DEFINITION of 'Bifurcation'

The splitting of a larger whole or main body into two smaller and separate units. Bifurcation can occur when one company divides into two separate divisions, thereby creating two new companies that can each issue shares to stockholders. Shareholders in the initial company are given shares of the new company through a corporate reorganization. Companies may seek bifurcation for certain tax advantages.

Bifurcation also refers to the analysis or evaluation of market conditions based on two distinct scenarios.

BREAKING DOWN 'Bifurcation'

Bifurcation, as it relates to finance, usually refers to the dividing of one company into two separate companies. This can provide tax advantages to the company as well as increased financial opportunities for shareholders. The term bifurcation has other applications in law, hydrology, fluid dynamics, mathematics, economics, chemistry, anatomy and physiology. In each application, bifurcation refers to the splitting in two of a certain element or system, such as the splitting of a single hydrogen atom participates into two hydrogen bonds.

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