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OpenAI to become for-profit company

reuters.com

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Re: OpenAI to become for-profit company

#311

Post by sophacles »

blackeyeblitzar wrote: post #267
kweingar wrote: post #219

Can anybody explain how this actually works? What happens to all of the non-profit's assets? They can't just give it away for investors to own. The non-profit could maybe sell its assets to investors, but then what would it do with the money? I'm sure OpenAI has an explanation, but I really want to hear more details. In the most simple analysis of "non-profit becomes for-profit", there's really no way to square it ot…

Maybe it’s a hint that the tax rate for small and medium companies should be reduced (or other non tax laws modified based on company size), to copy the advantages of this nonprofit to profit conversion, while taxes for large companies should be increased. It would maybe help make competition more fair and make survival easier for startups.

This is actually a good idea. I say we go even further and stop wasting so much money cleaning up after companies - get rid of the entire legal entity known as a corporation and let investors shoulder the full liability that comes with their ownership stake.

Re: OpenAI to become for-profit company

#312

Post by jameshart »

tomp wrote: post #221
kweingar wrote: post #219

Can anybody explain how this actually works? What happens to all of the non-profit's assets? They can't just give it away for investors to own. The non-profit could maybe sell its assets to investors, but then what would it do with the money? I'm sure OpenAI has an explanation, but I really want to hear more details. In the most simple analysis of "non-profit becomes for-profit", there's really no way to square it ot…

exactly. If that's how it works, why wouldn't you start every startup as a non-profit? Investment is tax deductible, no tax on profits... Then turn it into a for-profit if/when it becomes successful!

Donations are not investments. They don’t result in ownership.

Re: OpenAI to become for-profit company

#313

Post by imranhou »

Based on what I've read it is allowed for a non profit to own a for profit asset.

So I'm assuming the game plan here is to adjust the charter of the non profit to basically say we are going to still keep doing "Open AI" (we all know what that means), but through the proceeds it gets by selling chunks of this for-profit entity, so the essence could be the non-profit parent isn't fulfilling its mission by controlling what openai does but how it puts the money to use it gets from openai.

And in this process, Sam gets a chunk (as a payment for growing the assets of the non-profit, like a salary/bonus) and the rest as well....?

Re: OpenAI to become for-profit company

#315

Post by flutas »

perfmode wrote: post #308
xxpor wrote: post #307

Earlier quoted context omitted.

If most of your expenses are software devs, that's not true any more.

How so?

In short, section 174[0].

It pushed almost all SWE jobs to be classified as R&D jobs, which changed how taxes are calculated on companies.

They have an example at [0], but I'll copy it here. For a $1mm income, $1mm cost of SW dev, with $0 profit previously you paid $0 in tax (your income was offset by your R&D costs). Now it would be about $200k in taxes for 5 years, as you can't claim all of the $1mm that year anymore.

[0]: https://blog.pragmaticengineer.com/section-174/

Re: OpenAI to become for-profit company

#316

Post by the_gorilla »

perfmode wrote: post #308
xxpor wrote: post #307

Earlier quoted context omitted.

If most of your expenses are software devs, that's not true any more.

How so?

There's tons of taxes on hiring employees that you have to pay even if you're losing money. Payroll taxes, mandatory insurance taxes, unemployment taxes, probably more I just don't remember off the top of my head.

Re: OpenAI to become for-profit company

#317

Post by breck »

This is great. Sam tried the non-profit thing, it turned out not be a good fit for the world, and he's adapting. We all get to benefit from seeing how non-profits are just not the best idea. There are better ways to improve the world than having non-profits (for example, we need to abolish copyright and patent law; that alone would eliminate the need for perhaps the majority of non-profits that exist today, which are all working to combat things that are downstream of the the toxic information environment created by those laws).

Re: OpenAI to become for-profit company

#318

Post by winternett »

kweingar wrote: post #219

Can anybody explain how this actually works? What happens to all of the non-profit's assets? They can't just give it away for investors to own. The non-profit could maybe sell its assets to investors, but then what would it do with the money? I'm sure OpenAI has an explanation, but I really want to hear more details. In the most simple analysis of "non-profit becomes for-profit", there's really no way to square it ot…

>Can anybody explain how this actually works?

Every answer moving forward now will contain embedded ads for Sephora, or something completely unrelated to your prompt...

That money will go into the pockets of a small group of people that claim they own shares in the company... Then the company will pull more people in who invest in it, and they'll all get profits based on continually rising monthly membership fees, for an app that stole content from social media posts and historical documents others have written without issuing credit nor compensating them.

Re: OpenAI to become for-profit company

#319

Post by amluto »

lolinder wrote: post #251
kweingar wrote: post #219

Can anybody explain how this actually works? What happens to all of the non-profit's assets? They can't just give it away for investors to own. The non-profit could maybe sell its assets to investors, but then what would it do with the money? I'm sure OpenAI has an explanation, but I really want to hear more details. In the most simple analysis of "non-profit becomes for-profit", there's really no way to square it ot…

If the assets were sold to the for profit at a fair price I could see this being legal (even if it shouldn't be). At least in that case the value generated by the non-profit tax free would stay locked up in non-profit land. The biggest problem with this is that there's basically no chance that the sale price of the non-profit assets is going to be $150 billion, which means that whatever the gap is between the valuati…

It’s pretty great if you can manage to have the parent be 501(c)(3). Have all the early investors “donate” 90% of their investment to the 501(c)(3) and invest 10% in the for-profit subsidiary the old-fashioned way. They get a tax deduction, and the parent owns 90% of the subsidiary. Later on, if the business is successful, the parent cashes out at the lowest possible valuation they can pull off with a mostly straight face, and all the investors in the subsidiary end up owning their shares, pro rata, with no dilution from the parent. The parent keeps a bit of cash (and can use it for some other purpose).

Of course the investors do end up owning their shares at a lower basis than they would otherwise, and they end up a bit diluted compared to a straightforward investment, but the investors seem likely to more than make up for this by donating appreciated securities to the 501(c)(3) and by deferring or even completely avoiding the capital gains tax on their for-profit shares.

Obviously everyone needs to consult their lawyer about the probability of civil and/or criminal penalties.

Re: OpenAI to become for-profit company

#320

Post by nickspag »

perfmode wrote: post #308
xxpor wrote: post #307

Earlier quoted context omitted.

If most of your expenses are software devs, that's not true any more.

How so?

In an effort to lower the deficit effects of the Trump tax cuts (i.e. increase revenue so they could cut further in other areas), they reclassified software developers salary so that their salaries have to be amortized over multiple years, instead of just a business expense in that year. This is usually done for assets as those things have an intrinsic value that could be sold.

In this case, business have to pay taxes on "profit" that they don't have as it immediately went to salaries. There were a lot of small business that were hit extremely hard.

They tried to fix it in the recent tax bill but it was killed in the Senate last I checked. You can see more here: https://www.finance.senate.gov/chairmans-news/fact-sheet-on-....

Also, software developers in Oil and Gas industries are exempt from this :)

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