According to news on December 27, Tesla CEO Elon Musk’s newly established AI startup xAI is following the practices of competitors OpenAI and Anthropic and choosing a unique corporate structure. Documents xAI filed with the state of Nevada in late November revealed that the company had registered as a for-profit B Corporation, a structure that allows companies to prioritize positive impact on society over returns to shareholders. Musk, who launched the secretive startup earlier this year, has long expressed concerns about the impact artificial intelligence could have on society.
According to the document, the overall purpose of xAI is to "generally have a substantial positive impact on society and the environment." By taking such a stance, xAI is committed to operating in the best interests of all stakeholders (which theoretically includes employees and others with whom it is associated), rather than solely focusing on the best interests of all shareholders.
B Corporations are becoming more common in the United States as these companies include social responsibility obligations (such as reducing global warming) as part of their corporate charter. Doing so can, in turn, attract environmentally or socially responsible employees, customers and investors. Nevada introduced a B Corp structure similar to Delaware and California in 2014, and many startups have been incorporated in these two states.
While OpenAI is not a B Corporation, it does have an unusual corporate structure in that it is made up of a nonprofit and a for-profit arm, with a board of directors responsible for the nonprofit arm. The impact of this structure was highlighted in late November when OpenAI CEO Sam Altman was fired and quickly reinstated. The company said the board that fired Altman had a duty to prioritize ensuring the company creates "safe and beneficial" artificial intelligence over generating returns for investors.
In contrast, Anthropic, another artificial intelligence startup, is registered as a B Corporation in Delaware and its purpose is to develop artificial intelligence technology "for the long-term benefit of mankind."
Jonathan Storper, a lawyer at Hanson Bridgett in San Francisco, said California's B Corporation law has become a model for many states, and B corporations are protected by law from the influence of small shareholders. It is reported that minority shareholders want to sue the board of directors for decisions they allege did not help maximize shareholder wealth.
"You can make choices about the structure of your company in order to fulfill your mission, which is broader than the definition of corporate mission," Stolper said.
Under Nevada law, xAI is required to undergo external evaluations annually to ensure it is adhering to its commitment to making a positive impact on society and the environment. In addition, xAI must publish an annual report to demonstrate to the public its specific contributions to society and the environment.
Neither Musk nor xAI director Jared Birchall responded to requests for comment.
Before Musk founded xAI, he had repeatedly criticized OpenAI for its deficiencies in text content protection and its departure from the non-profit structure when it was founded. As one of the founding members of OpenAI, he served on the board of directors until 2018. However, as OpenAI gradually shifted to a for-profit model, Musk chose to leave.
Today, Musk has integrated xAI into a range of businesses he leads. In November, the startup began rolling out its chatbot Grok to some users on Musk's social media platform X. According to Musk, Grok was designed to be funny and "politically neutral," which contrasts with his belief that ChatGPT has a left-leaning bias.
X's investors will own 25% of xAI's shares. He has recruited top researchers for the small team, including Igor Babuschkin, a researcher who left Alphabet's artificial intelligence unit DeepMind.
Earlier this month, xAI disclosed plans to raise $1 billion, a round of financing largely backed by Musk, according to people familiar with the matter.