Stakeholders V/S Shareholders: How Do They Differ?
Many of us believe shareholders and stakeholders are similar. But involvement and investment of both differ in the company immensely. So, what is exactly the difference between the shareholders and stakeholders? A shareholder can always play a role as a stakeholder in a corporation but a stakeholder cannot be a shareholder.
A shareholder, also known as a stockholder, is the one who owns one or more shares of the company and has invested his hard-earned money in the company's potential success. Shareholders can either be individuals, companies, or other institutions as long as they hold a minimum of one share. On the other hand, unlike a shareholder, a stakeholder does not necessarily own stock in the company, and their interest in the business is not related to stock performance or increased stock value.
Instead, a stakeholder is a member of a group that has an interest in the business for different reasons apart from just stock performance and can affect or be affected by the business. Most of the time stakeholders are the company’s shareholders, bondholders, customers, suppliers, and employees. Read on to know how exactly shareholders and stakeholders differ.
Stakeholders And Shareholders
In every organization, there are both stakeholders and shareholders. Both investors have an interest in the company. Both shareholders and stakeholders are affected by the activities of the company. Hence, they need to help organizations to develop so that their investments will be worth every single penny.
A shareholder is any party either individual, institution, or corporation who owns a minimum of one share in the company, and has a financial interest in its profitability. This implies that shareholders are somehow owners of the company. They will be able to earn a profit if the company develops, grows, or earns more through its production.
On the other hand, stakeholders are the ones who have some type of interest in the organization either financial interest or some other kind of interest. Employees and staff are the best examples of stakeholders. Shareholders can also be stakeholders because they have a financial interest in the company.
To have a deep understanding of the difference between stakeholders and shareholders, it is important to define them first.
Who Are Shareholders?
Shareholders, also known as stockholders, are individuals, companies, or institutions who become part owners of the company by purchasing equity stock directly from the company through an initial public offering or from the secondary market. They make profits in terms of dividends or capital appreciation if the company makes a profit or if the price of its shares increases. Shareholders are the common people who have an interest in business directly or indirectly. Employers, suppliers, creditors, are all the stakeholders of the company who may be affected by what happens in the company. The general public is also considered a stakeholder under corporate Social responsibility Governance. One can say all shareholders are stakeholders but not all stakeholders may necessarily be shareholders of the company.
Who Are Stakeholders?
A stakeholder can affect the operation of the company or be affected by it. A stakeholder retains some type of interest in the organization, not necessarily owns stocks or shares. Shareholders can include employees, staff, suppliers, customers, and many more. Generally, stakeholders are thought to have a long-term interest in the company in comparison to the shareholder.
Recently, the definition of stakeholders has been extended to include trade associations, government, and local communities. This is because so many people are affected by the operation of the company- regardless of whether they are directly related to the ownership of the company. Stakeholders are divided into two main categories: Internal stakeholders and external stakeholders.
Internal stakeholders are the ones who have a direct connection with the company, or who contribute their involvement to the operations of the company. This includes investors, employees, business owners, and many more. On the other hand, external stakeholders are the ones who are impacted by the company, without being involved in its operations. This includes trade associations, communities, customers, and many more.
Stakeholder V/S Stockholder: What's The Difference?
The difference between stakeholders and stockholders is the way they are impacted by an organization. Shareholders, also known as stockholders who have ownership in a company are directly affected by the company profits. The real interest of shareholders is a high return on investment. On the other hand, stakeholders are far beyond those who own shares in a company. Stakeholders can be affected by the company's profitability and day-to-day operations, while they may have some interest in the profit of the company but it is not their main focus.
Shareholders can be stakeholders, but the opposite of this statement is not true. Stakeholders may or may not own the stocks. Also, all companies may have stakeholders but not necessarily shareholders or stockholders. This is because some companies may choose to sell shares in the secondary market.
Shareholders V/S Stakeholders : Comparison Table
Difference | Shareholders | Stakeholder |
Ownership Status | Shareholders are considered as the owners of the organization | Stakeholders are not considered as the owners of the organization as they act as the interested party of the same. In other words, stakeholders are the ones who have a direct or indirect interest in the company. |
Perspective | The shareholders want companies to undertake activities that have a positive influence on stock price or dividend. Shareholders want companies to undertake activities that increase the financial performance of the company. | Apart from focusing on the financial performance of the company, stakeholders focus on long-term longevity. Stakeholders want companies to incur expenditures that increase the share value but not necessarily add to short-term profitability. |
Aim | Shareholders aim at increasing the company’s profit, increasing the dividends that are announced and paid by the company, increasing the share price, and maximizing the shareholders value. | Stakeholders aim at generating high demand for employees and more and more purchase orders for the suppliers. |
Focus | Shareholders are more focused on Return on Investment | Stakeholders are more focused on the financial performance of an organization. |
Role | A shareholder can always be a stockholder in a company | Stakeholders cannot be shareholders in a company |
Types | Shareholders are of two types i.e equity shareholders and preference shareholders | Stakeholders are of two types i.e internal stakeholders and external stakeholders |
Success | The measurement of shareholder success is confirmed by value increment. | The measurement of stakeholder success is confirmed by the satisfaction of all shareholders. |
Impact | Shareholders are directly or indirectly impacted by the financial performance of the company | Stakeholders are directly or indirectly impacted by whatever takes place in an organization. |
FAQs on Difference Between Stakeholder and Shareholder
Question1: Why are shareholders considered important stakeholders?
Answer: Shareholders/stockholders are the important stakeholders as they control the business. If they are not satisfied with the company’s decision-making process, they can even dismiss its directors or managers, or even sell the business to someone else.
Question2: What are the roles of stakeholders in the business?
Answer: Some of the important roles of stakeholders in business are:
They can direct the management.
They are large investors of the business and they can anytime bring in or take out the money from the company.
They help in the decision-making process.
They can identify new areas of market penetration and increase sales.
They examine the outsourcing activities and may vote against business decisions if it affects the long-term goals of the company.
Question3: What are the key characteristics of a shareholder?
Answer: The key characteristics of a shareholder are:
Owns a minimum of one share of the company.
Not liable for company debts.
Authorized to receive dividend
Can accuse the company directors or senior officers of disobeying the fiduciary duty.
Question4: Explain stockholders v/s shareholders.
Answer: The stockholders or shareholders are used interchangeably. Stockholders or shareholders refers to an individual or organization that owns the share of a corporation common or preferred stock.
