Shareholders vs stakeholders: What is the difference?

Highlights

• A shareholder is an individual or an organization that holds a company’s shares.
• An individual, institution, or anyone who has an interest or is affected by an organization is knowns as a stakeholder.
• A shareholder can be a stakeholder in a company, but a stakeholder might not be a shareholder in the company.

Shareholders and stakeholders are two terms that we often think are similar. But when it's about investing in a company they work differently. In this article, we will learn what a shareholder and stakeholder is and the key differences between them.

What is a shareholder?

A shareholder is an individual or an organization that holds a company’s shares. A shareholder is also known as a stockholder who needs to own at least one share of a company’s stock to become its partial owner. 

A shareholder is entitled to get a share of the profit that the company develops. If a company performs and the business is successful, then the shareholders generally get rewards in the form of dividends or increased stock valuations. But if a company’s share price drops, then it affects shareholders, and they can suffer a loss in their investments.

If a shareholder owns more than 50 per cent of a company’s outstanding shares, they are known as a majority shareholder that holds major power in the decision-making process of a company’s operations. In some cases, majority shareholders are organizers of the company or their descendants. Other than the decision-making process, the majority shareholders can take part in the company’s executive decisions such as appointing or replacing board members, and chief executive officers. 

What is a stakeholder?

An individual, institution, or anyone who has an interest or is affected by the organization is known as a stakeholder. The stakeholders can be owners, suppliers, employees, creditors, communities, debtors, etc. Different stakeholders can have different interests that can affect or be affected by a company’s operations. 

In an organization, a stakeholder can be external or internal. Internal stakeholders are the ones who take a direct interest in a company through a direct relationship, ownership, and investment. Internal stakeholders can be owners, managers, and employees of a company. Internal stakeholders are directly affected by the company’s decisions. They are important in a business as it depends on their ability to reach its goals.

External stakeholders are the ones who don’t have a direct interest in the company but are somehow affected by the company’s performance. They impact the company’s operations indirectly. Public groups, creditors, and suppliers are examples of external stakeholders of the business.

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Some types of stakeholders

 Customers

A customer is a stakeholder of a company. They are impacted by the company’s products, services, and value when there are changes in its business. 

 Employees

Employees are internal stakeholders who have a direct interest in the company and get an income and other benefits from a company in return for their services.

Communities

Communities are major external stakeholders of a business and are impacted by various activities of the business, including economic development, infrastructure development, health, and safety, and job creation.

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Differences between shareholders and stakeholders

Shareholders are directly affected by the company’s activities while stakeholders can be impacted directly or indirectly by the company’s activities. All shareholders get some monetary benefits from the company, but not all stakeholders are entitled to receive them. Shareholders mainly concentrate on the financial returns on investment of a company while stakeholders focus on its performance in general.

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Bottom line

Now we know that shareholders and stakeholders are not interchangeable terms. Shareholders are the company’s partial owners who get ownership by purchasing some part of it. In comparison, stakeholders have a connection to the company that is not always related to ownership. So, the above article helps in understanding how the two relate differently to a company.