Shareholders vs Stakeholders: Understanding the Stakeholder and Shareholder Difference

In business, “shareholders” and “stakeholders” are two common terms. They might sound similar to many, but they mean different things and play unique roles. Shareholders and stakeholders are both closely involved in the company. But what is the key difference when someone asks you about shareholders vs stakeholders? What exactly is the difference between stakeholders and shareholders?

Let us take a look!

Shareholders own company shares and focus on financial returns like dividends. However, Stakeholders include anyone interested in the company’s activities. It can include employees, creditors, local community, etc.

What is a Shareholder: Ownership and Investment

A shareholder, also known as a stockholder, holds an important position in every company’s structure. Shareholders can be individuals, organizations, or institutions that own shares of a company. These shares grant them ownership and a financial stake in the company’s performance. The primary goal of shareholders is to maximize their financial returns, often through dividends and stock appreciation.

There are various types of shareholders, each with different rights.

In the Indian market, shareholders have specific legal rights under the Companies Act 2013:

• Shareholders can vote on key corporate matters, such as electing directors or approving major decisions.
• They have the privilege to receive dividends based on the number of shares they own.
• Shareholders have the right to sue the company for misconduct and can challenge decisions that they believe harm their interests.

Types of Shareholders

There are mainly two types of shareholders in companies:

1. Common Shareholders: These individuals own common stock, which offers ownership rights and potentially higher returns over the long term.
    

Common shareholders can participate in voting on key company matters.

2. Preferred Shareholders: Owning preferred stock, these shareholders receive a guaranteed annual dividend payment.
    

Although they don’t usually have voting rights, they are prioritized in the event of company liquidation.

What is a Stakeholder: Impact and Influence

A stakeholder refers to anyone affected by a company’s actions or influencing its decisions. This includes investors, customers, employees, suppliers, and even the government. Each of these groups has a stake in the company’s success and operations.

Now, when we talk about the difference between shareholders and stakeholders, they also differ in their types!

Let’s take a closer look!

Types of Stakeholders

There are mainly two types of stakeholders in every company:

1. Internal Stakeholders
   

These include individuals or groups who have a direct relationship to the company. It includes employees, shareholders, executives, and partners. Their concerns may range from job security to company performance.

2. External Stakeholders
   

This group involves individuals and entities outside the company. This can be customers, suppliers, creditors, and even community members. Their interests could involve product quality, reliable services, and ethical business practices.

Do you know?

There exists a Prioritizing Stakeholder Theory!

It challenges the traditional focus on putting shareholders’ interests first. This theory suggests that businesses should care about everyone affected by their actions. By doing this, companies can help their communities, follow ethical rules, and succeed in the long run.

Shareholders vs Stakeholders| How Do They Differ?

The differences between stakeholders and shareholders can be understood based on several factors. 

Let’s explore them!

Shareholders	Stakeholders
Own shares of stock in a company	Have an interest or concern in a company
Have a financial interest in the company’s profitability	Have a stake in the company’s performance for various reasons
Can vote on board members and company policies	May or may not have a say in the company’s decisions
Are not liable for the company’s debts	May bear some risk or responsibility for the company’s actions
Can sell their shares anytime	May have a long-term relationship with the company

 Difference between between stakeholders and shareholders:

1. Priorities
   

Shareholders focus on financial gains. On the flip side, stakeholders focus on social impact and ethical considerations.

2. Timelines
   

Shareholders often focus on short-term financial gains. But, whereas stakeholders have an interest in the company’s long-term success.

3. Influence
   

Shareholders primarily influence financial decisions. On the filpside, stakeholders impact various aspects of a company’s operations. This can include product quality to community relations.

Impact of Bankruptcy on Stakeholders vs Shareholders

When a company goes bankrupt, both shareholders and stakeholders feel the impact.

Shareholders who own the company’s shares suffer the most. They might lose their entire investment as the company’s assets are sold off to pay debts.

When we talk about stakeholders, for instance, employees may lose jobs.

Communities where the company operates can also suffer. Job losses can hurt local economies, impacting tax revenues and politicians who rely on economic success.

Businesses are increasingly realising the importance of stakeholders in achieving sustainable growth. Adopting a stakeholder-centric approach allows companies to generate value for both shareholders and society as a whole.

Balancing Stakeholder and Shareholder Interests in Corporate Social Responsibility

In Corporate Social Responsibility (CSR), companies aim to be accountable to all stakeholders. When discussing the difference between stakeholders and shareholders in CSR responsibility, there is no clear priority. 

Companies might prioritise environmental impact over solely maximising shareholder returns. In CSR governance, the broader public is seen as an external stakeholder.

For example, if a company’s activities increase pollution or affect community green spaces, it impacts the public at large. These choices might boost shareholder profits but could harm stakeholders.

Conclusion

Both shareholders and stakeholders are important, each with different interests. To succeed, companies must balance the needs of both shareholders and stakeholders. This balance ensures long-term sustainability and a good reputation, leading to lasting success and stability.

FAQs| Shareholders vs. Stakeholders

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.