The difference between shareholders and stakeholders
/What is a Shareholder?
Shareholders and stakeholders are both associated with a corporation, but their interests in the organization differ. A shareholder is a person or entity that owns shares in the corporation. A shareholder is entitled to vote for the board of directors and a small number of additional issues, as well as receive dividends from the business and share in any residual cash if the entity is sold or dissolved.
There are two types of shareholders: common shareholders and preferred shareholders. A common shareholder owns the common stock of a corporation, which gives this party an ownership interest in the business and the right to vote for board members and certain other issues. A preferred shareholder owns the preferred stock of a corporation, which gives this party the right to receive a dividend from the corporation. These shareholders cannot vote on corporate matters, but do have a priority over common shareholders if the corporation were to be liquidated.
What is a Stakeholder?
Stakeholders represent a substantially more broad group, because they include anyone having an interest in the success or failure of a business. This group can include shareholders, but goes well beyond shareholders to also include creditors and customers, employees, the local community, and the government.
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Comparing Shareholders and Stakeholders
The main differences between shareholders and stakeholders are as follows:
Ownership. Shareholders legally own part of a company, while stakeholders do not necessarily own a part of the business; instead, stakeholders have an interest in or dependency on its operations.
Interests of the parties. Shareholders are primarily interested in a company’s financial performance, while stakeholders have a diverse set of interests that may include job security, product quality, ethical business practices, timely payments, and compliance with the law.
Priorities. Shareholders are usually most interested in short-term gains, while stakeholders are more interested in long-term, sustainable benefits, such as stable employment and environmental stewardship. These priorities may conflict.
Role in decision-making. Shareholders can have a major role in company decisions through their voting rights, while stakeholders are more likely to influence decisions indirectly.
In essence, all shareholders are stakeholders, but not all stakeholders are shareholders. Businesses today often strive to balance the needs of both groups for sustainable growth and positive public impact.