A Musky Smelling California Bill Would Prohibit OpenAI’s Conversion to a PBC

Here is one of two posts today from Jonesing on Nonprofits.  The second post regards another nonprofit story you are unlikely to find anywhere else.  Please see my note below regarding that blog.  

In California, a group called The Coalition for AI Nonprofit Integrity has launched a campaign to enact a law that would prevent OpenAI from going through with its plan to convert to a public benefit corporation.

Here is the open letter the Coalition is asking people to sign:

Nonprofits should fulfill their charitable missions, not generate private wealth. Organizations like OpenAI were established with binding commitments to benefit humanity, not shareholders. California Assembly Bill 501, authored by Assemblymember Diane Papan, aims to prevent OpenAI executives from converting a decade-old charitable organization—whose legal mission is to develop Artificial General Intelligence for humanity’s collective benefit—into a vehicle for personal enrichment potentially worth trillions. We strongly support AB 501 to preserve the integrity of nonprofit institutions and ensure they remain accountable to their founding humanitarian purposes.

By exploiting a loophole in California’s nonprofit laws, OpenAI is shifting from its original purpose of developing AGI for the benefit of humanity, thereby breaching their fiduciary duty to humanity and to all those who trusted in OpenAI’s original charter. If OpenAI succeeds in wresting this technology from humanity and placing it under investor control, it will mark one of the greatest acts of expropriation in human history. We urge you to join us in support of AB 501.

The whole thing smells kind of “musky” to me, if you know what I mean. I was born at night, but not last night. And I would bet dollars to donuts that the DOGE czar is behind it all. Especially since he is losing in court. Anyway, here is a summary of AB 501. You can read the entire bill here. Here is the kicker:

Article 2. Prohibition on Transfer of Startup Venture Capital Nonprofit Property to a For-Profit Entity

14351. (a) A startup venture capital nonprofit shall not transfer a substantial amount of its assets to an acquiring entity as part of a single transaction.

(b) Notwithstanding Section 5813.5 or any other law, a startup venture capital nonprofit shall not convert into a mutual benefit corporation, public benefit corporation, social purpose corporation, business corporation, or any other wholly or partially for-profit entity or form.

(c) The Attorney General shall take all necessary actions to ensure compliance with this section.

And here is the legislative summary:

Nonprofit mutual benefit corporations: formation. Startup venture capital nonprofits: transfers.

LEGISLATIVE COUNSEL’S DIGEST

This bill would define a “startup venture capital nonprofit” to mean a charitable corporation meeting a certain amount of specified requirements, including that the corporation has obtained combined revenues of $100,000,000 or more during any 5-year period. The bill would further define related terms.

This bill would prohibit a startup venture capital nonprofit from transferring a substantial amount of its assets, meaning a cumulative fair market value in excess of $100,000,000, to an acquiring entity as part of a single transaction, as defined. The bill would prohibit a startup venture capital nonprofit from converting into a mutual benefit corporation, public benefit corporation, social purpose corporation, business corporation, or any other wholly or partially for-profit entity or form. The bill would require the Attorney General to take all necessary action to ensure compliance with those provisions.

Note:  I still have dreams of creating an enduring nonprofit subscription journal to which I can devote my full time attention after life in the academy.  The Tax Notes for nonprofits.  When I first started, I asked Streckfuss, who still publishes the EO Tax Journal, for advice on avoiding pitfalls and mistakes.  He replied that he was neither “inclined nor interested” in talking about it.  So I set the initial subscription price at something substantially lower than the EO Tax Journal subscription price.  The goal was to attract law firms and law libraries.  Still, a helpful and thankfully candid reader advised me recently that the price was too high.  So yesterday, I cut it in half ($25 per month, $300 per year).  If  you are interested in helping found a new long-running source informative for nonprofit practice and scholarship, please consider subscribing.  Thanks. 

darryll k. jones