OpenAI’s unique corporate structure left Sam Altman vulnerable. Now he’s out

Published

2 years ago

November 18, 2023

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Sam Altman, CEO of ChatGPT maker OpenAI, arrives for a bipartisan Artificial Intelligence (AI) Insight Forum for all U.S. senators hosted by Senate Majority Leader Chuck Schumer (D-NY) at the U.S. Capitol in Washington, U.S., September 13, 2023.

Leah Millis | Reuters

OpenAI’s unusual company structure weakened Sam Altman’s position as CEO and left him open to surprise on Friday when he was quickly ousted from the company.

It’s rare to see founders forced out of a firm they helped co-found. At Uber, for example, founder Travis Kalanick was forced out only after a series of reports on privacy issues and allegations of discrimination and sexual harassment at the ride-sharing company.

But Altman and co-founder Greg Brockman, who also left OpenAI Friday, didn’t have the power that Kalanick had.

“I have no equity in OpenAI,” Altman said in a May Senate hearing on A.I. Senator John Kennedy’s reaction offered some foreshadowing.

“You need a lawyer or an agent,” Kennedy said in a now-prescient joke.

The structure of the company helps explain how he was left in a vulnerable position that, as he said on Saturday, left him feeling “a little screwed.”

OpenAI’s capped profit structure

The easiest way to think of OpenAI’s structure is to picture a waterfall. The board of directors sits at the top. OpenAI Global, the capped-profit company in which Microsoft invested billions and of which Sam Altman had become the global face, sits at the bottom. There’s some stuff in the middle.

So let’s start at the very top of the waterfall. OpenAI’s board of directors – the ultimate decision body and the group responsible for pushing Altman out – controls OpenAI’s 501(c)(3) charity, OpenAI Inc. That charity is the nonprofit of which you may be aware. It was established to “ensure that safe artificial general intelligence is developed and benefits all of humanity.”

The company’s website says the nonprofit’s charter takes “precedence over any obligation to generate a profit.” In other words, the nonprofit is the priority, while the capped-profit Open AI Global subsidiary is not.

There’s a holding company and another LLC called OpenAI GP, which both give the board ownership or control over OpenAI Global. Again, that’s the company Microsoft invested in. It’s the one you hear about in the news when Altman talks about ChatGPT developments and whatnot. What’s important here is that OpenAI Global had no control. It was the one controlled or owned by all of the other entities in various ways.

So now you’re probably wondering — why have a for-profit company at the bottom of a corporate structure if everything’s just going to be run by a nonprofit? There’s a reason for that, too.

Limited returns

OpenAI added its capped profit OpenAI Global subsidiary in 2019. The shift was prompted by several things, including a desire to attract top employees and investors with “startup-like equity.”

Remember, if your ultimate goal is to ensure the safe use of AI, you’re going to want to bring on some really smart people. And that’s tough when every big company on the market is willing to pay them top dollar to work. So if you’re OpenAI, you need incentives.

Part of that shift to a for-profit model meant reassessing how OpenAI rewarded those employees and investors who gambled on the company. The company settled on a capped-profit approach. It limited the “multiple” that investors could make by sending cash OpenAI’s way.

At the time, the profit cap was set at 100x of a first-round backer’s investment. In plain language, if investors put in $1, even if OpenAI was making billions of dollars in profit, that investor would be limited to $100 in total direct profit. It would still be a sizeable return, but not unlimited.

But remember, the core mission of the nonprofit is to control the development of artificial general intelligence. And all investors and employees are subject to that mission above anything else, including the for-profit company.

OK, so we have a nonprofit with a business that makes profits in order to attract top talent. How does Altman fit in here and how’d he get ousted?

Sam Altman’s missing equity

Altman had a board seat and was the best-known OpenAI personality. Aside from a small investment through a YCombinator fund (Altman was formerly its president), he doesn’t have any equity in the company. And that meant he didn’t have much control if anything turned against him.

He even joked about it Friday evening: “If I start going off, the OpenAI board should go after me for the full value of my shares.”

In fact, it reportedly worried some investors that Altman didn’t have ownership in the company he helped co-found, despite Altman’s public pronouncements that he was committed to OpenAI because he loved the work.

Most founders at later-stage companies take advantage of a dual-class share structure. Two tiers of shares are created — a set of shares for venture investors and the general public, if the company makes it to an IPO, and a more powerful set of shares reserved for founders or, in some cases, major investors.

CEOs and founders use dual-class share structures to protect themselves from losing control of their company. The rights assigned to these shareholders vary, but they often include outsize voting power, guaranteed board seats, or other governance provisions that make it hard for a board to topple them even if a company goes public. Some companies, like Google, even have three classes of shares, for its founders, employees, and investors.

Altman didn’t have those protections. Brockman, the former OpenAI president, said that Altman found out he was “being fired” in a virtual meeting Friday noon. Altman’s only heads up, Brockman said on X, the social media platform formerly known as Twitter, was a text from OpenAI chief scientist Ilya Sutskever a day before.

Investors like to back visionary founders. Some, like Peter Thiel’s Founders Fund, have centered their investment theses around the idea. Not having equity in the company could have been perceived as reducing Altman’s “skin in the game,” so to speak. But it also meant that Altman, lacking those protections, was open to a boardroom coup.

At Uber, five major investors demanded Kalanick’s departure immediately, including one of the company’s largest shareholders Benchmark, after months of negative reports on workplace culture and other controversies. OpenAI, by contrast, hasn’t seen a similar storyline emerge. Altman is a divisive figure, and many critics have worried about the impact OpenAI’s ultimate goal — artificial general intelligence, or AGI — would have for humanity.

OpenAI’s small board lacks the experience that would be expected from a company of its size and importance. None of its largest backers, not even Microsoft, have board seats. Until Altman and Brockman’s departure, it was composed of three outside directors and three OpenAI executives.

Brockman wasn’t involved in Altman’s firing, meaning that every outside director and Sutskever would have had to all vote to fire Altman. With no allies on the six-person board, it was a mathematical impossibility that Altman could win.

It isn’t clear what comes next for Altman or OpenAI. Litigation is possible, given the apparently swift nature of his departure. Some of Silicon Valley’s most influential law firms have represented OpenAI or its investors in various deals, and any courthouse proceedings will likely be closely watched.

Technology

Stablecoin issuer Circle applies for a national bank charter

Published

5 hours ago

June 30, 2025

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Stablecoin issuer Circle applies for a national bank charter

Traders work on the floor at the New York Stock Exchange (NYSE), on the day of Circle Internet Group’s IPO, in New York City, U.S., June 5, 2025.

Brendan McDermid | Reuters

Stablecoin issuer Circle Internet Group has applied for a national trust bank charter, moving forward on its mission to bring stablecoins into the traditional financial world after the firm’s big market debut this month, CNBC confirmed.

Shares rose 1% after hours.

If the Office of the Comptroller of the Currency grants the bank charter, Circle will establish the First National Digital Currency Bank, N.A. Under the charter, Circle, which issues the USDC stablecoin, will also be able to offer custody services in the future to institutional clients for assets, which could include representations of stocks and bonds on a blockchain network.

Reuters first reported on Circle’s bank charter application.

There are no plans to change the management of Circle’s USDC reserves, which are currently held with other major banks.

Anchorage Digital is the only other crypto company to obtain such a license.

Circle’s move comes after a wildly successful IPO and debut trading month on the public markets. Shares of the company are up 484% in June. The company is also benefiting from a wave of optimism after the Senate’s passage of the GENIUS Act, which would give the U.S. a regulatory framework for stablecoins.

Having a federally regulated trust charter would also help Circle meet requirements under the GENIUS Act.

“Establishing a national digital currency trust bank of this kind marks a significant milestone in our goal to build an internet financial system that is transparent, efficient and accessible,” Circle CEO Jeremy Allaire said in a statement shared with CNBC. “By applying for a national trust charter, Circle is taking proactive steps to further strengthen our USDC infrastructure.”

“Further, we will align with emerging U.S. regulation for the issuance and operation of dollar-denominated payment stablecoins, which we believe can enhance the reach and resilience of the U.S. dollar, and support the development of crucial, market neutral infrastructure for the world’s leading institutions to build on,” he said.

Don’t miss these cryptocurrency insights from CNBC Pro:

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Meta shares hit all-time high as Mark Zuckerberg goes on AI hiring blitz

Published

8 hours ago

June 30, 2025

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Meta shares hit all-time high as Mark Zuckerberg goes on AI hiring blitz

Mark Zuckerberg, chief executive officer of Meta Platforms Inc., during the Meta Connect event on Wednesday, Sept. 25, 2024.

Bloomberg | Bloomberg | Getty Images

Meta shares hit a record high on Monday, underscoring investor interest in the company’s new AI superintelligence group.

The company’s shares reached $747.90 during midday trading, topping Meta’s previous stock market record in February when it began laying off the 5% of its workforce that it deemed “low performers.”

Meta joins Microsoft and Nvidia among tech megacaps that have reached new highs of late, all closing at records Monday. Apple, Amazon, Alphabet and Tesla remain below their all-time highs reached late last year or early this year.

Meta CEO Mark Zuckerberg has been on an AI hiring blitz amid fierce competition with rivals such as OpenAI and Google parent Alphabet. Earlier in June, Meta said it would hire Scale AI CEO Alexandr Wang and some of his colleagues as part of a $14.3 billion investment into the executive’s data labeling and annotation startup.

The social media company also hired Nat Friedman and his business partner, Daniel Gross, the chief of Safe Superintelligence, an AI startup with a valuation of $32 billion, CNBC reported on June 19. Meta’s attempts to buy Safe Superintelligence were rebuffed by the startup’s founder and AI expert Ilya Sutskever, the report noted.

Wang and Friedman are the leaders of Meta’s new Superintelligence Labs, tasked with overseeing the company’s artificial intelligence foundation models, projects and research, a person familiar with the matter told CNBC. The term superintelligence refers to technology that exceeds human capability.

Bloomberg News first reported about the new superintelligence unit.

Meta has also snatched AI researchers from OpenAI. Sam Altman, OpenAI’s CEO, said during a podcast that Meta was offering signing bonuses as high as $100 million.

Andrew Bosworth, Meta’s technology chief, spoke about the social media company’s AI hiring spree during a June 20 interview with CNBC’s “Closing Bell Overtime,” saying that the talent market is “really incredible and kind of unprecedented in my 20-year career as a technology executive.”

WATCH: Meta’s AI talent spending spree

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Joby Aviation stock pops 12% after delivering first flying taxi to UAE

Published

8 hours ago

June 30, 2025

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Joby Aviation stock pops 12% after delivering first flying taxi to UAE

An electric air taxi by Joby Aviation flies near the Downtown Manhattan Heliport in Manhattan, New York City, U.S., November 12, 2023.

Roselle Chen | Reuters

Joby Aviation stock soared about 12% as the flying air taxi maker got closer to launching a service in the United Arab Emirates.

The electric vertical takeoff and landing, or eVTOL, company said Monday that it delivered its first aircraft to the UAE and has completed piloted flight tests as it readies for a 2026 launch in the region.

“Our flights and operational footprint in Dubai are a monumental step toward weaving air taxi services into the fabric of daily life worldwide,” said founder and CEO JoeBen Bevirt in a release. He called the Middle East nation a “launchpad for a global revolution in how we move.”

Joby’s planned launch in the UAE was announced in February 2024 as part of an agreement with Dubai’s Road and Transport Authority. The deal included exclusive rights to conduct air taxi service in Dubai for six years.