Stakeholder vs. Shareholder: Definitions, Differences, & Similarities

Key Takeaways


There are several challenges new investors must overcome to attain financial success. Among these difficulties, is the terminology commonly associated with business and financial practices. Beginners may find the language used in everyday investments to be exclusive or overwhelming. The good news is, with the right education and practice this barrier can be easily overcome.

A common spot for confusion in the investing world is the difference between a stakeholder vs shareholder. Each of these terms refers to an important aspect of company ownership — though they carry different meanings. Continue reading to learn more about the roles of stakeholders and shareholders, and improve your investing education today.

What Is A Shareholder?

A shareholder is someone who owns one or more shares of a company and therefore has invested in that company’s potential success. Shareholders can be individuals, other companies, or institutions as long as they own at least one share; and they are often referred to as stockholders. Shareholders earn payments from a company’s profits, which are paid through dividends. They are subject to capital gains, though they are not responsible for debts incurred by the company.

In some cases, shareholders have the power to affect the management and decisions of said company (though this will vary based on the type of share). They can buy and sell their shares as they see fit, and can even walk away from the company completely. For example, if you purchased stocks in a company as part of your investment portfolio you could be considered a shareholder.


[ Do you control your finances or are your finances controlling you? Find out how real estate investing can put you on the path toward financial independence. Register to attend a FREE real estate class, upcoming in your area. ]


stakeholders definition

Common vs. Preferred Shareholders

There are two main categories of shareholders: common vs preferred. A common shareholder owns common stock dividends in a company, which are set by a board of directors. Common shareholders receive voting rights along with their shares and have some control over management. However, if a company were to liquidate its assets common shareholders are among the last to receive payment (after preferred shareholders). Preferred shareholders, on the other hand, own preferred stock in a company and receive annual dividends. These shareholders do not have voting rights or a say in the company’s operations.

What Is A Stakeholder?

A stakeholder is someone who is affected by or can affect the operations of a company. They have some type of interest in the organization, without necessarily owning stocks or shares. Stakeholders can include employees, customers, investors, owners, suppliers, and more. In general, stakeholders are thought to have a more long-term interest in a company when compared to shareholders.

More recently, the definition of stakeholders has even been extended to include governments, trade associations, and local communities. The reason for this is because so many people can be affected by what a company does — regardless of whether or not they have direct ties to ownership. Because of the broad definition of stakeholders, they are generally divided into two main categories: internal and external.

Internal Stakeholder Example

An internal stakeholder is anyone who has direct ties to the company, or who contributes to the internal operations. This typically includes business owners, investors, employees, and volunteers. For example, the manager of the marketing department inside of a company has a direct impact on the day to day operations. They also likely depend on income from the company and work towards organizational goals. This marketing manager would be considered an internal stakeholder.

External Stakeholder Example

The term external stakeholders typically catches anyone impacted by a company, without being involved in its regular operations. This category includes customers, trade associations, communities, and more. For example, the residents of downtown San Diego could be considered external stakeholders in Petco Park. These residents are impacted by the events hosted at the park and may feel attached to its performance. However, the interest they have in Petco Park is not a direct result of their ownership or involvement.

Stakeholder vs. Shareholder: What’s The Difference?

The difference between stakeholders and shareholders is the way they are impacted by a company. Shareholders have ownership in a company and are directly impacted by its profitability. For the most part, the main interest of shareholders is a high return on investment. Stakeholders, on the other hand, span far beyond those who own shares in a company. Stakeholders are anyone impacted by the regular operations and performance of a company, and while they can be interested in profitability in many cases it is not their main focus.

Shareholders can be considered stakeholders, but the opposite statement is not necessarily true. Stakeholders may own shares, but in many cases do not. Further, while all companies have stakeholders not all companies have shareholders. This is because only some companies choose to go public and sell shares. For example, the cafe up your street likely does not have shareholders — but it would have stakeholders (customers, neighboring businesses, suppliers).

stakeholder definition

Stakeholder vs. Shareholder Theory

The difference between stakeholders and shareholders has been studied by business analysts for years. These analysts seek to identify the right balance for businesses, which has resulted in the creation of the stakeholder vs shareholder theory. This theory aims to answer the question: what should businesses pay more attention to? One side argues that profits (and shareholders) should be the ultimate focus of a company. This viewpoint does not say that companies should be exempt from regulation, but simply that profits should be the main consideration when operating a business. This theory was introduced in the 1960s by economist Milton Friedman and is sometimes called the Friedman doctrine.

An opposing viewpoint, called stakeholder theory, was introduced in the 1980s by Dr. R. Edward Freeman. This viewpoint focuses on business ethics and states that companies must create value for all stakeholders rather than just focusing on those with shares. Freeman’s theory claims that by focusing on stakeholders, employees will be more motivated to work and customers will be more interested in the services or offerings. He also states that if companies violate laws or regulations, they will spend time and resources settling lawsuits or other complaints. Instead, by focusing on each stakeholder business can generate more long term stability and earnings.

Stakeholder vs. Shareholder: Project Management Influence

Both stakeholders and shareholders can influence project management within a company, though they do so in a few different ways. Stakeholders (remember: employees, customers, or volunteers) can directly impact the outcome of a project by their performance. From a project management perspective, this means stakeholder needs and expectations should be taken into consideration when planning. This can help ensure the success of a project while minimizing backlash and opposition. A project proposal that takes stakeholders into account will therefore be more likely to succeed.

Shareholder influence essentially revolves around the fact that shareholders want a company to be profitable, so they can benefit from the returns. While they are not involved in the day to day business operations, they are rooting for the success of each project as long as it aims to boost a company’s value. This perspective should be taken into consideration throughout the life cycle of each project, as shareholders will be counting on them. Essentially, companies must pay attention to both stakeholders and shareholders when launching a new project.

Summary

Anyone involved in a business or investment should set aside time to learn the terminology used to describe today’s financial landscape. This skill can go a long way in terms of successfully navigating current and future investments. For example, when looking at the differences between a stakeholder vs shareholder investors can identify the motivation behind certain business practices. This knowledge can enable investors to make more informed decisions about project planning, communication, and even portfolio management.

Can you think of any other examples of stakeholders we left out? Share in the comments below.

Ready to start taking advantage of the current opportunities in the real estate market?

Maybe you have plenty of capital, an extensive real estate network, or great construction skills— but you still aren’t sure how to find opportunistic deals. Our new online real estate class, hosted by expert investor Than Merrill, can help you learn how to acquire the best properties and find success in real estate.

Click here to register for our 1-Day Real Estate Webinar and get started learning how to invest in today’s real estate market!

🔒 Your information is secure and never shared. By subscribing, you agree to receive blog updates and relevant offers by email. You can unsubscribe at any time.