This week, in a federal courthouse in Oakland, California, OpenAI CEO Sam Altman took the stand in Musk v Altman — a jury trial over OpenAI’s restructure of its nonprofit-controlled for-profit arm. Elon Musk, an early funder, accuses Altman, OpenAI President Greg Brockman and Microsoft of breaching charitable trust by allowing nonprofit value to be diverted into a for-profit structure now valued at over US$850 billion. Damages claimed: approximately US$150 billion.
The case has prompted a familiar question for Australian boards, founders and donors: could a charity be restructured or “cashed out” the same way here? The short answer is no, and the reasons reveal an important truth about how Australian charity law differs in practice from a widely held misconception about the United States.
(A small caveat: this article concerns founder or insider extraction of charitable value. It does not suggest that charities cannot trade, sell assets at fair market value, merge, operate commercial subsidiaries, or otherwise restructure legitimately.)
The U.S. position is more constrained than people assume
A common assumption is that U.S. law freely permits not-for-profits to convert to for-profit entities and monetise their work. It does not. The assets of a 501(c)(3) organisation are permanently dedicated to exempt purposes and, on dissolution, must be distributed for exempt or public purposes. Conversions of nonprofit hospitals, HMOs and health insurers did occur through the 1990s and 2000s — Blue Cross of California being the textbook example — but typically only where regulators were satisfied that fair market value was received and that charitable value was preserved, often through a “conversion foundation” continuing the original mission. State Attorneys-General had to approve. Founders and insiders could not pocket the value.
Musk v Altman is so explosive precisely because Musk alleges that OpenAI’s hybrid structure has, in substance, captured charitable value for private benefit — attacking the same asset-lock doctrine that exists, on paper, in both legal systems.
Why an OpenAI-style restructure would not work in Australia
Australian law provides no statutory pathway equivalent to the U.S. conversion route. The framework governing how charities are established and structured in Australia does not contemplate it. The constraints are layered:
- Non-distribution constraint. Under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) and the Charities Act 2013 (Cth), an entity is only a charity if it operates on a not-for-profit basis and applies all surplus to its charitable purpose. The same requirement is reflected in ACNC Governance Standard 1.
- No dividends to members. Section 254SA of the Corporations Act 2001 (Cth) prohibits a public company limited by guarantee from paying dividends to members, subject to limited grandfathering for some companies registered before 28 June 2010. For ACNC-registered charities, the not-for-profit requirement and mandatory governing-document clauses prevent distributions regardless.
- Mandatory wind-up provisions. A charity’s governing document must require that, on winding up, surplus assets transfer to another charity with similar purposes. For DGR-endorsed entities, gifts, deductible contributions and related money or assets on hand at the time of winding up or DGR revocation must transfer to another DGR — reflecting the requirements of Division 30 of the Income Tax Assessment Act 1997 (Cth).
- Trust law and Attorney-General oversight. Charitable assets may also be subject to charitable trust principles, court supervision and Attorney-General oversight under the parens patriae jurisdiction, particularly where property is held on charitable trust.
The combined effect is that there is no lawful pathway for founders or directors to convert accumulated charitable value into personal equity or distributions. A restructure producing that outcome would expose directors to breaches of fiduciary duty, ACNC Governance Standard 5, and potential equitable claims initiated by the Attorney-General.
What Australian charities can legitimately do
Commercial activity is not prohibited — only private enrichment. Australian charities, whether structured as companies limited by guarantee, incorporated associations or charitable trusts, routinely conduct mission-aligned trading directly, establish wholly owned for-profit subsidiaries (typically proprietary companies, with profits flowing back to charitable purpose), or pursue social-enterprise models, joint ventures and licensing arrangements. Transactions involving insiders or private investors are not automatically unlawful, but they require careful conflict management, independent fair-market valuation, and rigorous private-benefit analysis.
A practical checklist for boards
Before restructuring a charity, the board should ask:
- Does the transaction further the charity’s purposes?
- Is any private benefit incidental, reasonable and properly documented?
- Has the charity obtained independent valuation advice?
- Have conflicted directors been excluded from the decision-making process?
- Does the governing document permit the transaction?
- Are ACNC, ATO, ASIC, state regulator or Attorney-General issues triggered?
The takeaway for Australian boards
Musk v Altman is, at its heart, a dispute about whether a charity’s value can lawfully flow to its founders. Australian law gives a much blunter answer than U.S. law: it cannot. For directors of Australian charities, whether of small community organisations or significant philanthropic ventures, the duties are clear, the wind-up requirements are non-negotiable, and any restructure proposal should be tested against the asset-lock framework before, not after, the strategic decisions are made.
Whether you are establishing a new charity, reviewing how your charity is structured, considering a for-profit subsidiary, or contemplating any transaction that touches charitable assets, our charity and not-for-profit team can help you map the regulatory pathway and stay on the right side of the ACNC, the ATO and the relevant Attorney-General.
Scott Colvin, Partner
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