Shareholder vs. Stakeholder: What’s the Difference?

Shareholder vs. Stakeholder: An Overview

A shareholder is someone who owns part of a public company through shares of stock. A stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. A shareholder might be interested in the stock’s price movement but a stakeholder most likely has a deeper-rooted interest in the success of the company.

Key Takeaways

• Shareholders are always stakeholders in a corporation but stakeholders aren't always shareholders.


• Shareholders own part of a public company through shares of stock.


• A stakeholder wants to see the company prosper for reasons in addition to stock performance.


• Shareholders don’t need a long-term perspective on the company and can sell the stock whenever they need to do so.


• Stakeholders are often in it for the long haul and have a greater need to see the company prosper.

Understanding the Shareholder Role

A shareholder can be an individual, a company, or an institution that owns at least one share of a company. They therefore have a financial interest in its profitability. A shareholder is also known as a stockholder.

A shareholder might be an individual investor who's hoping the stock price will increase because it's part of their retirement portfolio. Shareholders have the right to exercise a vote and to affect the management of a company. They're owners in the company but they're not liable for the company’s debts.1 The owners are liable for the company’s debts in private companies, sole proprietorships, and partnerships,

Fast Fact

A sole proprietorship is an unincorporated business with a single owner who pays personal income tax on profits earned from the business.2

A shareholder is interested in the success of a business because they want the greatest possible return possible on their investment. Stock prices and dividends go up when a company performs well and increases its value and this increases the value of stocks that the shareholder owns.

The more stock a shareholder owns, the more they have invested in the company and the more stake they have in it. The votes of shareholders who own more stock have more weight within the company.

There are generally two types of shareholders:

• Common shareholder: This is anyone who owns common stock in a company. Common stock gives you part ownership and often has higher rates of return over the long term. Common shareholders can vote on board members and other company policies.


• Preferred shareholder: This is anyone who owns preferred stock. This type of stock has lower rates of return in the long term but it guarantees a yearly dividend. Preferred shareholders can’t vote on policies or board members but they can claim assets before common shareholders if a company fails and its assets are liquidated.

Understanding the Stakeholder Role

Stakeholders are those who either affect or are affected by a project or company. They have a “stake” in its success or failure. Stakeholders might be shareholders or owners. They can also be:

• Employees of the company


• Bondholders who own company-issued debt


• Customers who may rely on the company to provide a particular good or service


• Suppliers and vendors who may rely on the company to provide a consistent revenue stream


• Community members who are impacted by the company’s decisions and actions


• Partners in events, promotions, or other activities that the company engages in

Stakeholders can generally be divided into two types:

• Internal stakeholders: These are employed by the company or have a direct relationship with it. They're usually employees, shareholders, executives, and partners.


• External stakeholders: These are impacted by the company but they don’t have a direct relationship with it. They're usually customers, suppliers, and community members.

What Is Stakeholder Theory?

Stakeholder Theory argues against the separation of economics and ethics. It states that short-term profits that prioritize shareholders shouldn't be the primary objective of a business.

Prioritizing the needs and interests of stakeholders over shareholders is more likely to lead to long-term success under this theory for both the business and the communities that it's part of. This stakeholder mindset is likely to create long-term value for both shareholders and stakeholders in turn.3

Important

All shareholders are technically stakeholders but stakeholders may not necessarily be shareholders.

Key Differences

A shareholder can sell their stock and buy different stock. They don't have a long-term need for the company. Stakeholders are bound to the company for a longer term, however, and for reasons of greater need.

The vendors in a company’s supply chain might suffer if the company no longer uses their services because it's performing poorly financially. Employees of the company are stakeholders and rely on it for income and they might lose their jobs.

Stakeholders and shareholders also may have competing interests depending on their relationship with the organization or company. Shareholders may want a company to maximize profits which could be done by keeping wages low, reducing employees’ hours so the company doesn't have to pay them benefits, or using less expensive manufacturing processes even if they pollute the local ecosystem.

These ways of increasing profits go directly against the interests of stakeholders such as employees and residents of the local community, however.

Shareholder vs. Stakeholder in CSR Companies

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public. Its emergence has encouraged companies to consider the interests of all stakeholders.

Companies might consider their impact on the environment instead of making choices based solely upon the interests of shareholders during their decision-making processes.

The general public is considered an external stakeholder under CSR governance. The public at large can be affected when a company’s operations could increase environmental pollution or take away a green space in a community. These decisions may increase shareholder profits but stakeholders could be negatively impacted. CSR encourages corporations to make choices that protect social welfare often using methods that reach far beyond legal and regulatory requirements.

Shareholder vs. Stakeholder During Bankruptcy

Both shareholders and stakeholders are impacted when a company goes bankrupt.

Shareholders are typically the most adversely affected because they're owners of the company's equity. They're last in line to be compensated after all debts and obligations are settled in bankruptcy proceedings. Shareholders may lose their entire investment as the company’s assets are liquidated to pay off creditors in many cases.

Stakeholders include a broader range of individuals and groups. Employees can lose their jobs and may have to file as secured creditors in bankruptcy court to recover unpaid wages. Major customers of the bankrupt company may also suffer because they may also have to file claims against unpaid invoices.

There might also be nonfinancial stakeholders that reside outside the company and its direct operations. The broader community where the company operates can experience negative repercussions. Local economies may suffer due to the loss of jobs and reduced business activity. Politicians whose platforms depend on economic success may suffer. City tax revenues may decrease as a result.

“Stakeholder” is used loosely in this example but it’s a good demonstration of how widespread stakeholders can be.

Are Shareholders or Stakeholders More Important?

Shareholders have the power to impact management decisions and strategic policies but they're often most concerned with short-term actions that affect stock prices. Stakeholders are often more invested in the long-term impacts and success of a company.

Stakeholder theory states that ethical businesses should prioritize creating value for stakeholders over the short-term pursuit of profit because this is more likely to lead to long-term health and growth for the business and everyone connected to it.4

Are CEOs Stakeholders or Are They Shareholders?

A CEO is a stakeholder in the company that employs them because they're affected by and have an interest in the actions of that company. Many CEOs of public companies are also shareholders, especially if stock options are a part of their compensation package.

A CEO isn't a shareholder, however, if they don't own stock in the company that employs them. A CEO may be an owner of a private company without being a shareholder because there are no shares to buy.

What Legal Rights Do Shareholders Have?

Shareholders often have voting rights, rights to dividends, the right to attend meetings, the right to preemptively buy new share offerings, and the right to sue for wrongdoing. Stakeholders often don't have these rights because they don't own equity in the company.

The Bottom Line

A stakeholder is anyone who's impacted by a company's or organization’s decisions regardless of whether they have ownership in that company. Shareholders are those who have partial ownership of a company because they've bought stock in it. All shareholders are stakeholders but not all stakeholders are shareholders.

Both shareholders and stakeholders are important but ethical business ownership and management recognize that the short-term profit goals of shareholders may not always be in the long-term best interests of either the company or the community it's a part of. Stakeholder theory suggests that prioritizing the needs and interests of stakeholders over those of shareholders is more likely to lead to long-term success, health, and growth across a variety of metrics.