Difference between shareholders and stakeholders

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Shareholders and Stakeholders are the terms that look similar to many people even to intermediate learners of the stock market. Although they’ve some similarities, the difference between shareholders and stakeholders are more substantial.

Shareholders and stakeholders both can be individuals or institutions or an organization but what makes the difference between them is their relation with the company.

In this article, we are going to discuss shareholders vs stakeholders. But, before that it is important for us to know what these terms actually mean.

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What is Shareholder

A shareholder is any individual or entity that owns company shares or stocks.

They are considered business owners, and their stake is represented by how many shares they possess.

Shareholders have voting rights on significant company matters like board appointments, mergers & acquisitions, and major business decisions.

Types of shareholders

There are 2 types of shareholders in a company: Equity shareholders and Preference shareholders.

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  1. Equity Shareholders
    • Equity shareholders are the most prevalent type of shareholder.
    • They own the company’s equity and have voting rights on major company decisions.
    • Equity shareholders receive dividends as compensation and may benefit from the company’s growth.
  2. Preferred Shareholders
    • Preferred shareholders are entitled to dividends before Equity shareholders, although they lack voting rights.
    • Preferred shares tend to be less volatile than Equity stocks and can benefit investors looking for steady income without taking on too much risk.

What is Stakeholder

A stakeholder is any individual or entity affected by a company’s decisions and practices.

Unlike shareholders, stakeholders do not necessarily have an economic stake in the business, yet their interests should still be considered when making decisions.

Stakeholders can range from internal constituencies like employees and management to external ones like customers, suppliers, and the community.

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Types of Stakeholders

There are four categories of stakeholders:

  1. Internal Stakeholders
    • Internal stakeholders refer to individuals or groups within a company, such as employees, managers, and executives.
    • They have an active stake in the business’s success and may be affected by decisions made by management.
    • They play an integral role in its operations.
  2. External Stakeholders
    • External stakeholders refer to individuals or groups outside the company, such as customers, suppliers, and local communities, that could be affected by actions taken by the firm, such as their effect on the environment or local economy.
    • They might include customers, suppliers, media members, and internal stakeholders like employees.
  3. Connected Stakeholders
    • Connected stakeholders refer to individuals or groups that indirectly connect to a company, such as regulators, industry associations, and competitors.
    • They may influence decisions and actions taken by the business but lack direct interest in its success.
  4. Secondary Stakeholders
    • Secondary stakeholders are individuals or groups indirectly affected by a company’s actions, such as media outlets, advocacy groups, and the general public.
    • They may shape the public perception of the company and compromise its reputation.

Shareholder vs Stakeholder Theory

Shareholder theory holds that a company’s primary obligation is to maximize shareholder value, while stakeholder theory insists on considering all stakeholders’ interests.

Shareholder theory has been criticized for overly focusing on short-term financial gains at the expense of other considerations, while stakeholder theory promotes long-term sustainability and social responsibility.

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Shareholder and Stakeholder Management

Effective shareholder and stakeholder management necessitates balancing the interests of both groups to create value for both.

This may include developing policies and practices that promote transparency, accountability, and responsible governance.

Building strong relationships with key stakeholders like customers, suppliers, and community groups is essential to foster mutual trust and understanding.

Difference between Shareholders and Stakeholders: Table of Comparison

The table below summarizes the key differences between shareholders and stakeholders:

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Shareholders

Stakeholders

One who hold shares of the company is a shareholder

One who have stake of the company is a stakeholder

They are the part-owners of the company

They may or may not have ownership in the company

A shareholder is a stakeholder

A stakeholder doesn't need to be a shareholder

To be a shareholder, one needs to have at least one share of the company

One can be a stakeholder witout having shares of that company

They care about ROI (return on investment) i.e., share price appreciation

They are interested in functioning of the company

They are not the long-term partners of the company

They are bound to the company for a long duration

Type of shareholders: Equity and Preference shareholders

Type of stakeholders: Internal, External , Connected and Secondary shareholders

E.g. Promoters, angel investors, venture capitals, and general public that holds company's shares

E.g. Shareholders, customers, creditors and debtors, vendors and suppliers

Infographic: Difference between Shareholders and Stakeholders

difference between shareholders and stakeholders

Frequently Asked Questions (FAQs) about Shareholders vs Stakeholders

Wrap up on Difference between Shareholders and Stakeholders

  • Shareholders own a company’s shares, while stakeholders refer to anyone affected by its actions, decisions, and policies.
  • Shareholders have an immediate financial stake in the business, while stakeholders may or may not have financial interests but still have other considerations that need consideration.
  • Shareholders can vote on important company matters, while stakeholders may have influence but no voting power.
  • Both groups play an integral role in a company’s success; therefore, decision-makers must consider both groups’ perspectives when making decisions.

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