Intangible asset

Intangible assets are defined as assets that are not physical in nature.

The discussion of what intangible assets are is often preceded by a definition of what they are not, i.e. real property, goods, money, negotiable securities, negotiable instruments, letters of credit, and documents of title are not intangible assets.

The Uniform Commercial Code (Section 9-104) defines "general intangibles" as "any personal property...other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter of credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software."

Goodwill

The most common form of intangible asset for a business is goodwill. This is the customer base that the business has built up and is the principal reason that a business might sell for more than the value of the tangible assets.

However the value of goodwill is very difficult to assess especially in cases where personal contact is important. For example an accountant who sells his practice would not be able to guarantee that all of his clients would transfer to the buyer.

When purchasing a business of this nature it is very important to be sure that provisions are made for an adjustment in the sales price after an initial trial period to see if the client base has eroded.

In sociology and public health studies, the goodwill of social groups is called social capital- which replaces the need for financial capital or control of other capital assets. With high goodwill you can charge more for the same service or spend less attracting the same number of clients. Likewise, with high social capital you do not need to own things because you can access them without having to own them. This is simply goodwill on a much larger scale.

See intangibles for more on the general issues involved in all forms of intangible and intangible capital valuation.

See also

• Chose in action