Businesses and individuals in Indiana encounter the term tangible net worth in financial disclosures, loan agreements, or regulatory compliance. This figure is used for assessing financial stability and determining eligibility for certain state programs or obligations. Understanding its calculation and reporting helps ensure compliance with Indiana’s legal requirements.
Statutory Criteria
Indiana law does not provide a single definition for tangible net worth. Its meaning and how it’s calculated depend on the specific situation, such as licensing requirements or state program eligibility. Different Indiana Code and Administrative Code sections have their own rules for determining tangible net worth.1Indiana Department of Local Government Finance. Indiana Code and Administrative Code
The basic calculation involves subtracting total liabilities and intangible assets from total assets. Intangible assets are non-physical and include items like goodwill, patents, and trademarks. Because rules can vary, individuals and businesses should check the specific law or regulation that applies to them for the exact calculation method.
Major Assets
Tangible assets commonly included in the calculation are:
- Cash and cash equivalents, such as funds in bank accounts and highly liquid short-term investments
- Accounts receivable, representing money owed for goods or services
- Inventory, including raw materials, work-in-progress, and finished goods
- Real estate, like land and buildings, with values often based on appraisals
- Machinery, equipment, and vehicles used in business operations, usually valued at cost less accumulated depreciation
Key Liabilities
Liabilities are an entity’s financial obligations and are subtracted from tangible assets. Common liabilities include:
- Accounts payable (money owed to suppliers)
- Accrued expenses (incurred but unpaid costs like wages or taxes)
- Loans
- Bonds
- Mortgage obligations
- Deferred revenue (money received for services not yet rendered)
The treatment of certain liabilities may be guided by specific Indiana statutes or regulations, which can reference generally accepted accounting principles (GAAP).
Indiana Filing Requirements
In Indiana, demonstrating financial standing often means submitting comprehensive financial documents to state authorities, not just a specific tangible net worth report. These documents are frequently required for licensing, registration, or ongoing compliance for businesses like grain buyers, collection agencies, and money transmitters.2Indiana State Department of Agriculture. Grain Licensing
The required financial statements, which may need to be prepared according to GAAP and sometimes audited or reviewed by a CPA, include a balance sheet, income statement, and cash flow statement. Regulators use these documents to assess net worth and calculate tangible net worth by excluding specified intangible assets. Filings for initial licensing and annual renewals often require these financial statements, enabling continuous monitoring of financial stability.
Recent Legislative Changes
Legislative updates in Indiana can change how tangible net worth is applied, particularly for financial responsibility in certain industries. For instance, Indiana adopted the Model Money Transmission Modernization Act (Senate Enrolled Act 458), effective January 1, 2024, which updated laws for money transmitters.3Indiana Department of Financial Institutions. DFI Guidance on SEA 458 (Money Transmission Modernization Act)
This act, specifically Indiana Code section 28-8-4.1, now defines tangible net worth for licensed money transmitters as “the aggregate assets of a licensee, excluding all intangible assets, less liabilities, as determined in accordance with United States generally accepted accounting principles.”4Justia Law. Indiana Code § 28-8-4.1-201 Definitions for Money Transmission Modernization Act This example shows how new laws can set clear tangible net worth standards for regulated businesses.
Penalties for Inaccurate Reporting
Accurate financial reporting, including for tangible net worth, to Indiana state agencies is important. Inaccurate submissions can lead to serious consequences.
For example, the Indiana Grain Buyers and Warehouse Licensing Agency (Indiana Code section 26-3-7) can suspend or revoke licenses or assess civil penalties up to $20,000 per violation for false financial statements.5Indiana State Department of Agriculture. IC 26-3-7 Indiana Grain Buyers and Warehouse Licensing and Bonding Law Submitting false information under oath may also result in perjury charges, a Level 6 felony (Indiana Code section 35-44.1-2-1), with penalties including imprisonment and fines (Indiana Code section 35-50-2-7).6Justia Law. Indiana Code § 35-44.1-2-1 Perjury
Under the new money transmitter law (Indiana Code section 28-8-4.1), the Department of Financial Institutions can issue cease and desist orders, suspend or revoke licenses, and impose civil penalties up to $10,000 per violation for false information.7Justia Law. Indiana Code Title 28, Article 8, Chapter 4.1 Money Transmission Modernization Act