OpenAI created artificial intelligence (AI) technology for the masses. Have you heard of ChatGPT? The nonprofit entity was founded in 2015 by Sam Altman and Elon Musk, among others. OpenAI’s mission is “to ensure that artificial general intelligence benefits all of humanity.” Musk left the startup in 2018, claiming a conflict of interest with Tesla. In 2019, OpenAI created a for-profit structure, OpenAI Global, LLC, of which Microsoft is a major investor.
Now Elon Musk is setting his sights on trying to take over OpenAI. He has been openly critical that OpenAI is ignoring its original mission by putting profits above safely developing AI technology. On Friday, February 14, 2025, Elon Musk and investors submitted a $97.4 billion bid to buy the nonprofit’s assets. OpenAI CEO Sam Altman refused the offer and is now looking for ways to prevent a hostile takeover.
What Is a Hostile Takeover?
A hostile takeover occurs when one company attempts to buy another company against the wishes of the company leaders (i.e., a board of directors). The acquiring company (the one that wants to take over) may try to get a majority of stock shares to control the targeted company. They may do this by offering money to shareholders to buy the company stock.
How Is OpenAI Preventing a Potential Takeover?
The board at OpenAI is considering expanding the power of its nonprofit board by giving it special voting rights. A nonprofit board helps a company comply with its nonprofit mission. In OpenAI’s case, its mission is to advance AI technology for the benefit of everyone. By giving more power to the nonprofit board, OpenAI hopes to avoid being taken over by outside interests that do not align with its mission.
If OpenAI’s nonprofit board members have special voting rights, it could reject any takeover offers that conflict with their nonprofit purpose. A board for a for-profit company, in contrast, has a fiduciary duty to act in the best interests of the company, which might include entertaining offers for the best price.
What Are Other Ways to Avoid Hostile Takeovers?
A shareholder rights plan, also called a “poison pill,” is a way for shareholders to prevent hostile takeovers by diluting the stock. Often, a poison pill triggers when an acquiring party has 10-20% of the company shares. Once triggered, the existing shareholders can then purchase additional shares at a discount, which dilutes the acquiring party’s stake. The extra shares make it more difficult and expensive for the acquiring party to take over the company.
There are two types of poison pill strategies:
- Flip-In. This lets shareholders buy discounted shares. The acquiring party does not have this discount.
- Flip-Out. This lets shareholders buy the acquiring party’s shares for a discount if there is a merger.
Poison pills are a controversial strategy as they may not benefit all shareholders, especially those interested in an increased stock price offered by an acquiring party.
Get Legal Help With Hostile Takeovers
If you have a company or on a board that may be facing a hostile takeover, it is critical to work with an experienced corporate lawyer for legal strategies and defenses. If you are a shareholder affected by a hostile takeover, you may contact an attorney to discuss your rights, especially if a board member is not acting in the company’s best interest.
More Battles Ahead for the Future of OpenAI
Even if OpenAI can avoid Musk’s takeover attempts, they are still under attack. Musk has filed several lawsuits against OpenAI and has a competing AI company, xAi.
OpenAI has plans for restructuring its for-profit entity into a public benefit corporation. A public benefit corporation is a for-profit company that focuses on a public good, such as a social or environmental cause, and can still make profits and distributions to shareholders.
This year should have many more developments over control of the AI industry.
Related Resources
- Does Twitter Have To Accept Musk’s Hostile Takeover Offer? - FindLaw (FindLaw Law and Daily Life)
- Why Directors Must Dissent From Objectionable Board Decisions - FindLaw (FindLaw Learn About The Law)
- Shareholder Rights and Derivative Actions (FindLaw Learn About The Law)
