In principle, means the positive reputation and warm “fuzzy” feelings the world, and in particular customers and clients, has toward a business, brand, or person. In accounting terms, it has come to be used as a valuation ‘slop-bucket’ when businesses are purchased for the price paid for the business over and above the value of the fixed assets. Formerly all intellectual property used to be ‘slopped’ into this bucket, but recent accounting changes means that IP needs to be identified and valued on the post merger balance sheet. Historically courts, lawyers, accountants, and especially taxmen have struggled to define goodwill. One of the best definitions was set forth by the United States Supreme Court in 1893 (albeit quoting a former Supreme Court Justice)
“the advantage or benefit which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers on account of its local position, or common celebrity, or reputation for skill or affluence or punctuality, or from other accidental circumstances or necessity, or even from ancient partialities or prejudices.” Metropolitan Nat. Bank v. St. Louis Dispatch Co., 149 U.S. 436, 446 (1893) citing J. Story, PARTNERSHIPS § 99 (1841)