> if Bonta blocked its plan to convert to a simpler corporate structure.
i'm a bit out of the loop but honestly why does California have a say? surely the investor base and Microsoft was a far harder negotiation than this one. this one smells of govt overreach.
Because of the unusual history of OpenAI, the Government had far more of a say than normal for a company. Remember, OpenAI was originally created as a California non-profit (a charity doing work to create a better AI future). As a charity, it doesn't have to pay the same taxes as it would as a for-profit company, but in exchange it has more rules it needs to follow. And then it released ChatGPT, it exploded in value, it needed to raise truly absurd amounts of capital in order to get to the next model, and thus the lawyers had to spend a good long time extracting the company from the charity.
For very good reasons, the laws make it hard to go from a charity to a for-profit company- because if you could easily transition between the two you could game tax laws with ease. In the end, being allowed to do this required negotiations, and promising to keep OpenAI in California- where they would be subject to other California regulations and taxes in the future.
If they had a "normal" corporate history- had been founded as a Delaware S Corp from the beginning- then this wouldn't be a thing and they would be free to move as they like(1). But, being a weird charity probably helped them attract talent in the critical beginning phases (before it became a money race with Zuck), and it has consequences now.
1: Just as an example, Palantir moved their corporate headquarters to Denver from Palo Alto years ago without a peep from the CA government.
> a California non-profit (a charity doing work to create a better AI future)
Note: non-profit != charity. (All charities are non-profits. Not all non-profits are charities. PACs and non-profit hospitals, for example, are not charities, though the latter can have charitable arms.)
While that is true in the general case, OpenAI was founded as a 501(c)3 to whom all donations were tax-deductible, which is why I used non-profit and charity interchangeably in describing it in particular. There was a for-profit subsidiary spun up in 2019, four years after the original non-profit was created. But it was still owned and operated by the larger non-profit charity organization.
See, for example, Charity Navigator's page on OpenAI: https://www.charitynavigator.org/ein/810861541
I don't know whether or not OpenAI should be allowed to convert to a for profit corporation. That sounds like a complex legal question. But I'm pretty damn sure that the decision absolutely shouldn't depend on whether or not the company stays in CA to provide a cash cow for the government on IPO. This whole thing reeks of corruption.
The entity in question operates in california and is thus subject to california law. California has laws around charitable entities.
One might reasonably claim it's overreach, but in response OpenAI could just leave the state. Which is what they threatened.
Not when the AG sues the board and Sam for all the violations that happened around his ouster. The board isn't independent.
They absolutely can leave the state.
Board independence is largely a silly idea, people aren't even on the same page as to what the board is supposed to be independent of, and in this case it's not even clear which board you mean - the current one? The previous one? In what way are they less independent than any other board?
> people aren't even on the same page as to what the board is supposed to be independent of
In the U.S. they absolutely are. The SEC defines independent directors [1]. If the majority of a (Delaware corporation's) Board isn't independent, it opens up the company and even individual Board members to heightened scrutiny by the courts [2].
[1] https://www.skadden.com/-/media/files/publications/2022/02/t...
[2] https://www.faegredrinker.com/en/insights/publications/2022/...
You link to a skadden doc, not an SEC rule, and in that doc the first words are:
"Independence is neither a fixed condition nor a universal status for all purposes. " and goes on to talk about how complicated it is to even define and how it depends on who is defining it.
Your document makes my exact point, not yours. You are out of your depth.
> Independence is neither a fixed condition nor a universal status for all purposes
This is true of all law. That doesn’t mean “people aren't even on the same page as to what” it means.
> Your document makes my exact point, not yours. You are out of your depth
It doesn't and probably not. How many boards have you been on? Public companies? Non-profit? Have you litigated a shareholder lawsuit under Delaware law?
Go show this discussion to all the boards you apparently sit on.
Violations such as?
Such as those made up in people's heads because they don't happen to like a guy they never met.
Sam Altman got fired from YC for lying, and from OpenAI for lying, then replaced the board. Now he wants to do a transaction that takes the most valuable company in the world from the nonprofit and rewards its financial backers. It's very reasonable to be deeply skeptical of this transactions legitimacy.
Because the company was formed as a non-profit and now wants to cash out? He has to protect the integrity of non-profits as a distinct entity type.
Yes, blocking a NON-PROFIT from magically IPO-ing as a for profit company and therefore skirting years of taxes is overreach.
Guys, the only state morally bankrupt enough to just allow that is Texas. Why do you think these tech bozos love Texas? It's basically cyberpunk over here. Our government actively hates us.
We struck down paid water breaks in Texas. I once worked a job with no breaks at all. 10 hour days, no lunch. Yes, that's legal here.
> I once worked a job with no breaks at all. 10 hour days, no lunch. Yes, that's legal here.
For the life of me, I will never understand why workers vote against even the most minimal break requirements.
Is it simply that the majority of voters already work a job that gives them breaks and so don't see the need to make it a legal requirement? That seems very much like a "pull the ladder up behind you" mentality.
The point about profit is a bit moot because OpenAI would have never paid any tax if it were for profit, as in they haven't made any profit.
Corporations exist at the pleasure of government do they not? They are not some naturally-existing thing.
> Corporations exist at the pleasure of government do they not?
No. “At the pleasure of” means total discretion. The government can’t just stop letting businesses incorporate because it doesn’t like how a county voted.
There is no constitutional right to incorporate. Theoretically states could stop it at any time. Although they would still have to honor corporations formed in other states so it’s of limited effect.
> There is no constitutional right to incorporate
The Constitution directly grants very few individual rights. It’s mostly a document about what the government can’t do.
> Theoretically states could stop it at any time
Sure. That’s not “at the pleasure of.” Driver’s licenses are not issued “at the pleasure of” a state. Neither are marriage certificates. They’re issued as a matter of process that binds both the issuer and recipient to a predictable set of rules.
But there is a constitutional right to equal protection under the law. So while a state can say "everybody can incorporate" or "nobody can incorporate" without scrutiny, there are some pretty hash restrictions on rules that say some people can incorporate and others can't, especially if those restrictions look like they are written to be retaliatory against someone who pissed off the government.
>The government can’t just stop letting businesses incorporate because it doesn’t like how a county voted.
The government can revoke a corporation's charter at any time it desires to.
No it can't. It must comply with other constitutional obligations like the equal protection clause and 1A. Basically any action to revoke the charter of a single corporation (or group of corporations) for any reason other than violating pre-existing law is going to be very hard to justify in court. And threatening to leave the state is clearly not against the law (nor could it ever be because that law would violate 1A). Furthermore, even if a state is able to revoke a corporate charter, it can't stop it from re-incorporating in another state and continuing to do business in the original state under its new charter (commerce clause).
Why can't the government do that? Is it because the government created laws that limited its total discretion? That is besides my point. The people allow for corporations to exist is what I was getting at, and in the US businesses incorporate at the state level. So asking why California has a say in the structure of a company incorporated in it seemed odd to me on its face.
> Is it because the government created laws that limited its total discretion?
Yes. As you said, "the people allow for corporations to exist," and the same people created the government and allow it to exist. And when those people created that government they created rules that govern what laws the government is allowed to enact. Those rules are known as the constitution. And one of the first rules the people made when they created the government is the aptly named "first amendment." And that rule clearly states that the government can't take legal action against a citizen for saying something the government doesn't like. The CA government retaliating against OpenAI for its CEO threatening to leave the state would clearly violate this rule.
> that rule clearly states that the government can't take legal action against a citizen for saying something the government doesn't like. The CA government retaliating against OpenAI for its CEO threatening to leave the state would clearly violate this rule
What? Conspiracy to commit a crime is punishable. If you're credibly threatening to do something that could be unlawful, the state can pursue that. Altman, of all people, is not being punished for his speech. Nor has he any track record of free speech bona fides to stand on.
Moving a corporation out of state isn't a crime. Not sure what any sort of track record has to do with any of this.
I would think that sort of framing implies that the government gives them permission to exist.
Rather than, the natural state is that they exist unless they do something bad enough to be shut down.
Unless you mean, they need the government's "permission" to even file to become a corporation... But even in that case, you aren't asking for permission, you're doing the old school equivalent of signing up for a domain, you're submitting a filing and reserving a spot for that name/ID.
It's more than that. When you file to incorporate, there is a birth. A new person is created, one that can potentially never die. Yes, it's routine, but it wasn't always, and it doesn't need to be forever. The ability to create a new, fake, person in order to shield yourself and your business partners from liability is a not a right. It is a deliberate policy that some sovereign jurisdictions allow their citizens.
> I would think that sort of framing implies that the government gives them permission to exist.
> Rather than, the natural state is that they exist unless they do something bad enough to be shut down.
JFC, come on. Corporations are legal entities and have no existence separate from the law. If they even have a natural state, that natural state is non-existence.
> If they even have a natural state, that natural state is non-existence
A corporation is a legal fiction that describes an association of people. The association is real and has a natural state. The corporate existence does not. (Analogous: a house is real. Land is real. Property is a social construct.)
This is exactly my point that you articulated in way fewer words, thanks.
> All corporations are devoid of inherent nature.
> There is no inherent nature whatsoever.
> What is inherently existing is empty.
> What is empty is inherently existing.
Nāgārjuna vs Delaware
Yeah I think we're splitting hairs and actually aren't in any sort of disagreement here. I 100% agree that you have to be registered on paper with a government entity to get all the legal protections, insurance, etc etc etc. I've been a business owner for nearly 20 years. Like, a real business, with real paperwork and insurance and all that.
I'm thinking of all the unofficial mom and pops that transact and do business every day without having a proper legal entity. so it's more of a "does that count as a business even if they didn't file articles of incorporation?" of course it does, as far as its customers are concerned.
Think of the idea of "this guy has a lawn care business, I pay him every week to mow my lawn for 10 years", as far as his customers are concerned, he didn't need to get permission from the government to start doing that. And this sort of thing happens all the time.
I am NOT arguing whether a business where you filed articles is a legal entity, etc. There's no question that they are.
Hope that clarifies my point.
I mean, if Sam Altman wants to run OpenAI as individual proprietorship, without the limited liability that corporate shield gives, he's totally welcome to do so, and that would require far less paperwork.