Shareholder vs Stakeholder: What Is the Difference?

low angle photography of two high rise buildings

There are shareholders and stakeholders when it comes to investing in a firm. While their names are identical, their investment in a firm is substantially different.

A corporation’s shareholders are always stakeholders, while stakeholders are not necessarily shareholders.

A shareholder is a person or organization who holds stock in a publicly traded or privately owned firm and hence has a vested interest in its success. They can receive dividends, vote on corporate policy or modifications, and elect a board of directors depending on the sort of shares they possess.

Although shareholder votes can impact a company’s direction, such as in mergers and acquisitions, shareholders are not liable for the company’s debts.

Shareholders, often known as shareholders, are generally classified as:

  • Preferred stock owners often do not have voting rights and hence have no say in the company’s destiny. They do, however, receive a fixed yearly dividend payout (except under certain circumstances).
  • Common stock dividends are changeable, not guaranteed, and are set by the board of directors. If a company’s assets must be liquidated, common investors are paid last, after creditors and preferred stockholders have been compensated. However, unlike preferred shareholders, they have voting rights, giving them considerable influence over management choices and business policy. People prefer to invest in ordinary equities rather than preferred stocks.

A stakeholder is a person or entity who has a vested interest in the company’s success or failure. A stakeholder has the ability to influence or be influenced by the company’s policies and aims. Employees, stockholders, and managers are examples of internal stakeholders. External stakeholders, on the other hand, are people that do not have a direct relationship with the firm but may be affected by its activities. Suppliers, creditors, and community and public groups are examples of external stakeholders.

Understanding the Shareholder’s Role

A shareholder is a person, corporation, or organization who owns at least one share of a firm and hence has a financial stake in its success.

A shareholder, for example, may be an individual investor who is expecting the stock price will rise since it is part of their retirement plan.

Shareholders have the right to vote and influence a company’s management.

Shareholders are the company’s owners, although they are not accountable for the company’s obligations.

The owners of private firms, sole proprietorships, and partnerships are personally accountable for the obligations of the company. A sole proprietorship is an unincorporated business that has a single owner who pays personal income tax on the firm’s profits.

Shareholders have the following (and more) rights, depending on the applicable laws and rules of the corporation or shareholders’ agreement:

  • They should sell their stock.
  • Vote on people who have been nominated for the board of directors.
  • Make nominations for directors.
  • Vote on mergers and corporate charter modifications.
  • Take advantage of dividends
  • Learn about publicly listed corporations.
  • Sue for breach of fiduciary responsibility.
  • Purchase new stock

Shareholders have a financial stake in the firm or project. That interest is evident in their desire to see the share price and dividends rise if the firm goes public. If they are project shareholders, their interests are related to the project’s success.

Shareholders’ money invested in a corporation can be withdrawn for a profit. It can even be invested in other organizations, some of which may be competitors. As a result, the shareholder is a firm owner, but not always in the best interests of the company.

Understanding the Stakeholder’s Role

Stakeholders also include the local community and society as a whole. For example, if you are in the manufacturing industry, you must consider the demands of nearby communities, especially how your activities effect their livelihood and quality of life.

Internal and external stakeholders are both possible:

  1. Internal stakeholder: Any person or organization that has a direct relationship with the firm. Owners, workers, investors, managers, the board of directors, and so on are examples.
  2. External stakeholder: A person or entity who is not directly tied to the firm but is impacted by its choices and activities. Customers, end users, creditors, suppliers, the local community, society as a whole, and government regulators are all examples.

People or entities that might be considered stakeholders in project management include:

  • Executive committee
  • Project sponsor
  • Project leaders (e.g., project manager or scrum master)
  • Team members
  • Functional managers
  • Project consultants
  • Contractors
  • Customers
  • End users

What is the distinction between a shareholder and a stockholder?

Let’s compare and contrast them more closely to highlight the differences between the two.

1. Corporate ownership

Shareholders possess a portion of the company based on the number of shares they own. A majority shareholder is defined as an individual or entity that owns at least 50% of the company’s outstanding shares.

Frequently, these are the company’s founders or their descendants.

Stakeholders do not necessarily own stock in the company, but they do have an interest in it, a vested interest in it

Employee shareholders are an example of a stakeholder who also owns stock in the firm.

2. Priorities

Shareholders are primarily concerned with the monetary return on their investments, whether in the form of dividends or stock appreciation. Stakeholders are concerned with the company’s overall success, how it treats customers, partners, and workers, and how it contributes to the community, among other things.

3. Long-term vs. short-term requirement

Shareholders are free to do anything they want with their stock – they may sell it and acquire it from another firm, even if it is a rival. In other words, they may have a financial stake in the firm, but its overall success isn’t usually a top goal.

Stakeholders are often in it for the long haul and have the greatest vested interest in a company’s success, not merely in terms of stock performance.

4. Classification

The stakeholder group encompasses a far larger range of individuals than stockholders. Shareholders are always stakeholders; however, stakeholders are not always shareholders.

Another crucial distinction is that only firms that issue shares have shareholders, but any organization, large or small, regardless of industry, has stakeholders.

The Stakeholder Theory vs. the Shareholder Theory

According to shareholder theory, corporate executives have a duty to maximize shareholder profits. In the 1960s, economist Milton Friedman proposed the theory that a corporation’s primary responsibility is to its shareholders.

According to stakeholder theory, it is the business manager’s ethical obligation to both corporate shareholders and the society at large to ensure that activities that benefit the firm do not hurt the community.

This is not to say that shareholder theory is a “anything goes” effort to boost profits. This procedure must be legitimate and conducted in a non-deceptive manner. It also does not always preclude philanthropic acts. However, social responsibility is built into the stakeholder idea, but the benefits must also satisfy the bottom line of the firm.

As a result, the ideal theory for you and your organization or project is determined by your primary interests. However, because both ideas serve various elements of company, you’re more likely to go with a mix.

Particular C£onsiderations

The rise of corporate social responsibility (CSR), a self-regulating business model that allows a firm to be socially accountable to itself, its stakeholders, and the public, has pushed businesses to consider the interests of all stakeholders.

Companies, for example, may evaluate their environmental effect throughout their decision-making processes rather than making decisions based only on the interests of shareholders. The whole public is now considered an external stakeholder under CSR governance.

When a company’s actions, for example, have the potential to raise environmental contamination or deplete a community’s green space, the general public suffers. These actions may improve shareholder earnings, but they may have a detrimental impact on stakeholders. As a result, CSR pushes firms to make decisions that promote social welfare, frequently by going above and beyond legal and regulatory constraints.

Conclusion

A corporation’s shareholders are always stakeholders, while stakeholders are not necessarily shareholders.

Shareholders possess a portion of a public firm in the form of stock; a stakeholder is interested in the company’s success for reasons other than stock performance.

Shareholders do not need to have a long-term view on the firm and may sell the shares whenever they want; stakeholders, on the other hand, are typically in it for the long haul and have a stronger desire to see the company succeed.

Leave a Reply

Your email address will not be published. Required fields are marked *