Microsoft and OpenAI finally broker a deal to overhaul their partnership

Microsoft and OpenAI have reached a tentative agreement to redefine their high-stakes partnership, clearing the way for the AI startup to pursue a radical and controversial corporate restructuring. In a joint statement, the companies announced they have signed a non-binding memorandum of understanding that resolves months of tense negotiations over governance and technology access. The deal allows OpenAI to transform its for-profit arm into a public benefit corporation (PBC), a move intended to help it raise vast amounts of capital. As part of the arrangement, OpenAI’s original nonprofit entity will retain control and receive an equity stake in the new PBC valued at over $100 billion.

The agreement marks a major step for OpenAI, whose unorthodox structure has been both a core part of its identity and a source of internal chaos, most notably during the boardroom drama that saw CEO Sam Altman briefly fired in 2023. By converting its for-profit arm into a PBC, a type of corporation that can prioritize a public mission alongside shareholder returns, OpenAI hopes to create a more conventional structure to attract investors. Microsoft, which has invested over $13 billion in the startup, had to sign off on any changes, making its approval a critical hurdle for Altman’s plans. While full details were not disclosed, the new deal reportedly modifies a previous clause that could have cut off Microsoft’s access to OpenAI’s technology if it was deemed to have achieved artificial general intelligence (AGI).

A nonprofit richer than most nations

Under the new plan, OpenAI’s founding nonprofit will not just govern the new PBC—it will become one of the wealthiest philanthropic organizations on the planet. The nonprofit is set to receive an equity stake worth more than $100 billion in the restructured company. This recapitalization would put its endowment in the same league as long-established entities like the Gates Foundation and the Novo Nordisk Foundation, which OpenAI CFO Sarah Friar reportedly cited as an example of the model the startup is aiming for. To kick off its expanded philanthropic mission, the nonprofit also announced a $50 million grant initiative to support AI literacy, community innovation, and economic opportunity.

Mending a strained relationship

The deal appears to resolve growing friction in one of the tech world’s most critical partnerships. As OpenAI’s business has boomed, its relationship with Microsoft has become strained, with the two companies increasingly competing for customers. OpenAI has also sought to reduce its dependence on Microsoft for computing power, signing massive, long-term cloud deals with competitors like Oracle and Google. The negotiations appear to have given both sides what they wanted: OpenAI gets the freedom to restructure and work with other cloud providers, while Microsoft secures its continued access to the startup’s cutting-edge AI models.

Not a done deal

Despite the handshake agreement, OpenAI’s transformation is far from complete. The memorandum of understanding is non-binding, and the companies are still working to finalize a definitive contract. More significantly, the restructuring plan must receive approval from the attorneys general in California and Delaware, where OpenAI is incorporated. This regulatory hurdle is a major one, especially as a coalition of nonprofits called EyesOnOpenAI is actively lobbying regulators to block the move. The group argues OpenAI is abandoning its founding mission to benefit humanity in the pursuit of profit and has called for an investigation into whether charitable assets are being improperly used for private gain. This public pressure adds another layer of complexity to a deal that aims to secure OpenAI’s future while fundamentally altering its identity.