Stakeholder vs Shareholder: what are the differences?

There is often a kind of confusion when it comes to these two. Both sound alike and may seem to have the same meaning, but in the actual sense of it, they are not. 

Let’s take a deeper look at both to get a better understanding.

Who is a shareholder?

A shareholder is an individual who owns shares or equity stock in an incorporated company. Shareholders constitute the corporate head or managers of a limited company. The company could be public or private because every limited liability company needs some shareholders or guarantors to incorporate it anyway.

Companies that have shareholders are companies limited by shares.

Who is a stakeholder?

A stakeholder is that individual who has a stake in whether the company prospers or collapses i.e., a stakeholder is interested in the company’s performance financially and health-wise. This could be staff members, suppliers, or it could also be a shareholder. Once you are a shareholder, you automatically have a stake – something to lose or gain – in whether the company is doing well or not.

In other words, a shareholder has a stake in the ownership of the company and its survival and performance.

So, a shareholder is a stakeholder, especially for the sake of his stock or shares interests but a stakeholder does not necessarily have to be a shareholder.

For example, an employee has a stake in the company for job security while a supplier does too because he needs to make sales and would not like the company to go under, especially if he gains a lot in doing business with such a company. 

The customers will no longer be able to have access to the goods and services they get anymore if the company folds up and the community in which the company operates is also affected either positively or negatively by the products or by-products from the company too. These are stakeholders but not shareholders.

Other attributes that differentiate between a shareholder and stakeholder

Even though stakeholders do not have a stake in the equity stocks of the company, they often influence the performance and survival of the company. This is why many companies provide incentives and welfare packages for their employees and other stakeholders, give promo packages and discount prices to customers, and sometimes give welfare packages or build infrastructures for the communities they operate in, especially if the company’s by-products are hazardous.

This is in a view to avoid issues like strike actions or protests, or suing the company for wrongdoing, which could pose a big problem for the company’s smooth running and functioning. Companies, therefore, recognise the importance of stakeholders and therefore tend to take their interests into consideration when making major decisions about their businesses.

Most often, a shareholder’s interest in the company is just about the interest he gets to make on his stock.

As such, he can sell his shares in case of the market crash and buy some in another company – especially shareholders in public limited companies. Such is the case of the preferred shareholder. Whereas the common ones– those who own part of the company in shares of stock and voting rights – do not have such luxury because they are stakeholders. Their interest in the company goes beyond profitability.

A stakeholder often does not have this luxury to jump ship simply because he/she would have a lot to lose if they do. The common shareholder, like the other stakeholders (employees, customers, clients, and sometimes the community), have a lot at stake and therefore do whatever is in their capacity to make sure the company stays solvent.

While a shareholder would be interested in ways by which the business can increase overall profit by mergers, acquisitions, expansions, etc., the average stakeholder is more interested in the longevity of the company in terms of keeping the company’s dependents happy.

Major differences between the stakeholder and shareholder

We have explained what the differences are between a stakeholder and a shareholder above. But to put it in a more succinct form, below are what sets them apart.

1. Longevity or brevity – shareholders often prioritise in terms of profitability of their investment and may check out by selling their shares when it’s no more profitable to them (short-term interest). The stakeholders, on the other hand, are different in that they tend to be in it for the long haul and thus strive to ensure the company stays healthy financially and otherwise for the long term (long-term interest).
    
2. Interests or priorities – the priorities of a shareholder are mainly about the financial returns on their investments in the company in form of dividends. So, whether it is the preferred shareholder or the common shareholder, they both want profits. Whereas, the stakeholder may be a shareholder but they are more interested in the overall performance, success, and acceptability of the company in the community.
    
3. Ownership – while the ownership, governance, and management are on the shoulders of the shareholders who own part of the company through shares and equity stocks, the stakeholder does not necessarily have to own the company but rather they have a stake in its general health.
    
4. Relevance – shareholders are not always a relevant part of a company. For example, a company limited by guarantee (CLG) instead of shares would not even have any shareholders to start with. Whereas, stakeholders are always relevant because whether the company is for-profit or charity, it will provide goods and services to certain people and such have a stake in the company’s overall performance and health

Conclusion

The major difference between the shareholder and the stakeholder is that while shareholders are always stakeholders whether financial or otherwise, stakeholders are not always shareholders but they are always relevant.