shareholders vs. stakeholders

 

The difference between shareholders and stakeholders 

Written By: Tao Elyaalo

Before we begin to explain the difference between both designations, we must note that there are several names for them in our Arab world. It may be referred to as follows:

Shareholders:  stockholders.

"Stakeholders":   influencing parties.

Although these designations differ from one side to the other, the terms “shareholders” and “stakeholders” are the most commonly used.

Shareholders or stakeholders, an overview.

Shareholders are always stakeholders in any company, but stakeholders are not necessarily shareholders. A shareholder owns part of a public company by buying shares in it, while the stakeholder has an interest in the company's performance for reasons other than the performance of the shares or their value.

So these reasons often mean that the stakeholder has a greater need for the company to achieve long-term success.

 

Contributors:

The shareholder can be an individual, company, or institution that owns at least one share of the company, and thus has a financial interest in the profitability of that company. For example, a shareholder may be an investor hoping that the share price of that company will increase because it is part of his pension portfolio. Shareholders also have the right to vote and influence the company's management. So in one way or another, the shareholders are considered owners of the company, but they are not responsible for its debts (meaning that they have nothing to do with the borrowing decisions that the company makes).

For private companies, sole proprietorships and partnerships, the owners are responsible for the company's debts. A sole proprietorship is a company or sole proprietorship that is owned by a single person, and he pays income taxes arising from the profits he makes from the business of that establishment.

the concerned:

The stakeholders could be:

Owners and shareholders.

Company employees.

Bondholders who own company-issued debt.

Clients who may be dependent on the company to provide a particular good or service.

Suppliers and vendors who may depend on the company to provide a steady source of revenue.

Although shareholders are the most common type of stakeholder - given that shareholders are directly affected by the company's performance - it has become commonplace for some additional groups to be considered stakeholders as well.

The main differences:

A shareholder can sell his shares and buy different shares; He has no need or long-term interest with the company. However, stakeholders are committed to the company for a much longer period of time for reasons of great need.

For example, if a company is poorly performing financially, the sellers in that company's supply chain may struggle if the company stops using their services. Likewise, its employees - who are stakeholders and depend on them for their source of income - may be at risk of losing their jobs.

 

Stakeholders and shareholders often have conflicting interests; It depends on their relationship to the company or institution.

Special considerations:

The emergence of what is known as CSR: Corporate Social Responsibility - a self-organizing business model that helps a company to assume social responsibility for itself, its stakeholders and society - has encouraged companies to take the interests of all stakeholders into consideration.

During decision-making processes, for example, companies may consider the environmental impact of their work, rather than making decisions based solely on the interests of shareholders. So the public opinion is an external stakeholder who is now considered under the CSR management.

For example: when the operations carried out by a company lead to an increase in environmental pollution or the removal of a green space within a community, the public in general is affected. Such decisions may increase shareholders' profits, but they may have a negative impact on stakeholders.

Therefore, corporate social responsibility encourages them to make decisions that protect social well-being, often by using methods that go far beyond legal and regulatory requirements.

the main points:

Shareholders are always stakeholders in any company; But stakeholders are not necessarily contributors.

A shareholder owns part of a public company by purchasing shares in it; While the stakeholder wants the company to thrive for reasons other than stock performance.

Shareholders do not have a long-term need with the company, and they can sell their shares whenever they need to. But the stakeholders often stay in that company for a long time, and they have a greater need to see that company thrive.

Disclaimer: this article does not constitute a financial advice. It's only for information purpose.