By Adam Levine

ChatGPT-maker OpenAI took a step toward clearing a significant hurdle that is preventing it from raising more capital.

On Thursday afternoon, OpenAI and Microsoft released a 49-word joint statement saying the companies have "signed a non-binding memorandum of understanding for the next phase of our partnership." That's a loaded phrase.

The current artificial-intelligence investment boom began with ChatGPT's debut in late 2022, and it wouldn't have been possible without funding from Microsoft and access to its Azure cloud. But the relationship has frayed, as both companies' AI ambitions outgrew their partnership.

OpenAI raised $40 billion in a funding round earlier this year, but half of it is contingent on OpenAI transforming from a nonprofit organization to a public-benefit corporation with regular shares.

Four major hurdles stand in the way. The first two are the attorneys general of California, where OpenAI is headquartered, and Delaware, where it is incorporated. Approval is not a foregone conclusion from either.

Elon Musk, one of the founders of OpenAI, but now estranged, is suing to prevent the recapitalization plan, and he is the third hurdle.

Microsoft is the fourth. Through those early investments, it owns a lot of shares in the "capped profit" subsidiary of the OpenAI nonprofit. Any change in corporate structure requires Microsoft's blessing.

Microsoft has all the leverage in these discussions. OpenAI has a ticking clock that winds down at the end of the year, and it has to make a final deal with Microsoft or risk losing $20 billion. A memorandum of understanding is a step in that direction, but Microsoft still holds all the cards.

Following the news, Microsoft stock was up 1.8% in after-hours trading.

Write to Adam Levine at adam.levine@barrons.com

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September 11, 2025 19:39 ET (23:39 GMT)

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