In the world of business, the terms stakeholders and shareholders are often used interchangeably, but they are quite different. Shareholders and stakeholders represent two different philosophies of corporate governance.
A shareholder owns part of a public company through shares of stock, whereas a stakeholder has an interest in the company’s performance for reasons beyond stock ownership.
Whether you run a small or well-established business, understanding the difference between the two is crucial. This blog explains the difference between shareholders and stakeholders, their types, and their legal obligations under UK law.
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What Is a Shareholder?
Any person, business, or organisation that holds at least one share in a company is considered a shareholder, also known as a stockholder. So, they have a financial interest in its success.
A shareholder is an individual investor who expects an increase in stock price because it is a part of their investment portfolio. They can vote and influence company management, while holding ownership without liability for the company’s debts.
Moreover, shareholders seek business success to maximise their investment returns, as higher company performance leads to higher stock prices and dividends. Shareholders with larger stock holdings possess greater influence, as their votes carry more weight in company decisions.
Remember, shareholders and stakeholders are not the same and have different roles.
What Are the Types of Shareholders in the UK
In the UK, shareholders are categorised into two types:
Common Shareholders
A common shareholder is a person who owns common stock in a company. They are the foundational owners of a company and can vote on board members and other company policies.
Additionally, dividends are not guaranteed and are only paid if a company is generating profit. If a company fails, shareholders only receive money after all creditors and preferred shareholders have been paid.
Preferred Shareholder
A preferred shareholder is anyone who owns preferred stock. Unlike common shareholders, preferred shareholders usually receive a fixed dividend that must be paid before any dividends go to common shareholders.
In the shareholders and stakeholders concept, preferred shareholders do not have voting rights at general meetings like common shareholders. However, they can vote in certain situations, like changes to their specific share rights.
Additionally, if the company is liquidated, they can claim their initial investment.
What Is Shareholder Theory?
Stakeholder theory, introduced by Dr R. Edward Freeman in 1984, postulates that businesses should prioritise wealth creation for all stakeholders instead of focusing solely on shareholders.
In the UK, shareholder theory is partly reflected in the Companies Act 2006, Section 172, which requires directors to consider the benefit of shareholders while considering the social and environmental impact of their decisions.
What Is a Stakeholder?
Anyone who is influenced by or affected by the company’s operations is considered a stakeholder. Understanding your stakeholders in project management facilitates productive collaboration and work completion.
Stakeholders can take many forms, ranging from company executives to individual contributors. They can also be:
- Bondholders
- Employees of the company
- Suppliers and vendors
- Partners who participate in company events or other activities
What Are the Types of Stakeholders in the UK
Stakeholders are categorised into two types:
Internal Stakeholders
These individuals work inside the organisation, and their daily lives or financial security are tied directly to the company’s profitability. They are usually employees, partners, executives, and shareholders.
External Stakeholders
These individuals are outside the company but are affected by the company’s actions. They are usually suppliers, customers, regulators (HM Revenue and Customs), community members, and banks/lenders.
What is a Stakeholder Theory?
While discussing the difference between shareholders and stakeholders, it is crucial to understand related principles like stakeholder theory.
Stakeholder Theory posits that businesses should prioritise the needs and interests of all stakeholders rather than focusing solely on short-term profits for shareholders.
According to this hypothesis, prioritising stakeholders’ interests and demands over shareholders is more likely to result in long-term success for the company as well as the communities it serves. Both owners and stakeholders will probably benefit in the long run from this stakeholder approach.
Shareholder Vs Stakeholder: Key Differences
A shareholder is like an investor who can leave whenever they want. In contrast, a stakeholder is like a partner who depends on the company and is connected to it for a longer period. The table below shows the key differences between shareholders and stakeholders.
| Stakeholder | Shareholder |
| They do not necessarily own any shares | They own a part of a company |
| They are interested in the actions and success of the company over the long term | They may not have any long-term need for the success of the company |
| They are often bound to the company long-term | They can sell shares and leave at any time |
| Long-term value, ethical practice, and stability | Financial return and Return on Investment (ROI) |
If a company experiences financial difficulties, the supply chain vendors may lose a customer and income, while employees, as stakeholders, risk losing their monthly wages and jobs.
Additionally, shareholders and stakeholders may have conflicting interests, depending on their relationship with the company. Shareholders often prioritise profit maximisation, which can lead to wage suppression, reduced working hours, or the use of cheap manufacturing methods, even if they harm the local ecosystem.
These strategies may go against the interests of other stakeholders, including employees and local community members.
Are Shareholders or Stakeholders More Important?
Both shareholders and stakeholders play a vital role in business success. A shareholder can affect management decisions and focus on short-term stock price impacts.
In contrast, a stakeholder prioritises long-term company success. Stakeholder theory advocates for ethical businesses to create value for stakeholders rather than solely chase short-term profits, promoting long-term health and growth for the company.
Are CEOs Stakeholders or Are They Shareholders?
CEOs are primarily internal stakeholders. They are employees who manage the company’s operations and rely on it for their income.
Nevertheless, stakeholders often become shareholders, especially in the UK, where executive compensation packages frequently include stock or share options to align their interests with the owners of the company.
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Bottom Line
The relationship between shareholders and stakeholders is central to UK business operations. While a stakeholder influences the company’s long-term success and social impact, a shareholder provides financial investment and expects returns.
In the UK, business success is not just about the balance sheet, but also about managing the ecosystem and entities that support it.
Moreover, businesses can ensure long-term resilience by balancing the financial demands of owners with the operational and ethical needs of the wider community. Ultimately, understanding the difference between shareholders and stakeholders helps businesses gain trust and achieve long-term success.
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Disclaimer: This blog contains general information about shareholders vs. stakeholders.