General intangibles: Overview, definition, and example
What are general intangibles?
General intangibles are non-physical assets or rights that a business or individual owns but cannot touch or see. They are intangible by nature, meaning they do not have a tangible, physical form like real estate or machinery. General intangibles include intellectual property (such as patents, trademarks, and copyrights), goodwill, customer lists, licenses, software, and other assets that represent value but lack a physical presence. These assets can be transferred, sold, or used to secure financing, and they play a crucial role in a company’s overall value.
For example, a company’s brand reputation or intellectual property rights to a software application would be considered general intangibles.
Why are general intangibles important?
General intangibles are important because they can represent significant value for businesses, even though they are not physical in nature. These assets contribute to a company’s competitiveness, market presence, and overall financial strength. Intellectual property rights, for instance, can provide a company with the exclusive right to use certain technologies or branding, offering a competitive edge. Goodwill can increase the value of a business during mergers or acquisitions. General intangibles often play a vital role in determining the valuation and success of a business.
For businesses, understanding and managing general intangibles is essential for protecting intellectual property, maintaining competitive advantage, and ensuring that these assets are properly accounted for in financial statements. For investors and creditors, general intangibles can be a source of collateral or future revenue potential.
Understanding general intangibles through an example
Let’s say a tech company develops a new software application. The source code for the software, the software's name (which is trademarked), and the user licenses are all considered general intangibles. While the software itself is not a physical item, its intellectual property, brand recognition, and potential for sales represent valuable assets to the company.
In another example, a restaurant chain has built strong goodwill over the years, developing a loyal customer base. This goodwill—an intangible asset—can be a key factor in the company’s valuation when it is sold or merged with another business.
An example of a general intangibles clause
Here’s how a clause like this might appear in an agreement:
“The Borrower hereby grants the Lender a security interest in all of the Borrower’s general intangibles, including but not limited to intellectual property rights, customer lists, licenses, and goodwill. The Borrower agrees to maintain and protect these assets throughout the term of this Agreement.”
Conclusion
General intangibles are vital, intangible assets that play an essential role in a company’s value and operations. These assets, such as intellectual property, goodwill, and licenses, contribute to a business's competitive advantage and can have significant financial worth. While they are not physical in nature, general intangibles are crucial for businesses to manage, protect, and leverage effectively. Understanding and accounting for general intangibles helps businesses maximize their value, secure financing, and maintain a competitive edge in the market.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.