Difference between stockholders and stakeholders

Definitions and meanings:

Stockholder:

Stockholders are the individuals, firms, groups or institutions that invest in a company to buy and own stock or shares of that company. Stockholder becomes the owner of the business according to the percentage of stock owned by them. Another name used for Stockholders is shareholders.

Stakeholder:

Stakeholders are individuals, firms, groups or institutions that have interests attached to an organization. They can either get affected by the policies, actions and priorities of the organization or can affect the organization by their policies, actions and priorities. Suppliers, creditors, debtors, employees, directors, shareholders, governmental agencies and institutions, media houses and trade unions are all examples of stakeholders.

Difference between stockholders and stakeholders:

The main points of difference between stockholders and stakeholders are detailed below:

1. Economic Status:

For a business every stockholder is its stakeholder, but every stakeholder is not a stockholder. When a person or institute buys shares in a business they become a stockholder of that business. This automatically binds their interests with the actions of the business therefore they are also referred as the most important stakeholder of that business. However, there are other people and/or institutions that may possess interests in the business. These may not necessarily hold controlling interests in the business like stockholders, but are attached to business in other ways. Employees, governments, suppliers, customers, debt providers etc. are some examples of major stakeholders of a business.

2. Types and segregation:

There are different types of stockholders/shareholders based on the type of shares they possess. Ordinary shareholders (own shares in the business and when business announces to pay dividends, get their percentage part), preferential stockholders (are like ordinary shareholders but get their dividend on preferential basis), non-voting stockholders (are stockholders that get dividends but do not possess rights to vote in meeting of a business), stockholders owning redeemable stocks (shares/stocks that are bought with a condition that business will buy them back after a certain period of time) etc. are some types of stockholders. Stakeholders are segregated into different groups based upon the level of interest and power they have in their dealings with the company. Employees, government, tax authorities, suppliers, customers, potential investors, debt-providers, competitors, trade organizations, local community are different types of stakeholder and can be sorted out in different groups like primary and secondary stakeholder, internal and external stakeholders, narrow and wide stakeholders, legitimate and illegitimate stakeholders, recognized and unrecognized stakeholders etc.

3. Economic benefits:

Stockholders as owners of the company get two main types of economic benefits from the business. They earn income in terms of dividends paid by the business and they get capital appreciation when the value of their stock increases due to increasing commercial activities (growth) of the business. Stakeholders extract different kinds of benefits from a business according to their status and/or power of influence. For example, employees seek stability of their jobs, governments seek employment opportunities for masses, tax authorities seek tax collections, suppliers expect continued orders and payments on time, customers expect good quality products and/or services, lenders want security of their repayments etc.

4. Authority:

Although stockholders do not indulge in day-to-day activities of their company as owners they have the ultimate power and authority over them. This authority materializes mainly in terms of voting during shareholder’s meetings on agenda items like hiring and firing of board members, passing special resolutions to change articles of association of a company (the constitution of a company) etc. Stakeholders can exert influence over the business greatly or minimally based their position, but they do not have any relevant authority over the business. For example, a government is likely to have more influence over the actions of an organization rather than an employee or a non-governmental organization working in the same sector as a company may have a better claim to be the stakeholder of that company as compared to a local community center etc.

5. Scope of relationship:

Stockholders have the option to sell their shareholding in the company. In this way, the ownership of the business changes and is transferred to the new holder of stocks. However, stakeholders are mostly related to an organization for longer periods of time like employees, suppliers etc. The change in shareholder portfolio can often impact the stakeholder’s interests but only if this change is a major one.

Stockholders vs stakeholders – tabular comparison

A tabular comparison of stockholders and stakeholders is given below:

Conclusion:

For a business or organization, it is very important to differentiate between its shareholders and stakeholder. Businesses further divide stakeholders based on their limitations of influence and level of interests. They apply different models like Mendelow’s matrix etc. to manage and map their stakeholder groups effectively which enables a business to disperse its efforts in more meaningful and proficient ways to counter the requirements of all its stakeholders.