Difference Between Stakeholder vs Shareholder

The terms stakeholderStakeholderA stakeholder in business refers to anyone, including a person, group, organization, government, or any other entity with a direct or indirect interest in its operations, actions, and outcomes.read more and shareholderShareholderA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.read more are often used interchangeably, which is inaccurate because they refer to different aspects of a business. To conclude the stakeholder vs shareholder debate, all shareholders are stakeholders, but not all stakeholders are shareholders. While both have their objectives, they are critical to a company’s growth and development.

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Comparative Table

Let us have a quick look at the differences between stakeholder vs shareholder:

Who Is A Stakeholder?

A stakeholder is any individual, group, organization, or government impacting the firm’s performance, i.e., success or failure, or getting affected directly or indirectly by its actions, decisions, policies, and objectives. They have some interest in the organization, and hence they contribute in their way to make the venture a success. Stakeholders may include employees, managers, investors, trade associations, governments, suppliers, creditorsCreditorsA creditor refers to a party involving an individual, institution, or the government that extends credit or lends goods, property, services, or money to another party known as a debtor. The credit made through a legal contract guarantees repayment within a specified period as mutually agreed upon by both parties. read more, community groups, customers, shareholders, etc.

When a company’s performance deteriorates, it affects all of its stakeholders. For example, when the firm experiences significant losses, it begins to lay off staff. As a result, employees lose their jobs and must look for new ones to make a living.

The stakeholders have a long-term reliance on the company, and their efforts to keep it running are intertwined. For example, if a group of customers decides to abandon a brand or boycotts it for some reason, its revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more will suffer. Hence, the contribution of a stakeholder and an organization must work in tandem to ensure the latter functions smoothly.

In short, stakeholders focus on the duration and quality of service from a company and its long-term performance. It means they see a company’s success as profit and its failure as a loss.

Types Of Stakeholders

Stakeholders fall into two categories:

  • Internal – Those directly linked with the company or project, like employees, investors, shareholders, managers, etc.External – Those not part of the company but have some role in its functioning, such as customers, suppliers, creditors, labor unions, community groups, governments, etc. They may also get affected by the activities and decisions of the firm.

Who Is A Shareholder?

A shareholder is an individual, corporation, or institution that buys at least one share in a publicly-traded or privately held companyPrivately Held CompanyA privately held company refers to the separate legal entity registered with SEC having a limited number of outstanding share capital and shareowners. read more. With that, they become a part of the organization and expect a significant return on their investment due to stock price appreciation. They receive a portion of the profit when the company generates higher revenue. Likewise, the poor performance of a company leads to a decline in its stock prices, resulting in a loss for the shareholder.

Shareholders are a part of stakeholders but have a financial interest in how the company performs as it directly impacts the share prices. When the share prices are high, they can sell their holdings and earn profits. They are common in a joint-stock companyJoint-stock CompanyA joint stock company is one in which the company’s shares or stocks are jointly held by shareholders in some proportion and in which they have share in the profits based on their shareholding. Each holder is only liable for the amount of their shareholding, and they are free to transfer their shares.read more, where people and entities gather together for a venture.

Shareholders, also known as stockholders, play a significant role in the decision-making process. However, they are not present in a sole proprietorship or partnership firm, as decision-making rests only on one individual or on partners.

Shareholders are part owners of the company, fund the business to grow, and take a great interest in its plans that may impact its share prices and dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more. While shareholders of a publicly listed companyPublicly Listed CompanyPublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market.read more are not liable for the debts or financial obligations, stockholders of private firms, partnerships, or sole proprietorships are.

Here is a list of rights they can exercise based on the shares they buy and the company’s laws and regulations:

  • Access to the yearly financial records and books of the companyBuy, own, and sell company sharesGet a portion of proceeds from the sale of the company’s assets in the event of bankruptcy or liquidationLiquidationLiquidation is the process of winding up a business or a segment of the business by selling off its assets. The amount realized by this is used to pay off the creditors and all other liabilities of the business in a specific order.read moreHave a say on crucial business decisions and policiesReceive guaranteed dividendsVote for the board of directorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals.
  • read moreVote on merger and acquisitionMerger And AcquisitionThe best merger and acquisitions books are - Mergers and Acquisitions for Dummies, Mergers and Acquisitions from A to Z, The Art of M&A, Fourth Edition, Mergers and Acquisitions Playbook, Mergers & Acquisitions Integration Handbook, + Website, Mergers, Acquisitions, and Other Restructuring Activities, Mergers and Acquisitions in a Nutshell.read more deals

Types Of Shareholders

Shareholders fall into two categories:

  • Preferred – Those who own preferred stocksPreferred StocksA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more but enjoy no rights in deciding company activities, policies, or future planning. However, they receive a fixed and guaranteed dividend payment annually in standard scenarios.Common – Those who own common stocks, decided by the company’s board membersBoard MembersBoard members comprise the individuals whom the shareholders elect as their representatives. They are responsible for taking crucial corporate decisions regarding the company’s policies, dividend payouts, top-level managers’ recruitment or layoff and executive compensation.read more. Unlike the preferred category, dividends are variable and not guaranteed in this case. Furthermore, shareholders have a say in the decision and policy-making processes. Also, they are the last ones to receive a portion of proceeds from the sale of the company’s assets.

Stakeholder vs Shareholder Theory

Stakeholder vs shareholder not only have similar names, but they also play similar roles in the company. They put interest and money into the business to secure its prosperity. Its success, in turn, will provide them with great benefits. Stakeholders, especially stockholdersStockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company’s owners, but their liability is limited to the value of their shares.read more, rely on the company’s performance, and the business depends on them for its success. It is always a two-way process in which both parties give equally to reap the benefits.

The stakeholder vs shareholder theory explains how the organization should treat these two entities. Usually, corporations are supposed to give preference to their shareholders, for they provide funds to help the business grow and expand.

Stakeholder Theory

American philosopher Robert Edward Freeman first introduced the stakeholder theory in his book “Strategic Management: A Stakeholder Approach”, published in 1984. Freeman postulated that companies should focus on providing value for all stakeholders rather than just shareholders. It will thus help the business and its workforce to become successful.

Shareholder Theory

The shareholder or stockholder theory, often known as the Friedman Doctrine, was proposed by American economist Milton Friedman in the 1960s. Friedman claimed that because of the cyclical nature of the business, a company’s fundamental goal should be to perform well and generate wealthWealthWealth refers to the overall value of assets, including tangible, intangible, and financial, accumulated by an individual, business, organization, or nation.read more for its shareholders.

Stakeholder vs Shareholder Infographics

This has been a Guide to Stakeholder vs Shareholder. Here we discuss the top differences between stakeholder vs shareholder, along with infographics and a comparison table. You may also have a look at the following articles –

  • Stakeholder TheoryStakeholder TheoryStakeholder theory refers to the ethical concept that addresses business decisions, trends, profits and their collective impact on all stakeholders, including the shareholders, employees, financers, government, customers and suppliers.read moreShareholder TypesShareholder TypesThe common shareholders and preferred stakeholders are the two types of shareholders.read moreShareholder PrimacyShareholder PrimacyShareholder primacy is a kind of corporate governance that prioritizes the interests of shareholders over those of other stakeholders. Since shareholders are the company’s owners, this type of governance keeps its primary focus on maximizing shareholder wealth.read more