During our financial journey, a lot of us must have heard and be confused between two words, SHAREHOLDER and STAKEHOLDER. While both of them sound so similar, but they are a whole lot different from each other than they are identical.
While some of us might think that these words can be interchanged, both of their roles differ greatly from each other.
While they both are invested in a company, but they both have different reasons and tools for their investments.
A shareholder always owns a part of a public company through shares of stocks for capital appreciation, while on the other hand a stakeholder has interest in the performance of the company for reasons that may vary from capital appreciation. Let us explore these terms in a better way for a greater understanding.
Shareholder Meaning
As the name suggests shareholders of a company can be anyone that holds at least one share of a particular company, hence is interested in the profitability of the company that in turn awards them with capital appreciation which can help them secure their financial position due to the performance of the company.
Shareholders are part owners of the company as they have shares and stocks of the company so they are responsible for the management and decision making of the company, which affects the performance of the company in the long run and hence directly affects the stock price, as the price of the stock is directly dictated by the performance of the company.
Although they are part owners of the company, still they are not responsible for the underlying debts that a company carries. Every shareholder is a stakeholder of a company but not the other way around.
A shareholder might be an investment company that thinks a particular company might perform greatly in the future and provide them with humongous returns so they bought several shares of the company, or it might be an individual trying to invest money in the company for a better portfolio.
Stakeholder Meaning:
Stakeholders are the companies or individuals that are interested in the company and the activities and decision making of the companies may directly or indirectly affect them.
They might not own any share or stocks of the company and hence not be a part owner of the company, but still be greatly affected by its performance.
Stakeholders might be individuals who work for the company or the companies that transact with it on a contract basis.
They might also be shareholders and owners of the company that take part in decision making, or the investors who have the bonds issued by the company.
Stakeholder is a very broad term and includes all individuals, companies, groups that might be affected by decisions it makes which also includes its whole customer base, which rely on the goods and services that this company provides, along with the vendors, contractors and creditors associated with it.
Difference Between Shareholder & Stakeholder
A shareholder is bound to a company as long as he sees fit, they can hold the stock for as long as they believe in the financials,management of the company.
They don’t have any contracts or boundations to the company so they can sell the stocks of this company and may buy the stocks of any other company if they don’t see the company fit for their investment strategy.
Shareholders almost always provide financial aid to the company.
A stakeholder might be bound to a company by a form of contract or a bond. for example an employee can not leave the company before a pre decided tenure of his or her service, or a vendor or supplier has to fulfill the terms to which it agreed which might be a time boundation or a quantity boundation.
Similarities between Shareholder & Stakeholder
Both shareholders and stakeholders are affected greatly when the company performs exceptionally and makes profits in terms of capital appreciation or in terms of a continued or extended contract of services.
Both will have adverse effects when a company gives or makes a negative performance.
Conclusion
- All shareholders are always the stakeholders, but not all the stakeholders are the shareholders of the company.
- Shareholders exchange money with equity of the company, but some stakeholders like vendors and suppliers trade money for their services or product
- All shareholders are the owners of a company but all stakeholders might not be owners
