Goodwill and other intellectual property (IP)

Business valuations are likely to be influenced in some way by goodwill or intellectual property. Most businesses will have some form of goodwill but some may have other forms of intellectual property.

In valuing company shares, the value may be dependent on the underlying value of some form of intellectual property.

The value of goodwill is generally derived from the difference between the total value of a business (usually computed under the capitalised earnings method) and the value of its net assets (after deduction of liabilities). Goodwill may be personal, connected with the premises (for example a hotel) or associated with the brand or trade name.

Negative goodwill could be indicated in a situation where the valuations of the individual physical and other intangible assets of the business (other than goodwill) will realise more than the sale of the whole business.

For information on valuation techniques relating to shares, see the Measures and methods of valuation guidance note.

It may be necessary to value intellectual property separately from the rest of the business. For example, there may be a proposed sale of an intangible fixed asset. The asset may have to be valued for tax purposes, for example where: