Shareholder and a stakeholder

Shareholder is a person, who has invested money in the business by purchasing

shares of the concerned enterprise. On the other hand, stakeholder implies the
party whose interest is directly or indirectly affected by the company’s actions.
The scope of stakeholders is wider than that of the shareholder, in the sense that
the latter is a part of the former. Stakeholders represents the entire micro-
environment of the business.

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.
Comparison Chart

BASIS FOR
SHAREHOLDER STAKEHOLDER
COMPARISON

Meaning The person who owns the The party, who is having a
shares of the company is stake in the company is
known as a Shareholder. known as Stakeholder.

Who are they? Owners Interested Parties

What is it? Subset Super set

Company Only a company, which is Every company or

limited by shares have organization have
shareholders. stakeholders.

Includes Equity shareholders, Shareholders, Creditors,

Preference shareholders Debenture holders,
Employees, Customers,
Suppliers, Government etc.

Focuses on Return on investment Performance of the company

Definition of Shareholders

Every company raises capital from the market by issuing shares to the general
public. The shareholder is the person who has bought the shares of the company
either from the primary market or secondary market, after which he has got the
legal part ownership in the capital of the company. He is the one who owns
shares in the private or a public company. Share Certificate is given to every
individual shareholder for the number of shares held by him.

Mere subscribing to shares does not amount to ownership of shares, until and
unless shares are actually allotted to him. They are the people who directly
affected by the activities of the company. In a company, there can be two types of
shareholders.

 Equity Shareholders: The holders of the ordinary shares of the

company. They have the right to vote in the Annual General Meeting
(AGM). Moreover, at the time of the liquidation of the company they are
repaid at the end.
 Preference Shareholders: Preference Shareholders are the one who
gets priority over Equity Shareholders in the payment of dividend at a fixed
rate and repayment of capital it the event of winding up of the company.

Definition of Stakeholders

A Stakeholder is a party that can influence and can be influenced by the activities
of the organization. They are the interested parties who help the organization to
exist. In the absence of stakeholders, the organization will not be able to survive
for a long time.

As per the traditional governance model, the company’s management is

accountable only to the shareholders. But nowadays, this scenario has
been completely changed because many corporations are having the opinion that
apart from the shareholders, many other constituents exist in the business
environment and the management is answerable to them also. As the business
operates in an environment and there are many factors which affect it. Similarly,
the steps taken by the entity will also have a positive or a negative impact on its
constituents. These constituents, are classified in the following categories:

 Internal Stakeholders

o Owners
o Managers
o Employees
o Trade Unions
 External Stakeholders
o Suppliers
o Creditors
o Government and its agencies
o Customers
o Society
o Competitors

Key Differences Between Shareholders and Stakeholders

The following are the differences between shareholders and stakeholders:

1. The person holding the shares of the company is known as Shareholders.

The party having a stake in the company or organization is known as
Stakeholder.
2. Shareholders are the owners of the company as they had bought the
financial shares, issued by the company. Conversely, Stakeholders are the
interested parties who affect or gets affected by the company’s policies and
objectives.
3. Shareholders are a part of the Stakeholders. It can also be said that
shareholders are stakeholders, but the stakeholders are not necessarily the
shareholders of the company.
4. Shareholders lay emphasis on the return on their investment made in the
company. On the other hand, Stakeholders focuses on the performance,
profitability, and liquidity of the company.
5. The scope of stakeholders is comparatively wider than the shareholders
because there are other constituents also apart from shareholders.
6. Only the company limited by shares have shareholders. However, every
company or organization have stakeholders, whether it is a government
agency, nonprofit organization, company, partnership firm or a sole
proprietorship firm.

Conclusion

Therefore, it can be clear from the above discussion that shareholder and
stakeholder are two different terms. Hence, should not be confused while using
them. Shareholders are just the legal owners of the company, who have got the
ownership by purchasing the shares of the company. Stakeholders is a little
bigger term than Shareholders, which includes all those factors which have an
affect on the business. Not only business doing entity have stakeholders, but
every organization irrespective of its size, nature, and structure are accountable
to Stakeholders.
How to compare shareholder’s & stakeholder’s models

Shareholders include those individuals and entities who own a

share in a corporation. Stakeholders include all individuals and
entities, including shareholders, who are affected by the
activities of the organization. Stakeholders include employees,
vendors, customers and the community at large. It is important
to understand the differences and similarities between
shareholder’s and stakeholder’s models for a variety of reasons.
For example, managers must determine which model is
appropriate for achieving the mission of the organization.
Additionally, investors may base their decision to purchase the
stock of a particular company based on the extent to which the
company values investors versus other stakeholders.
Note the differences between shareholder’s and stakeholder’s
models. Using your pen and paper, create a list of the areas in
which the two models differ. For example, the shareholder
model measures success according to the amount of profits
made for company owners, while the stakeholder model tends to
value the satisfaction of all stakeholders equally.
Detail the similarities between shareholder’s and stakeholder’s
models. For example, organizational leaders consider the needs
of shareholders in both models. Profitability is often important
to both models, as no stakeholder may benefit from the failure of
the company.
Create a list of organizations that you can analyze to determine
which model each follows. Analyzing real-life companies can
help improve your understanding of the two models. Start with
well-known companies that maintain public documentation of
their business practices, including annual reports and Web pages
detailing the companies’ corporate social responsibility
programs. Choose a few companies that are obviously either
stakeholder or shareholder influenced. For example, you might
choose a company that sells products that are intrinsically
harmful to stakeholders, such as a tobacco company.
Conversely, you might choose another company whose mission
is to benefit the environment or help needy children. You should
also choose several companies whose focus isn’t so obvious.
Compare and contrast each organization to determine whether
they adhere to the shareholder’s model or the stakeholder’s
model. Evaluate whether each organization values the interests
of shareholders above all others and vice versa. For example,
identify whether organizational leaders place greater emphasis
on profitability or responsibility. The shareholder model focuses
organizational activities on creating the greatest amount of profit
for company owners. The stakeholder model focuses on
developing business practices that benefit all stakeholders.
Consider how organizational leaders in each example might
balance the needs of stakeholders with those of shareholders. It
is essential to remember that the organization must profit in
order to remain in existence. In many cases, companies may
benefit all stakeholders, including shareholders by maintaining
profitability for shareholders.