Musk's AI Startup Adopts Unique Structure Prioritizing Social Impact
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On December 27th, news emerged that Tesla CEO Elon Musk's newly established AI startup xAI is following the example of competitors OpenAI and Anthropic by adopting a unique corporate structure.
Documents filed with Nevada in late November show that xAI has registered as a for-profit benefit corporation, a structure that allows companies to prioritize positive social impact over shareholder returns. Musk founded this mysterious startup earlier this year, having long expressed concerns about AI's potential societal effects.
According to the filings, xAI's overarching purpose is to "have a material positive impact on society and the environment, taken as a whole." By taking this stance, xAI commits to operating in the best interests of all stakeholders (theoretically including employees and other affected parties) rather than focusing solely on shareholder profits.
Benefit corporations are becoming increasingly common in the U.S. as they incorporate social responsibility obligations (such as mitigating global warming) into their corporate charters. This approach can attract environmentally and socially conscious employees, customers, and investors. Nevada introduced benefit corporation structures similar to Delaware and California in 2014, with many startups registering in these states.
Although OpenAI is not a benefit corporation, it does have an unusual corporate structure, consisting of both nonprofit and for-profit divisions, overseen by the nonprofit's board of directors. The late November incident where OpenAI CEO Sam Altman was fired and quickly reinstated highlighted the impact of this structure. The company stated that the board responsible for Altman's dismissal prioritized ensuring the creation of "safe and beneficial" artificial intelligence over generating returns for investors.
In contrast, another AI startup, Anthropic, is registered as a benefit corporation in Delaware, with a mission to develop AI technology "to ensure the long-term benefit of humanity."
Jonathan Storper, a San Francisco-based attorney at Hanson Bridgett, noted that California's benefit corporation law has become a model for many states. Benefit corporations are legally protected from minority shareholders who might sue the board for decisions that do not maximize shareholder wealth.
Storper said, "You can make structural choices for the company to fulfill its mission, which is broader than the definition of corporate purpose."
According to Nevada state law, xAI is required to undergo annual external assessments to verify its compliance with commitments to generate positive social and environmental impacts. Additionally, xAI must publish an annual report to demonstrate its specific contributions to society and the environment.
Neither Elon Musk nor xAI director Jared Birchall responded to requests for comment.
Before founding xAI, Musk had repeatedly criticized OpenAI for its shortcomings in text content protection and its departure from its original non-profit structure. As one of OpenAI's founding members, he remained on its board until 2018. However, as OpenAI gradually shifted toward a for-profit model, Musk chose to leave.
Musk has now integrated xAI into his portfolio of companies. Last November, the startup began rolling out its chatbot Grok to select users on Musk's social media platform X. According to Musk, Grok was designed to be humorous and "politically neutral," contrasting sharply with what he perceives as ChatGPT's left-leaning bias.
Investors in X will hold a 25% stake in xAI. Musk has already recruited top researchers for this small team, including Igor Babuschkin, a former researcher from Alphabet's AI division DeepMind.
According to informed sources, xAI disclosed plans earlier this month to raise $1 billion in funding, with this round primarily backed by Musk.