Stakeholder vs Shareholder: How They’re Different & Why It Matters

When the government initiates policy changes on carbon emissions, the decision affects the business operations of any entity with increased levels of carbon. External stakeholders, unlike internal stakeholders, do not have a direct relationship with the company. Instead, an external stakeholder is normally a person or organization affected by the operations of the business. When a company goes over the allowable limit of carbon emissions, for example, the town in which the company is located is considered an external stakeholder because it is affected by the increased pollution. Shareholders, on the other hand, are more concerned with stock prices, dividends and results.

When evaluating the differences between stakeholders and shareholders, one might be tempted to say there’s no right or wrong answer. That’s true in that neither side deserves to be judged solely for its motivations or principles. As a group, they can impact the company’s trading volume, which can in turn affect share prices. They hope to drive up share costs, as they’ll earn a bump in their portfolio value (or collect occasional dividends) by doing so. A group of stakeholders in a company experiences the direct effects of that company’s performance and decision-making. Another important distinction — only companies that issue shares have shareholders, while every organization, big or small, no matter the industry they operate in, have stakeholders.

That means they have a limited liability as far as the obligations of the company are considered. The similarity between the two words is understandable — both refer to people or groups who invest or have an interest in a certain company. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The inverse is not always true — that is, a stakeholder is not always a shareholder. This article will explore those differences and break down shareholder vs. stakeholder theory once and for all. Mostly, stakeholders and shareholders alike are more interested in the big picture. However, during a presentation, you might get some questions thrown at you that will demand a deeper look. The biggest difference between the two is that shareholders focus on a return of their investment.

• Shareholders are a subset of the larger stakeholders’ grouping but don’t take part in the day-to-day operations of the company or project.
• On the other hand, stakeholders are typically more deeply invested in the company than their shareholder counterparts.
• Management can also become part of various committees or give demonstrations, presentations or lectures to provide learning experience to the potential customers.
• For example, workers are part of the organization but the trade unions which represent them are not part of the organization.

While shareholder own the company’s share by paying the price for it, hence they are the owners of the company. In contrast, stakeholders, are not the owners of the company, but are they are the parties that deal with the company. In the given article excerpt, we’ve broken down all the important differences between shareholders and stakeholders. As far as the stakeholder theory is concerned, for organizations to truly create shareholder value, companies must embrace social responsibility and very carefully consider the needs of all of its stakeholders. A shareholder is an individual or organization that owns shares in a publicly-traded or privately held company and, therefore, has an interest in its profitability.

Investors have more confidence in the business, which boosts the wealth of each stockholder. Common stockholders are responsible for electing the Board of Directors. They will vote on significant transactions which occur, such as a merger or acquisition. When the company becomes successful, the price of purchasing a single common stock moves upward, which means wealth can be generated. In the world of business, you will find the terms “stockholder” and “stakeholder” used quite often.

Shareholders vs. Stakeholders

Stock prices and dividends go up when a company performs well and increases its value, which increases the value of stocks the shareholder owns. A shareholder can be simply denoted as the one who holds or owns stocks in a corporation. The minimum eligibility to be counted as a shareholder requires owning at least one share in the stock of the corporation. Corporation’s charter and bylaws define a range of rights that are provided to the shareholders like – right to vote at the shareholder’s meetings, share in the profits of the corporation, etc.

• For private companies, sole proprietorships, and partnerships, the owners are liable for the company’s debts.
• All stakeholders are bound to a company by some type of vested interest, usually for the long term and for reasons of need.
• Beyond the dictionary definitions, other disparities characterize the stakeholders vs. shareholders distinction.
• Shareholders of private companies and sole proprietorships can also be responsible for the company’s debts, which gives them an extra financial incentive.
• However, shareholders are often most concerned with short-term actions that affect stock prices.

Besides external customers there are internal customers within the organization who also provide useful feedbacks. They ensure that the organizational work environment remains dynamic, stimulating, and rewarding and there are good working conditions available in the organization so that the organization can perform calculating withholding and deductions from paychecks well. There are also community-wide implications that make everyone around a corporation a potential stakeholder in some way. With project management software, you also have a central workspace for updates. Plus, built-in visual timeline tools such as Gantt charts make it easy to get everyone on the same page.

For example, if a company is involved in business activities that take away the green space within a community, the company must create programs that protect the social welfare of the community and the ecosystem. The company may engage in tree-planting exercises, provide clean drinking water to the community, and offer scholarships to members of the community. ‘Shareholder’ basically refers to the holder of a share which is generally defined as an equity share in a business. The concept of competition is well understood and accepted in the economic environment. Within reasonable boundaries, competition is favourable for customers, since it forces the organization to make products or services which are better and more assessable at reasonable prices.

Stakeholder vs. Shareholder

On the other hand, the organization which is having multiple customers is required to set priorities, balance conflicting demands, and maneuver so as to satisfy major groups of customers.

Business

However, one thing they have in common is a need to be managed appropriately. Wrike helps you do just that by providing a centralized information repository and the tools to share and communicate effectively day to day with both shareholders and stakeholders. Because shareholders have invested money in exchange for a share or shares of the company’s stock, they have a financial interest in its profitability.

Investor on the other hand is a very broad term, and even a person who has invested in fixed deposits or a bank account is called an investor. Whether an investor or a shareholder, putting in own money in another one’s venture is a characteristic that is common to both. So, a person buying real estate (a plot or an apartment) in anticipation of its prices appreciating and then making a decent profit in the transaction when he sells the property is called an investor. An investor can hold many types of assets besides just shares and debentures of a public limited company.

Key Features

Trade unions are also controllers since they exert pressure both on the workers as well as on the management. The assessments of the net effect of such controllers’ input provide the organizational management a sense of clear boundaries for planning and decision making. The organizational stakeholders influence maximum the management of the organization specially the process of decision making.

And when your team feels heard, they’re more motivated to do their best work and help projects succeed. That means instead of aiming for quick wins, you’re investing in your future. When a company’s operations could increase environmental pollution or take away a green space within a community, for example, the public at large is affected.

Suppliers, creditors, and public groups are all considered external stakeholders. Now that you know the difference, how about a bridge that connects the two? Whether you’re managing stakeholders or shareholders, ProjectManager has you covered. Our project management software helps leaders manage projects online with their team, and keeps stakeholders and shareholders informed along the way. That’s not so easy a question to answer, and one that has been debated forever by business analysts.

On the other hand, stakeholders are focused on much more than just finances. Internal stakeholders want their projects to succeed so the company can do well overall—plus they want to be treated well and advance in their roles. That can mean different things, like receiving a great product, experiencing solid customer service, or participating in a respectful and mutually beneficial partnership. Depending on the type of stock you own, you’re either a common shareholder or a preferred shareholder. You can buy both types of shares through a normal brokerage account, but they give you different benefits.