OpenAI’s deal with Microsoft could pave the way for a potential IPO

OpenAI’s path to a potential IPO may have just got a little clearer. The AI company said on Thursday it has reached a preliminary agreement with major investor Microsoft that could allow the startup to restructure and, eventually, go public.

Both companies signed a non-binding memorandum outlining “the next phase” of their relationship, with a definitive agreement expected in the coming months. The announcement was light on details; financial small print was not disclosed, and the companies said they are still finalizing contractual terms.

“Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety,” the companies said in a Thursday statement.

Nevertheless, the deal appears to address the structural and competitive friction that has complicated the relationship between OpenAI and its largest investor, paving the way for the $500 billion startup to convert its for-profit arm into a public benefit corporation (PBC).

OpenAI’s corporate structure is unusual. Originally founded as a nonprofit, it established a capped-profit arm in 2019, which allowed for large investments such as Microsoft’s. The company has been trying to restructure its profit-focused entity into a more conventional corporate model to allow it to raise additional capital, while leaving the nonprofit parent in control of the startup’s operations. A conversion to a more traditional structure, such as a Public Benefit Corporation, could allow the company to combine its public mission objectives with profit generation and possibly go public in the future.

Altman is well aware that speculators want to see OpenAI float on the stock exchange. He told CNBC last month he had “very conflicted” feelings on a potential IPO, explaining: “Whenever we do go public, if we ever go public, I think there will be tremendous upside left in front of the company, but I get why people would love for us to be public or sooner. And I’m sure people also get the reality of like we’re in still a crazy position and it would be very hard for us to be public given just all of the realities of that.”

Microsoft was an early investor in OpenAI and has cumulatively invested at least $13 billion in the AI startup since 2019. In exchange, the tech giant has received a share of the revenue from OpenAI’s products, including ChatGPT, and has embedded the company’s technology into Microsoft 365 products. However, the partnership has reportedly become strained as both companies scale their AI ambitions.

Microsoft now counts OpenAI as a competitor and has been increasing its reliance on its own AI models. OpenAI has also inked a multibillion-dollar cloud deal with Oracle to ensure it has sufficient compute capacity, potentially alleviating its reliance on Microsoft’s cloud support.

The news of a deal was well-received by investors, with Microsoft’s stock rising 2.4% in after-hours trading following the announcement.

When asked for further details about the agreement, representatives for Microsoft and OpenAI referred Fortune to the companies’ joint statement.

Regulation hurdles

However, the transition still needs to be cleared by state regulators.

Both the California and Delaware attorneys general are already scrutinizing OpenAI’s restructuring. Regulators are questioning whether OpenAI has strayed from its original public-benefit mission in favor of commercial growth—recent suicides linked to ChatGPT have also complicated the issue. The investigations could culminate in lawsuits or significant settlement demands as conditions for moving forward. OpenAI co-founder Elon Musk has also been fighting the restructuring plans and has filed a lawsuit accusing the startup of defrauding investors.

In a blog post also shared on Thursday, OpenAI board chairman Bret Taylor reaffirmed that OpenAI’s nonprofit would continue to have control over the startup’s operations and would obtain an equity stake in the new PBC worth more than $100 billion. He said this would make the nonprofit “one of the most well-resourced philanthropic organizations in the world.”

Taylor wrote in the post: “Our PBC charter and governance will establish that safety decisions must always be guided by this mission. We continue to work with the California and Delaware Attorneys General as an important part of strengthening our approach, and we remain committed to learning and acting with urgency to ensure our tools are helpful and safe for everyone, while advancing safety as an industry-wide priority.”

He also said that as part of this next phase, the company’s nonprofit has begun considering applications for the first wave of a $50 million grant initiative that aims to support nonprofit and community organizations in the areas of AI literacy, community innovation, and economic opportunity.

This story was originally featured on Fortune.com