What Is an Intangible Asset?

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An intangible asset is nonphysical property, like an idea.
An intangible asset is nonphysical property, like an idea. (Image: Jupiterimages/Comstock/Getty Images)

An intangible asset is an idea, concept or legal right that has some monetary value, but is not physical in nature. In essence, an intangible asset is a piece of valuable property that you cannot touch, see, hear, smell or taste. It has real value and existence, but it has no physical embodiment. Intangible assets include intellectual property, licenses and approvals, and business good will.

Good Will

A common type of intangible asset in the business world is a concept referred to as good will. Good will is the value of a business based on its reputation and market recognition. Good will is not something you can grab hold of or transfer physically from one person to another, but it is something of value that the law protects and that people will pay money to acquire or to hold on to.

Copyright

Another common form of intangible assets is a copyright. A copyright gives the holder of the copyright the exclusive right to use or sell a specific literary or artistic rendition. A copyright is a legal right that has value even though the copyright itself is made up of nothing physical.

Trademark

Similar to a copyright, a trademark is another intangible asset that creates value for the owner even though it does not exist in the physical world. A trademark gives the owner the exclusive right to use a name or label.

Patent

In addition to copyrights and trademarks, patents provide a third layer of intellectual property that is considered an intangible asset. Patents give the patent owner the exclusive right to the use, design or sell a certain idea. A patent is considered an intangible asset even though technically the patent does not exist until the U.S. Patent and Trademark Office issues a written patent. The written patent is evidence of the patent, but it is not the patent itself. A patent is a legal right, an intangible asset, that does not exist physically.

Government Approvals

Government licenses and approvals, often referred to as "entitlements," are another common type of intangible asset. A real estate developer, for example, may create instant value in real property by obtaining a zoning change or negotiating a development agreement with the local government entity. The entitlements add value to the real estate even though the real estate does not change physically.

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