Legal Definitions - general intangible

A general intangible is a broad legal category for valuable personal property that lacks a physical form and does not fit into other specific classifications of intangible assets defined by commercial law. Essentially, if an asset is valuable, non-physical, and isn't explicitly categorized elsewhere (like money, accounts receivable, investment securities, or physical goods), it often falls under the umbrella of a general intangible.

These assets are particularly important in financial transactions because they can be used as collateral to secure a loan, allowing businesses and individuals to leverage their non-physical assets for financing.

• Example 1: Software License

  Imagine a software development company that creates a unique project management tool. Instead of selling the software outright, they license its use to other businesses for an annual subscription fee. The right to use or license this software is a valuable asset for the company. It's not a physical item (like goods), nor is it a simple debt owed (like an account receivable). The contractual right to license the software, and the intellectual property it represents, would be considered a general intangible. If the software company needed a loan to expand, a lender might take a security interest in these licensing rights as collateral.

• Example 2: Franchise Rights

  Consider an entrepreneur who wants to open a new coffee shop under a well-known national brand. To do so, they must purchase the exclusive rights to operate that specific franchise within a certain geographic area. These franchise rights include the use of the brand name, trademarks, operational systems, and proprietary recipes. These are not physical goods, money, or a simple account. They are a bundle of valuable, non-physical privileges and contractual rights. If the entrepreneur needed financing to build and equip the coffee shop, a lender could take a security interest in these franchise rights as a general intangible, allowing them to claim those rights if the loan defaults.

• Example 3: A Patent

  A biotechnology firm invents a groundbreaking new medical device and obtains a patent from the government. This patent grants the firm exclusive legal rights to manufacture, use, and sell that device for a specific period. The patent itself is an intangible legal right, not the physical device or the money earned from its sale. It gives the company a valuable monopoly over its invention. Since it doesn't fit into other UCC categories like goods, accounts, or investment property, the patent would be classified as a general intangible. The firm could use its patent as collateral to secure a large loan for further research and development, with the lender taking a security interest in this valuable intellectual property.