Equity allocation refers to how ownership of a company—represented by shares or stock—is divided among various stakeholders such as founders, investors, and employees. In the context of portfolio management, it can also mean the proportion of an investment portfolio that is invested in equities (stocks and shares), as opposed to other asset classes like bonds or cash.

In a business or corporate context, equity allocation is critical for determining each party's share of ownership, voting rights, and entitlement to profits or proceeds if the company is sold. This distribution is typically recorded in a capitalization table (cap table), which lists all shareholders and their respective equity stakes. Equity allocation can follow different valuation methods, such as using current company value, probability-weighted scenarios, or option-pricing models, depending on the complexity and future outlook of the business.

In investment portfolio management, equity allocation refers to the percentage of a portfolio that is dedicated to equity investments (stocks). The chosen equity allocation reflects an investor's risk tolerance, financial goals, and investment horizon, and is a key component of strategic asset allocation strategies.

In summary, equity allocation is either:

The division of ownership stakes in a company among participants, or

The proportion of equities in an investment portfolio.

The term is used in both corporate finance and personal investing, but always refers to the distribution of equity, whether that's ownership shares or stocks within a larger pool of assets.