Report: OpenAI could leave California in last-ditch effort to avoid political scrutiny

Is OpenAI planning to leave California?

According to a new report from the Wall Street Journal, the AI giant headed by Sam Altman has discussed the possibility of having to relocate out of The Golden State due to the laws surrounding nonprofit organizations and OpenAI's plan to restructure as a for-profit.

Roughly one year ago, OpenAI announced its plans to overhaul how the company is structured. OpenAI began as a nonprofit, but the organization's mission clearly changed as its AI chatbot ChatGPT took off. In September 2024, OpenAI said that it intended to restructure the nonprofit into a traditional for-profit company.

However, the blowback amongst its users and the tech community at large derailed parts of those plans. Earlier this year, OpenAI CEO Altman announced that OpenAI will instead structure itself into a for-profit company with the nonprofit organization retaining control over it.

OpenAI's attempt to appease everyone while still getting what it wanted has now been called into question. Other nonprofits, philanthropies, labor groups, and even OpenAI rivals like Meta and Elon Musk (who, until 2018, was on the nonprofit's board of directors) have pushed back against OpenAI's new arrangement, the WSJ noted, saying that OpenAI is violating the nonprofit's founding mission which in turn may be breaking California's charitable trust law. 

Attorneys general in California and in Delaware are now investigating OpenAI’s plan to restructure to see if the AI giant is indeed breaking the law that regulates nonprofits, according to the WSJ. As a result of these investigations, OpenAI could be sued by the states or be required to pay a settlement as terms for a restructure.

OpenAI's conundrum

Depending on what the Attorneys general do, OpenAI may be left with a tough decision, according to the WSJ.

OpenAI's investors could pull $19 billion from the company, under the condition that the financing would only be given if these backers received equity in the for-profit company. The way OpenAI is currently set up, the nonprofit group controls the company as a subsidiary and equity cannot be distributed in the same manner as if it was strictly run as a for-profit.

So, in order to receive those billions, which is roughly half of its total funding in the past year, OpenAI has discussed the possibility of leaving California. But, there is a problem there too for OpenAI. AI companies are throwing big salaries around in order to lure AI talent to their companies. Many AI researchers are based in San Francisco. AI companies like Anthropic seem to have no plans to leave California. The allure of not having to pack up and move their families out-of-state may be another way for OpenAI's rivals to convince their talent to make the jump.

OpenAI doesn't seem to really want to move out of California. The WSJ reports that the company has hired a team of lobbyists with close ties to Governor Gavin Newsom in hopes of avoiding any issues with its restructuring. But, depending on what these investigations turn up, they may not have much of a choice.