Difference between Shareholders and Stakeholders
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 differences 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.
So, we’re gonna discuss all these points but before distinguishing them let us discuss what a shareholder and a stakeholder are.
The name itself is suggesting that the one who holds the share(s) of the company is the shareholder.
Most people use the term "share" and "stock" interchangeably. That's why don't get confused if you hear a new term "stockholder". It isn't something new, it is synonymous of shareholder which we're discussing now. But, there is a difference between stock and share.
It is usual that whenever someone hears this term, shareholder, the first picture that comes to his/her mind is the general public who either invest in the company during its IPO or bought its shares in the secondary market.
Then what about the promoters of the company, the angel investors, venture capitalists, and private equity firms who had invested a large amount of money in the company in its initial phase.
Yes, they’re also the shareholders of the company.
It’s easy to answer the question, “Who is the shareholder?” The one who has at least one share of any company is the shareholder of that company. Be it an individual or an institution.
A shareholder is a part-owner of the company. The percentage of the ownership is decided by the number of shares held.
And this quantity of shares is mentioned in the “share certificate” which every shareholder has as proof.
As a holder of the shares, what do you expect from the company or its stock?
The shares you’ve, their value should appreciate with time. Isn’t it? And if it requires good performance and the prosperity of the company you would also want it to happen as it would also impact the market price of the shares.
If the shareholder is experiencing that the share price of the stock is not performing well or isn’t giving him/her good returns, he/she could sell off the shares and go for the next company also.
The money which you give to the company in return for buying the shares – directly or indirectly – would act as a liability for the company. So it is the company’s responsibility to provide you with the monetary benefits in the form of dividends or a share buyback.
There are 2 types of shareholders in a company: Equity shareholders and Preference shareholders.
The categorisation has been done based on “types of shares”. As there 2 types of shares, equity shares and preference shares, the types of their holders are also two.
What is Stakeholder
A stakeholder is an individual or an organisation i.e. group of members who have a stake in the company or who are related to the company’s business for reasons other than stock performance or share price appreciation.
Stakeholders have an active interest in the functioning of the company, if the company will prosper they would too.
Above we’ve discussed that whoever is related to the company is a stakeholder. So, the shareholders, bondholders, employees, customers, creditors and debtors, vendors, raw material suppliers, directors and management of the company all are stakeholders of the company.
As shareholders are also related to the company they’re also stakeholders. Shareholders form the largest part of the stakeholders.
So, after knowing this fact you could say that a shareholder is a stakeholder but a stakeholder doesn’t need to be a shareholder.
Like shareholders, stakeholders do not get monetary benefits from the company.
Shareholders care about ROI (Return on investment) while stakeholders want to see the company prosper as they got impacted by the company’s performance.
A company’s performance impacts the stakeholders as they’re bound to the company for a long duration as they’ve reasons of greater need.
Types of stakeholders
As shareholders, they also have 2 types: Internal stakeholders and External stakeholders.
Whenever we talk about shareholders vs stakeholders, we should keep in our mind that shareholders are also stakeholders but during comparing both these terms, we compare shareholders to stakeholders (except shareholders).
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 and External 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