Microsoft Stands as Crucial Player in OpenAIs Restructuring Standoff

Following months of pressure from the public, OpenAI reversed part of its strategy to transition into a more traditional for-profit entity; however, its reorganization plans still lack approval from a key investor: Microsoft Corp.

Microsoft, which has invested $13.75 billion (approximately Rs. 1,15,878 crore) in the firm, continues to be the most significant reluctance among stakeholders as the creator of ChatGPT attempts to restructure, according to several sources familiar with the situation. The tech giant wants assurances that any modifications to OpenAI’s structure will sufficiently safeguard Microsoft’s investment, according to these insiders, who requested anonymity due to the confidential nature of the discussions. Microsoft continues to actively negotiate the specifics of OpenAI’s proposal, these sources confirmed.

Microsoft chose not to provide a comment. In its statement, OpenAI noted: “We are maintaining close collaboration with Microsoft and are eager to finalize the specifics of this recapitalization soon.”

On Monday, OpenAI announced that it is progressing with plans to reconfigure its for-profit division into a public benefit corporation, but tweaks to its strategy will allow the overarching organization to remain under the supervision of its nonprofit, thereby retaining the current structure of the company.

Besides Microsoft, OpenAI also requires approval from additional entities. The attorneys general of California and Delaware oversee the conversion process. OpenAI must conduct a fair market assessment of the nonprofit’s equity in the prospective for-profit endeavor and is seeking input from state AGs.

In a communication to employees, CEO Sam Altman explained that the decision to uphold the nonprofit’s authority was reached after talks with civic leaders and the offices of the state attorneys general. “We anticipate progressing the specifics of this strategy in further discussions with them, Microsoft, and our newly appointed nonprofit commissioners,” Altman stated.

A more straightforward for-profit model is viewed as more appealing to investors; however, in a briefing with reporters, Altman asserted that the modified approach would still fulfill the same objectives, even under nonprofit control. Under the proposed layout, Altman specifically mentioned that SoftBank Group Corp. is ready to proceed with its complete $30 billion (approximately Rs. 2,52,803 crore) investment as part of a recently disclosed funding round.

However, securing Microsoft’s endorsement will be vital. Presently, only insiders from OpenAI, Microsoft, and some early backers can directly influence the approval of the restructuring, according to two insiders. Consequently, this select group is the only one capable of voicing opinions on the restructuring proposal, as noted by the sources. Yet, among the investors, OpenAI is only in negotiations with Microsoft at this point, according to a source.

The relationship between Microsoft and OpenAI is distinctive compared to other investors, attributed to its licensing and revenue-sharing agreements with the startup. One insider reported that Microsoft is currently negotiating these contract aspects alongside its equity stake and other matters.

In addition to gaining Microsoft and state officials’ approval, OpenAI is facing legal challenges regarding the restructure from billionaire Elon Musk.

Musk, a co-founder of OpenAI, had previously sought a court order to prevent OpenAI from transitioning to a for-profit business. His request was denied, but parts of his lawsuit have been permitted to move forward. Musk also made an unsolicited and unsuccessful $97.4 billion (roughly Rs. 8,20,768 crore) offer to acquire the assets of the nonprofit governing OpenAI.

OpenAI claims Musk is attempting to impede its progress for the advantage of his competing AI venture. Marc Toberoff, Musk’s attorney, did not respond to requests for comments regarding OpenAI’s revised plans.

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