Stakeholder vs Shareholder

A stakeholder is any entity, including an individual, group, organization, or government, having a vested interest in the success of an organization or project and getting directly or indirectly affected by its performance. A shareholder refers to a person, company, or institution that owns at least one share of the joint-stock company and has a financial stake in its success.

The terms stakeholder and shareholder are often used interchangeably, which is inaccurate because they refer to different aspects of a business. To conclude the stakeholder vs shareholder debate, all shareholders are stakeholders, but not all stakeholders are shareholders. While both have their objectives, they are critical to a company’s growth and development.

Let us have a quick look at the differences between stakeholder vs shareholder:

A stakeholder is any individual, group, organization, or government impacting the firm's performance, i.e., success or failure, or getting affected directly or indirectly by its actions, decisions, policies, and objectives. They have some interest in the organization, and hence they contribute in their way to make the venture a success. Stakeholders may include employees, managers, investors, trade associations, governments, suppliers, creditors, community groups, customers, shareholders, etc.

When a company's performance deteriorates, it affects all of its stakeholders. For example, when the firm experiences significant losses, it begins to lay off staff. As a result, employees lose their jobs and must look for new ones to make a living.

The stakeholders have a long-term reliance on the company, and their efforts to keep it running are intertwined. For example, if a group of customers decides to abandon a brand or boycotts it for some reason, its revenue will suffer. Hence, the contribution of a stakeholder and an organization must work in tandem to ensure the latter functions smoothly.

In short, stakeholders focus on the duration and quality of service from a company and its long-term performance. It means they see a company's success as profit and its failure as a loss.

Types Of Stakeholders

Stakeholders fall into two categories:

1. Internal – Those directly linked with the company or project, like employees, investors, shareholders, managers, etc.
2. External – Those not part of the company but have some role in its functioning, such as customers, suppliers, creditors, labor unions, community groups, governments, etc. They may also get affected by the activities and decisions of the firm.

A shareholder is an individual, corporation, or institution that buys at least one share in a publicly-traded or privately held company. With that, they become a part of the organization and expect a significant return on their investment due to stock price appreciation. They receive a portion of the profit when the company generates higher revenue. Likewise, the poor performance of a company leads to a decline in its stock prices, resulting in a loss for the shareholder.

Shareholders are a part of stakeholders but have a financial interest in how the company performs as it directly impacts the share prices. When the share prices are high, they can sell their holdings and earn profits. They are common in a joint-stock company, where people and entities gather together for a venture.

Shareholders, also known as stockholders, play a significant role in the decision-making process. However, they are not present in a sole proprietorship or partnership firm, as decision-making rests only on one individual or on partners.

Shareholders are part owners of the company, fund the business to grow, and take a great interest in its plans that may impact its share prices and dividends. While shareholders of a publicly listed company are not liable for the debts or financial obligations, stockholders of private firms, partnerships, or sole proprietorships are.

Here is a list of rights they can exercise based on the shares they buy and the company's laws and regulations:

• Access to the yearly financial records and books of the company
• Buy, own, and sell company shares
• Get a portion of proceeds from the sale of the company’s assets in the event of bankruptcy or liquidation
• Have a say on crucial business decisions and policies
• Receive guaranteed dividends
• Vote for the board of directors
• Vote on merger and acquisition deals

Types Of Shareholders

Shareholders fall into two categories:

1. Preferred – Those who own preferred stocks but enjoy no rights in deciding company activities, policies, or future planning. However, they receive a fixed and guaranteed dividend payment annually in standard scenarios.
2. Common – Those who own common stocks, decided by the company’s board members. Unlike the preferred category, dividends are variable and not guaranteed in this case. Furthermore, shareholders have a say in the decision and policy-making processes. Also, they are the last ones to receive a portion of proceeds from the sale of the company’s assets.

Stakeholder vs shareholder not only have similar names, but they also play similar roles in the company. They put interest and money into the business to secure its prosperity. Its success, in turn, will provide them with great benefits. Stakeholders, especially stockholders, rely on the company's performance, and the business depends on them for its success. It is always a two-way process in which both parties give equally to reap the benefits.

The stakeholder vs shareholder theory explains how the organization should treat these two entities. Usually, corporations are supposed to give preference to their shareholders, for they provide funds to help the business grow and expand.

Stakeholder Theory

American philosopher Robert Edward Freeman first introduced the stakeholder theory in his book “Strategic Management: A Stakeholder Approach”, published in 1984. Freeman postulated that companies should focus on providing value for all stakeholders rather than just shareholders. It will thus help the business and its workforce to become successful.

Shareholder Theory

The shareholder or stockholder theory, often known as the Friedman Doctrine, was proposed by American economist Milton Friedman in the 1960s. Friedman claimed that because of the cyclical nature of the business, a company’s fundamental goal should be to perform well and generate wealth for its shareholders.