The splitting of an entity’s equity into two smaller and standalone bases. In a corresponding context, bifurcation also refers to the dividing of an entity into two separate chunks, thereby creating two new entities that can each issue its own shares to stockholders. Equity bifurcation refers to an equity issuer’s capitalization of its equity via two different types of security in order to attain optimal (maximum) share values that may not have be attainable via a single security capitalization.

In a different context, bifurcation may involve dividing a compound financial instrument into two different components (or even more): liability and equity on a constant basis. Each component is classified separately, depending on its distinguishing characteristics (e.g., financial liabilities, financial assets or equity instruments).