Executives at one of the leading names in the local AI boom, OpenAI, are reportedly "rattled" by ongoing pushback and regulatory setbacks in California regarding its move to restructure itself as a for-profit entity.

We learned almost exactly a year ago that OpenAI, which had been founded as a nonprofit, was looking to transition into a public benefit corporation — which under California's definition, is still a non-profit company that is meant to help society, but has a profit motive as well.

The move was seen as key to the company being able to raise the vast sums of cash it needs to build and operate its increasingly data-hungry AI models, but it was immediately met with outrage — faux or not — from co-founder Elon Musk. Musk publicly balked at the move toward being for-profit, calling it illegal, and OpenAI's Sam Altman quickly published some emails from Musk in previous years that showed him approving of the for-profit move and the need for investment.

The feud has spilled over into a court case in which OpenAI has accused Musk of defaming the company, but the issue of how the company can restructure has also drawn scrutiny from the California Attorney General's Office, and the attorney general in Delaware, where many companies register their businesses. The move has also been opposed by a coalition of labor and nonprofit groups in the state.

As the Wall Street Journal reports today, via unnamed sources close to the company, OpenAI executives are reportedly discussing a "last-ditch" option to preserve their plans, which would be relocating out of the state of California.

A spokesperson for the company quoted by the Journal denies that this is under consideration. But the paper's source suggest that executives have floated the idea of a move out of state if things get worse with the AG's investigation. If the company were to be denied the ability to restructure, it could mean the loss of an estimated $19 billion in funding — funding for which investors have conditioned getting shares in exchange in an ultimate for-profit company.

One of the Elon Musk emails that OpenAI published earlier this year, dated from December 2018, suggests that Musk understood that "raising several hundred million won’t be enough" to get the enterprise going. "This needs billions per year immediately or forget it," Musk wrote.

Musk had allegedly been angling to become CEO of OpenAI, and when that failed, the company's leadership said, he began arguing that Tesla was better positioned to go up against the likes of Google in the AI field. Musk ultimately left OpenAI to launch his own AI division at Tesla, which has grown into xAI.

Subsequent to OpenAI's announcement last year about the for-profit conversion, Meta CEO Mark Zuckerberg has also asked the California AG to block the move — while Meta attempts to build its own rival AI division.

Even without Musk's criticism, a coalition of nonprofit, labor, and philanthropic groups filed a petition with the California AG in April, accusing it of abandoning its original charitable intentions in order to seek profits.

"[OpenAI’s] current attempt to alter its corporate structure reveals its new goal: providing AI’s benefits — the potential for untold profits and control over what may become powerful world-altering technologies — to a handful of corporate investors and high-level employees," the petition said.

The Journal reports that executives at the company were not expecting the level of pushback they've seen from this effort. After discussions with those groups, OpenAI announced in May that it would not divorce the Public Benefit Corporation from the nonprofit, and OpenAI's nonprofit board would remain in control of the for-profit subsidiary.

But it remain unclear whether that concession will be enough as OpenAI moves forward to restructure.

Lorena Gonzalez, president of the California Federation of Labor Unions, tells the Journal, "We have been very clear in our position that [OpenAI] benefited from being a nonprofit, they’re now going to make massive profits, and that money should come back to the people who it would have gone to in the first place."

As OpenAI invests millions in new offices in San Francisco, could a headquarter move — a la Elon Musks' own companies — out of California to Texas or elsewhere, be in the cards? Such a move would be both an embarassment to Governor Gavin Newsom as he angles for a presidential bid and wants California not to be seen as anti-business, and a potential blow to SF's own AI-fueled tech boom.

An OpenAI spokesperson tells the Journal that they want to create "one of the best-resourced non-profits in history," and adds, "We continue to work constructively with the offices of the Attorneys General of California and Delaware."

Previously: OpenAI Publishes Old Emails From Musk Showing He Approved For-Profit Venture

Top image: Open AI CEO Sam Altman speaks during Snowflake Summit 2025 at Moscone Center on June 02, 2025 in San Francisco, California. Snowflake Summit 2025 runs through June 5th. (Photo by Justin Sullivan/Getty Images)