A Thought on Tax Exemption for Public Benefit [B] Corporations

Up in the Southern District yesterday, the U.S. Attorney filed a motion in limine seeking to exclude Sam Bankman-Fried from introducing evidence of FTX’s $500 million dollars in an artificial A.I. corporation called Anthropc.   The motion doesn’t refer to Anthropc as a public benefit or B corporation but SBF is an effective altruist so I suspected he might have invested in a charitable competitor to OpenAI, the for profit but tax-exempt company behind ChatGPT.  As it turns out, Anthropc fancy’s itself something of a charity; a public benefit corporation, to be specific. Not to oversimplify things, but that means that Anthropc can operate like a charity without the directors and officers being accused of violating the fiduciary duty to get rich or die trying.  Charity may take precedence over profit.  That makes a B Corp a charity.  On the other hand, B corporations can distribute profit to the effective altruists owning the thing.  That makes it a taxable charity. 

Anthropc, like OpenAI is focused on the safe and socially justifiable development of artificial intelligence.  So that AI is not used to enslave anybody or all of us, to impose biases on peoples, to exterminate “defective” peoples and cultures, or to crush economic liberty.  What if Adolf had gotten his hands on a fully developed artificial intelligence bomb?  In earlier posts, I’ve railed against OpenAI’s joint venture with some very wealthy people who will, as part of the deal, be granted up to 100 times their investment in profit share. But I have changed my mind.  I was wrong.  This is just a blog where I test ideas, this ain’t no a law review. Get over it, I can be wrong sometimes.  In a forthcoming article, I argue that if joint venture private benefit is the only way to achieve an otherwise unachievable charitable purpose — even with explicit profit-sharing — then so be it.  Because if the market is the only constraint on artificial intelligence, Hitler might own it exclusively.   

So maybe Anthopc should be granted tax exemption.  It’s hardly different from OpenAI in terms of private profiteering.  But it’s not exactly like OpenAI, at least not until recently.  I would not grant tax exemption to a public benefit corporation unless the directors were not also shareholders.  The Anthropc shareholders are also its directors.  There is a conflict of interest between the Directors’ duty to make money for shareholders by ESG methods, and their desire as shareholders to just make money.  OpenAI is drifting more and more into that conflict, by the way, through some recent employee profit sharing proposal.  So I might have to revise my opinion once again because the OpenAI employees are also directors.  It sounds like an artificial distinction, but I would give tax exemption to a public benefit corporation only if none of the directors were shareholders, even though shareholders must elect the directors.  Directors might be practically beholding to shareholders but as a B Corp, they would not be subject to derivative action for being ESG.  Its only when the Directors can neither win nor lose from an ESG decision would I allow tax exemption for B Corporations.

Like I said, this is a blog where I merely try out ideas.  I need to think more about it.  Meanwhile, somebody out there should write about it.  

darryll k. jones