-market-fit until it can go big bucks (and big disruptive and unelected and societally disruptive power).
i'm not disagreeing with you that going from non-profit to for-profit should be challenged, but doesn't openai still maintain their non-profit? they just added a for-profit "arm" (whatever that means).
Ok, but that sounds like something that requires a change in legislation. Suing companies for doing something permissible under the current legal structure just doesn't make sense.
