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
1. What is the main difference between a stakeholder and a shareholder?
The primary difference is that a shareholder owns a part of the company by purchasing shares (stock) and is thus an owner with a financial stake. A stakeholder is any individual or group who has an interest in the company's operations and success but does not necessarily own shares. For example, an employee is a stakeholder but may not be a shareholder.
2. Who are considered stakeholders in a business? Can you provide some examples?
Stakeholders are any parties that are affected by a company's actions. They can be categorised as internal or external. Key examples include:
- Internal Stakeholders: Employees, managers, and owners (shareholders).
- External Stakeholders: Customers, suppliers, creditors, government agencies, and the local community.
3. What are the primary roles and rights of a shareholder in a company?
A shareholder, as a part-owner of the company, has several key rights defined by corporate law. The most important roles and rights include:
- The right to receive a portion of the company's profits in the form of dividends.
- The right to vote on major company decisions, such as electing the board of directors.
- The right to claim a proportionate share of the company's assets if it is liquidated.
- The right to inspect certain corporate records.
4. All shareholders are stakeholders, but are all stakeholders shareholders? Explain why.
This statement is correct. All shareholders are stakeholders because their financial investment gives them a direct 'stake' in the company's performance. However, not all stakeholders are shareholders. An employee, for instance, has a stake in the company's success for job security and wages, and a customer has a stake in receiving quality products, but neither may own any company stock.
5. Why must a modern business consider the interests of all stakeholders, not just its shareholders?
While shareholders focus on financial returns, a business must consider all stakeholders for long-term survival and success. Ignoring stakeholders can lead to negative outcomes like poor employee morale, loss of customer loyalty, supply chain disruptions, and a damaged public reputation. A sustainable business creates value for all parties involved, which in turn builds a stronger foundation for long-term profitability and shareholder value.
6. Is there any difference between a stockholder and a shareholder?
No, in contemporary business and finance, the terms stockholder and shareholder are used interchangeably. Both refer to an individual, institution, or company that legally owns one or more shares of stock in a public or private corporation. The ownership of stock grants them the rights of a part-owner.
7. How can a conflict arise between the interests of shareholders and other stakeholders? Give an example.
Conflicts often arise when a decision that benefits shareholders negatively impacts another stakeholder group. A classic example is cost-cutting. A company's management might decide to close a factory to reduce operational costs and boost profits, which directly benefits shareholders. However, this action creates a conflict with the employees who lose their jobs and the local community that suffers economically.
8. What is the difference between shareholder capitalism and stakeholder capitalism?
These are two different philosophies of business management.
- Shareholder Capitalism: This model asserts that a company's primary responsibility is to its shareholders and that its main objective should be to maximise shareholder wealth, typically measured by the stock price.
- Stakeholder Capitalism: This model argues that a company should create long-term value for all stakeholders, not just shareholders. It considers the interests of employees, customers, suppliers, and the community as integral to the company's success and purpose.
