Shareholder vs. Stakeholder: in what they are different and why it is important to not confuse them

shareholder vs stakeholder differences

In a company there are shareholders and stakeholders. Both have invested something, however, they are separate entities.

Although they have similar names, their investment and role in an organization is fairly different and it is critical to not confuse them.

Shareholders are always also stakeholders in a company, although stakeholders are not always necessarily shareholders.

A shareholder owns a share in a public company, while a stakeholder shares an interest in the performance of an organization for reasons beyond the performance or value of the shares.

This means that both parties share a common interest: the organization must be successful in the long term.

The shareholder is an individual who has invested money in the organization by purchasing shares in the company itself. The reach of the stakeholder is wider. Stakeholders represent, in a nutshell, the entire micro-environment of the company and not just the shareholders.

While the shareholder owns a share of the organization and thus pays the price for it, and is therefore partly owner of the company, the stakeholders are not the owners of the company, rather they are the parties who take care of the company.

We take a look at all the key and specific differences between stakeholders and shareholders in this article.

Definition of shareholder

All companies raise their own capital from the market by issuing shares to the public.

The shareholder is therefore the person who buys these shares of the company from the primary or secondary market, thereby obtaining part of the legal ownership in the capital of the company.

A share certificate is issued to each individual shareholder for the number of shares he holds.

The simple subscription of shares does not constitute ownership of the shares. One only becomes the owner when the shares are actually allotted.

A shareholder is therefore any party – a physical person, a company or an institution – that owns at least one share in an organization. So, the shareholder owns a financial interest in its profitability.

If the company’s share price increases, the value for shareholders also increases, while if the company has a poor return and the price of its shares decreases, the value for shareholders decreases. It is clear that this trend is not trivial for a shareholder.

Definition of stakeholder

Stakeholders are the parties involved in helping the organization to exist. Without the stakeholders, the organization cannot survive for long.

According to the traditional governance model, the management of the company is only accountable to shareholders. Nowadays, this scenario has completely changed and is no longer believable.

Many organizations, in fact, believe that, in addition to shareholders, there are many other components in the corporate environment and that management is also their responsibility.

A stakeholder is a party that has an interest in the success of the company and can affect or be affected by the policies and objectives of the organization.

Stakeholders can be internal or external. Internal stakeholders have a direct relationship with the company through employment, ownership or investment. Internal stakeholder examples may include employees, shareholders and management.

External stakeholders, on the other hand, are individuals who do not have a direct relationship with the organization but can still be influenced by the actions and manoeuvres of that company. Examples of external stakeholders include suppliers, creditors, communities and public groups.
shareholder vs stakeholder

Key differences between stakeholders and shareholders

Below are the differences between stakeholders and shareholders in detail:

  • Shareholders own the company because they have purchased financial shares issued by the company. On the contrary, stakeholders are those who influence or are influenced by the company’s policies and objectives.
  • Shareholders are part of the stakeholders. It can also be said that shareholders are stakeholders, but stakeholders are not necessarily shareholders of the company.
  • Shareholders focus on the return on their investment in the company. On the other hand, stakeholders focus on the performance, profitability and liquidity of the company.
  • The scope of stakeholders is relatively broader compared to that of shareholders because there are other elements in addition to shareholders.
  • We can only find shareholders in the case of public limited companies. However, every company or organization has its own stakeholders, whether it is a government agency, a non-profit organization, a partnership or a sole proprietorship.

Conclusion

It is thus clear that stakeholders and shareholders are terms that refer to different roles.

Stakeholder and shareholder have different points of view depending on their interest in the company.

Shareholders expect the company’s management to carry out activities that have a positive effect on the prices and performance of the shares and on the value of their dividends to shareholders. Furthermore, they would like the company to focus on expansion, i.e. acquisitions, mergers and other activities that could increase the company’s profitability and overall financial health.

On the other hand, stakeholders focus on the longevity of the organization and better quality of service. For instance, an organization’s employees may be interested in better wages and salaries, rather than higher profitability. Suppliers may be interested in timely payments for goods delivered to the company, as well as better rates for their products and services. Customers would be interested in receiving better customer service and purchasing high quality products.

Many organizations have therefore begun to accept the fact that, in addition to shareholders, the company is also responsible for many other components of its business environment.

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