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OpenAI has said it plans to give its non-profit parent an equity stake worth at least $100bn in the ChatGPT maker, as it announced progress in talks with Microsoft to overhaul its structure and unlock an eventual public listing.

The two companies on Thursday said they had signed a “nonbinding memorandum of understanding”, which marks a significant step forward in the start-up’s effort to convert to a more investor-friendly, for-profit structure.

Microsoft, an early backer of the artificial intelligence start-up, has for months been locked in contentious negotiations with OpenAI covering the tech group’s access to the start-up’s technology, intellectual property and revenue.

An agreement is an essential precursor to OpenAI converting part of its business to a for-profit and clearing a path to an IPO that would hand a huge payday to investors such as SoftBank and the company’s co-founder Sam Altman.

One of the biggest issues in the negotiations around OpenAI’s conversion is how equity in the new entity would be split between Microsoft, the company’s other backers, employees and the non-profit which controls the company.

OpenAI on Thursday said it had determined the non-profit would own an equity stake in the restructured business worth at least $100bn.

The company did not say what percentage of the business that would equate to, but two people with knowledge of the plans said it would be between 20 per cent and 30 per cent. OpenAI is in talks for a deal valuing it at $500bn.

Microsoft is expected to take about 30 per cent of the company after the planned conversion, said people with knowledge of the talks, which would be worth roughly $170bn at the current valuation.

The two companies said they are “actively working to finalise contractual terms in a definitive agreement” after agreeing the nonbinding memo covering “the next phase of our partnership”.

They gave no details on the substance of the new agreement. The contract is expected to determine what access Microsoft will have to OpenAI’s intellectual property, what share of revenues it is entitled to and whether it retains exclusive rights to host OpenAI’s models on its cloud service.

The companies hope to finalise the terms by the end of the year, people familiar with the talks said.

“Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety,” they added.

OpenAI was founded as a research-focused non-profit in 2015, with a mission to create powerful AI for the benefit of humanity. 

But since the launch of ChatGPT in 2022, it has become a commercial juggernaut with 700mn weekly users and relentless demand for new capital. As a result, OpenAI has been pushing to convert to a more conventional investor-friendly entity.

Those efforts have been fraught. The company has watered down plans, with a more modest aim to convert only a subsidiary into a form of for-profit called a public benefit corporation (PBC), with the non-profit retaining ultimate control.

The start-up’s chair Bret Taylor on Thursday said those plans “would also enable us to raise the capital required to accomplish our mission — and ensure that as OpenAI’s PBC grows, so will the non-profit’s resources, allowing us to bring it to historic levels of community impact”.

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Microsoft invested $1bn into the company in 2019, providing computing power and capital in return for access to the start-up’s AI models. It has since poured an additional $12bn into the ChatGPT maker, giving it massive influence over OpenAI’s fate.

The start-up is facing a legal challenge from Elon Musk who is seeking to block the restructuring, which also requires the blessing of the attorneys-general in Delaware, where it is headquartered, and California, where the bulk of its operations are located.

The top state lawyers in both states wrote to the company last week expressing “serious concerns” after the deaths of some chatbot users and said safety must be improved before they sign off on its planned restructuring.

Taylor said: “We are fully committed to addressing the attorneys-general’s concerns.”