If you were to buy one stock of Reliance Industries Ltd. on an exchange today, you would become a registered stockholder of the company. This means that even though you’re a very very small fish, you’re still an owner of Reliance Industries.
However, by no means are you a stakeholder in Reliance’s operations. To become a stakeholder, you’d have to have a ‘stake’ in any of Reliance’s operations. As a stakeholder, the outcome or costs of these operations would directly affect you, incentivising your participation.
In this brief article, we’re going to explore what stakeholders and shareholders are, when you can be one and not the other, and what the difference in responsibility is.
You may also like: A guide to stock dividend
Who is a shareholder?
A shareholder is someone who owns stock in a company. The quantity doesn’t matter. While someone who owns 0.00004% of a company would have no say in the company’s operations compared to someone who owns 10% or 15%, they’re a shareholder nevertheless. Shareholders who own less than 50% of shares have a non-controlling interest in the company, meaning that while they have a significant vote in the company’s decisions, they don’t have the final say.
The incentive for minority shareholders is a financial return on the investment. As a shareholder, you’re most likely interested in seeing the company grow, pay out dividends, and have your per-share price go up so you can sell for higher later on.
As a shareholder, you’re also privy to voting on company policies like mergers and acquisitions, electing the board of directors, etc. These decisions start to matter as you own more and more of the company because it is these decisions that, in a large way, decide how the company performs financially.
Types of shareholders
There are different types of shareholders, depending on the type of shares they own:
- Common shareholders – These are people who hold common stock – the ones traded on the markets every day. Anyone can own common stock in a company, vote on corporate policies, and elect the board of directors. However, owning common stock comes with a lot of risk. If the company ever goes bankrupt, common stockholders can only claim assets after the bondholders, debtors, and preferred shareholders are paid in full.
- Preferred shareholders – These holders have preferred stock. This means that while these shares earn less returns in the long-term, they’re given preference over common shareholders if the company goes under. Preferred shareholders can’t vote on policies or elect board members.
- Advisory shares – Advisory shares are usually issued by early-stage companies that value financial and strategic guidance from established advisors like entrepreneurs, angel investors, senior executives, or other businesspeople. Advisory shares don’t come with a right to vote; advisory shareholders are given stock options in payment.
Who are stakeholders in a company?
A stakeholder is anyone who could be impacted by a project that a company is working on. Stakeholders could be people who work on that project inside the company, the team that manages the project, external collaborators, suppliers, logistics teams, etc. In this case, shareholders could also be project stakeholders if the company expects it to impact the share price.
Types of stakeholders
There are two main types of stakeholders for a company:
- Internal stakeholders – Internal stakeholders are individuals directly affiliated with the organisation, including colleagues and collaborators from different departments. Typically, these stakeholders are employed by the company. In this case, shareholders qualify as internal stakeholders due to their connection through company stocks. Their interest, which is the company’s financial growth, is significantly influenced by the projects the company undertakes.
- External stakeholders – On the other hand, external stakeholders are individuals without a direct association with the company, such as customers, end users, and suppliers. Despite being external, the company’s projects still impact them. These external stakeholders may or may not be shareholders.
Also Read: Unlocking the power of preference shares
The main differences
Here are some differences between shareholders and stakeholders in a company.
|Owners of company equity (shares/stocks).
|Individuals or entities with an interest in or affected by the company’s activities.
|Financial returns, mainly through dividends and capital appreciation.
|Diverse interests, including financial, social, environmental, and ethical concerns.
|Relationship with the company
|Direct ownership of a portion of the company.
|Varied relationships; not necessarily direct ownership, but may include customers, employees, suppliers, etc.
|Hold legal rights, such as voting on certain company decisions.
|Limited legal rights, often without voting power, but may influence decisions through other means.
|Primarily focused on financial performance and value creation.
|May have a broader focus, including ethical practices, sustainability, and corporate social responsibility.
In conclusion, the distinction between stakeholders and shareholders is important to understand the web of relationships surrounding a company. While shareholders, as equity owners, focus on financial returns and have direct legal rights, stakeholders are a broader spectrum of individuals or entities with varied interests.