Tangible Net Worth
Tangible net worth is net worth with intangible assets such as goodwill stripped out. US state regulators use it as the minimum capital test a money transmitter must pass to obtain a license and to keep it, and it is computed to the state’s definition rather than the company’s.
Also called: net worth requirement
What gets subtracted
Start with assets minus liabilities as the audited accounts report it, then take out every intangible asset. Under the model money transmission law the states have been adopting, tangible net worth is the aggregate assets of a licensee excluding all intangible assets, less liabilities, determined in accordance with US generally accepted accounting principles. Goodwill from acquisitions, capitalized software and development costs, and trademarks and licenses carried at book value all come out on that test. What is left is tangible net worth.
Those exclusions catch out well-funded companies. A fintech that raised a large round and spent it building a platform may hold most of its value as capitalized engineering cost and goodwill from a small acquisition. On its own balance sheet it looks strongly capitalized; on the state’s calculation it can be close to zero.
What the test does not do is strip out money owed by affiliates, and that is a common misunderstanding. The model definition removes intangibles and nothing else. Related-party and delegate receivables are constrained somewhere else entirely — in the permissible investments rules, which cap how much of the required pool may sit in receivables from authorized delegates. Older state statutes that predate the model law vary, so if an adviser tells you some further exclusion applies, ask which state and which version of its law.
How states apply it
Each state sets a minimum for a money transmitter license, and several scale it with the number of locations, the number of authorized delegates or the volume transmitted, subject to a ceiling. The test is continuous. A licensee files periodic financial reports certifying the figure, and falling below the minimum between filings is a violation at the moment it happens, not at the next report. Remediation usually means a cash injection, because contributed capital has to arrive as an asset the state counts rather than as a promise from a related party.
Tangible net worth sits alongside two other financial tests, a surety bond and a permissible investments requirement. They measure different things, and a licensee has to pass all three at the same time.
In practice
Tangible net worth is not book equity. Under the model money transmission law the states have been adopting, it is total assets less all intangible assets less liabilities, computed under US generally accepted accounting principles — which is why a company can look well capitalized on its own accounts and still fail the test. Receivables from affiliates do not come out of this calculation; they are constrained under the permissible investments rules instead. Compute the figure on the state’s own definition, and on the version of its law in force, before an application is filed rather than after a deficiency letter arrives.
Example
A company’s balance sheet shows $8 million of equity, of which $2.8 million is goodwill from an acquisition and $1.4 million is capitalized development cost. Strip the intangibles out and the state counts $3.8 million. If that state’s minimum is higher, the application fails on accounts showing more than twice the number.
Commonly confused with
| Term | How it differs |
|---|---|
| Regulatory Capital | Regulatory capital is the general concept across regimes; tangible net worth is the specific formulation US state money transmission law uses. |
| Permissible Investments | Permissible investments test whether customer money in transit is covered; tangible net worth tests the licensee’s own capital cushion. |
| Surety Bond | A bond is third-party cover bought from a surety; tangible net worth must be real capital on the licensee’s own balance sheet. |
See also
- Surety BondA surety bond is a guarantee from a third-party surety company that a state regulator requires a money transmitter licensee to post, so consumers and the state can be paid if the licensee fails to meet its obligations. It is a guarantee the licensee buys, not money it sets aside.
- Permissible InvestmentsPermissible investments are the categories of asset a licensed US money transmitter may count against its outstanding money transmission obligations. Under the model law states have been adopting, the licensee must hold permissible investments worth at least the whole of what it owes customers, and the eligible list runs wider than cash and government securities.
- Money Transmitter LicenseA money transmitter license is permission granted by a US state for a company to receive money from the public in that state and pay it, or its value, to someone else. Each state licenses separately.
- Regulatory CapitalRegulatory capital is the minimum capital a licensed financial firm must hold, and keep holding, calculated by a method the regulator prescribes rather than by ordinary accounting. It is a continuing condition of the license, tested at application and at every examination afterwards.
- Authorized DelegateA company authorized to conduct money transmission on behalf of a licensed principal, operating under that principal’s money transmitter license rather than holding one of its own. Most US states call this an authorized delegate; some call it an agent.
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Regulatory information checked: 22/Sep/2026