Today, a federal jury in Oakland, California delivered its verdict in one of the most closely watched corporate governance disputes in recent memory. Elon Musk’s lawsuit against OpenAI and CEO Sam Altman was thrown out unanimously, after less than two hours of deliberation. The jury found that Musk had simply waited too long to sue, missing the statute of limitations window to challenge what he called OpenAI “stealing a charity.”
The verdict may feel like a Silicon Valley story, but the legal issues at the heart of the three-week trial, including fiduciary duty, charitable mission, for-profit conversion, and the governance of hybrid nonprofit/for-profit structures, are ones that Michigan nonprofits face every day, often without billion-dollar legal teams to help navigate them.
The OpenAI saga illustrates both what can go wrong and what can be done right when a nonprofit organization develops a for-profit affiliation. Here is what your organization should take away from it.
The Core Issue: Mission Versus Money
OpenAI was founded in 2015 as a nonprofit research laboratory with an explicit charitable mission: the responsible development of artificial intelligence for the broad benefit of humanity. Musk co-founded it, donated $38 million to it, and argued in court that he did so on the understanding it would remain a nonprofit.
By 2019, OpenAI had created a for-profit subsidiary. By 2025, it had completed a broader restructuring that significantly expanded its commercial arm, producing a company now valued at $852 billion. Musk’s lawsuit alleged that Altman and others had abandoned the founding charitable mission in pursuit of private gain, enriching themselves at the expense of the organization’s public purpose.
OpenAI’s defense was that the nonprofit structure was always going to need to evolve to compete and survive, that no binding promise had been made, and that Musk himself had discussed for-profit models before leaving the board in 2018.
Regardless of where one’s sympathies lie, the dispute illustrates a tension that every nonprofit considering a for-profit affiliation must eventually confront: at what point does commercial activity serve the mission, and at what point does it begin to consume it?
Structural Options and the Stakes of Getting It Wrong
Nonprofits considering for-profit affiliations have several structural paths available, each with distinct legal implications.
The most common is the wholly-owned subsidiary model, where the nonprofit creates and controls a separate for-profit entity. OpenAI used a version of this, with its nonprofit parent originally holding governance authority over the for-profit arm. Done properly, this structure allows the nonprofit to maintain control, isolate business activities that might otherwise jeopardize tax-exempt status, and direct profits back toward the charitable mission. Done poorly, it can invite exactly the kind of dispute that played out in Oakland.
Joint ventures with existing for-profit entities are another option, requiring carefully drafted operating agreements that clearly delineate control, profit distribution, and decision-making authority. Licensing arrangements offer a less integrated but often simpler approach. More recent innovations include social enterprise models and Public Benefit Corporations, which formally combine profit-seeking with social purpose and may offer more structural clarity for organizations navigating this line.
No structure eliminates risk on its own. What matters is whether the chosen structure is properly documented, governed, and aligned with the nonprofit’s exempt purposes from the start.
Governance: Where OpenAI’s Story Gets Complicated
The trial produced remarkable evidence about OpenAI’s internal governance, including private emails, text messages, board meeting notes, and personal diaries. What emerged was a picture of informal agreements, shifting understandings, and governance structures that struggled to keep pace with the organization’s growth and commercial ambitions.
For Michigan nonprofits, this is instructive.
When a nonprofit creates or affiliates with a for-profit entity, governance structures must accomplish two things simultaneously: maintain appropriate separation between the entities and ensure ongoing mission alignment. This is harder than it sounds.
Board composition is a natural starting point. Some overlap between boards can facilitate coordination, but too much creates conflict of interest concerns. Directors who sit on both boards may face genuine tension between their duties to the charitable mission and their interest in the financial success of the for-profit affiliate.
Decision-making protocols for matters involving resource allocation, shared services, or transactions between entities must be clearly documented. These decisions should reflect that they were made in the nonprofit’s best interest, with conflicted individuals recusing themselves. Formal approval processes with review by independent board members or committees are not bureaucratic excess; they are protection.
Underlying all of this is fiduciary duty. Nonprofit directors must understand that their primary obligation runs to the charitable mission, not to the financial performance of an affiliated for-profit. The OpenAI case, at its core, was a dispute about whether leadership honored that duty. Michigan nonprofits should not wait for litigation to clarify what their directors already owe.
The Operational and Contractual Details That Protect You
One of the quieter lessons of the OpenAI trial is how much turned on what was and was not written down. Agreements, understandings, and commitments that existed only in emails and conversations proved difficult to enforce and easy to dispute.
Operational relationships between nonprofit and for-profit entities require clear legal agreements. Resource sharing arrangements should ensure the nonprofit receives fair market value for any assets, facilities, or services provided to the for-profit entity. Resources flowing the other direction should be properly documented as either charitable contributions or payment for legitimate services.
Intellectual property agreements deserve particular attention. A nonprofit may wish to maintain control over its brand, methodology, or other IP while licensing it to a for-profit affiliate, but the terms of that license, including quality control standards and revocation provisions, must be explicit.
For organizations that share staff, clear policies on employment status, time allocation, compensation, and reporting relationships are essential to prevent conflicts of interest and ensure proper allocation of expenses between entities.
None of this paperwork is glamorous. But it is precisely what the absence of clear documentation cost OpenAI in this litigation.
Tax Considerations You Cannot Afford to Overlook
The tax implications of nonprofit/for-profit affiliations can be far-reaching and complex, potentially affecting not just tax liability but exempt status itself.
Unrelated Business Income Tax, commonly known as UBIT, is a significant concern that can arise unexpectedly. Activities that generate revenue unrelated to the nonprofit’s exempt purpose may trigger UBIT liability, even when the profits ultimately support charitable work. Early consultation with a tax advisor who specializes in nonprofit issues is not optional; it is essential.
OpenAI’s restructuring has drawn scrutiny not just from Musk but from state attorneys general and the IRS. Michigan nonprofits considering similar moves should understand that regulatory attention to these structures is increasing, not decreasing.
Risk Management: Building in Protection Before You Need It
The Musk v. OpenAI case should also be read as a cautionary tale about risk management deferred. By the time litigation arrived, the disputes over governance, compensation, and mission alignment had compounded for years.
Michigan nonprofits can protect themselves by building in safeguards from the start. Maintaining clear boundaries through separate accounting systems, distinct operational protocols, and proper corporate formalities prevents liability from spilling over between entities. Documenting all resource-sharing arrangements with fair market value compensation clearly specified reduces the risk of later disputes over what was promised and to whom.
Each entity should carry appropriate insurance coverage, with particular attention to directors and officers liability policies that address overlapping leadership. Formal document retention policies for inter-entity transactions, board decisions, and communications create a defensible record when questions arise.
Perhaps most importantly, every nonprofit entering a for-profit affiliation should have contingency plans for restructuring or dissolving that relationship if it no longer serves the charitable purpose. One of the most revealing aspects of the OpenAI dispute was the absence of a clear framework for what would happen if the relationship between the nonprofit mission and the commercial operation fell out of alignment. That kind of planning is not pessimism; it is governance.
The Bottom Line for Michigan Nonprofits
The jury returned its verdict in less than two hours. The trial itself lasted three weeks. The underlying dispute had been building for years. The reputational, legal, and governance costs for everyone involved were enormous.
Your organization does not have to be OpenAI to face these questions. Any Michigan nonprofit exploring earned revenue strategies, commercial partnerships, subsidiary formation, or for-profit affiliations is navigating the same legal terrain, just at a different scale.
The law requires that nonprofit directors keep the charitable mission at the center of every decision involving for-profit affiliations. Getting the structure right, the governance right, and the documentation right from the beginning is not just good practice. It is how you ensure that the organization’s purpose remains intact even as the business environment evolves.
If your organization is considering a for-profit affiliation or has questions about the governance and legal requirements involved, we welcome your inquiry. Please contact Zana Tomich at Dalton & Tomich plc.
