Intangibles: Overview, definition, and example
What are intangibles?
Intangibles are non-physical assets that hold value but do not have a tangible form. These assets are often intellectual in nature and can include things such as patents, trademarks, copyrights, brand reputation, goodwill, software, and trade secrets. While they cannot be touched or physically measured like real estate or machinery, intangibles can still provide significant value to businesses or individuals, often contributing to competitive advantage, revenue generation, or overall business success.
For example, a company’s brand name and customer loyalty are intangible assets that contribute to its market position, even though they don't have a physical presence.
Why are intangibles important?
Intangible assets are important because they can have a substantial impact on a company’s financial health and market value. They represent elements like intellectual property, brand strength, or customer relationships, which can drive revenue and create long-term value. Intangibles often play a critical role in industries such as technology, entertainment, and branding, where intellectual property and reputation are key drivers of success.
For businesses, protecting and leveraging intangible assets can help maintain a competitive edge, secure market positioning, and increase profitability. From a financial perspective, accurately valuing and managing intangibles is essential for mergers, acquisitions, and overall financial reporting.
Understanding intangibles through an example
Imagine a tech company that develops a highly innovative software program. While the company may own physical assets such as office buildings and computers, its most valuable assets are likely its intangible assets, such as the software’s intellectual property (IP), copyrights, and patents. These intangibles allow the company to secure market exclusivity, prevent competitors from copying the product, and potentially license the software to generate additional revenue.
In another example, a famous sports brand has built a strong reputation over time, creating significant value through its logo and trademark. The value of the brand’s intangible assets—its trademark, customer loyalty, and market recognition—helps drive sales and is a major contributor to the company’s overall valuation, even though these assets are not physical in nature.
An example of an intangibles clause
Here’s how a clause about intangibles might appear in a contract or agreement:
“The Parties agree that all intellectual property rights, including patents, trademarks, copyrights, and trade secrets, shall remain the exclusive property of [Party Name], and no rights to use or exploit these intangible assets shall be granted to the other Party without prior written consent.”
Conclusion
Intangibles are non-physical assets that can hold significant value for businesses, individuals, or organizations. Although they are not tangible in the traditional sense, intangibles such as intellectual property, brand reputation, and customer relationships play a key role in driving business growth and providing a competitive edge. Understanding, protecting, and leveraging intangible assets are critical components of business strategy and financial success, particularly in industries where intellectual property and branding are core to value creation.
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.