The difference between shareholders and stakeholders

Julie Palmer

Regional Managing Partner

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The difference between shareholders and stakeholders

Updated: 12th February 2020

The Roles of Shareholders and Stakeholders

Shareholders and stakeholders both play fundamental roles in a limited company, but their aims and interests are very different. People who hold shares in a company are stakeholders by definition, and have a vested interest in the business’ prosperity.

Stakeholders, on the other hand, don’t necessarily have to be shareholders, and whilst they also have a personal interest in the company’s success, this interest is typically taken over longer-term.

What is a shareholder?

Shareholders own equity in a company through the purchase of shares. They aren’t directly involved in running the business, but may have rights depending on the class of share purchased.

The company’s articles of association lay out the rules of how the company will be run, including any rights held by shareholders. A shareholder’s perspective differs from that of a stakeholder in that their interests are related to profitability, growth, and dividend distribution.

Shareholders who have voting rights may sanction certain matters at an Annual General Meeting (AGM), which public companies must hold every six months. These include directors’ remuneration and dividend distribution.

So what is a stakeholder, and how do the two roles differ?

What is a stakeholder?

Companies have internal and external stakeholders. The interests of both groups are longer-term when compared with shareholders, whose connection to a business may be short-lived depending on when they decide to cash in their shares.

Internal stakeholders have a more direct relationship with the company, typically being members of staff and managers. External stakeholders usually include creditors and suppliers, but the term can also incorporate larger groups such as trade unions, government regulators, and community groups. As we mentioned earlier, shareholders are also stakeholders in a company.

"Shareholders and stakeholders both play fundamental roles in a limited company, but their aims and interests are very different."

What are the different perspectives of shareholders and stakeholders?

One fundamental difference between shareholders and stakeholders is their overall perspective on a company. Shareholders typically focus on business performance, profitability, and growth, inclining towards expansion as a business strategy.

Their interests may be short-term when compared with stakeholders, however, as they can sell their shares at any point. A stakeholder’s perspective takes into account longer-term issues such as employment if they’re a member of staff, or financial stability if they’re a creditor or supplier.

Staff members’ focus would be on obtaining better terms of employment such as flexible working arrangements and increases in pay, for example, with creditors’ principle concerns being timely payment and the quality of goods or services provided by the company.

External stakeholders such as community groups and local customers also have a vested interest in how the company operates – an issue covered by Corporate Social Responsibility, or CSR.

Corporate Social Responsibility

Corporate Social Responsibility is an important element of a company’s business model and requires consideration of how their operations affect the wider community, rather than considering only their shareholders.

Environmental issues such as disruption to a local ecosystem or a negative impact on local residents, are expected to be treated with high priority, whereas previously shareholders were the main focus for company executives.

This recognition and expectation that companies will behave ethically and be more widely responsible for their actions is a relatively new concept, but it’s one that’s being adopted on a broad scale by UK corporations.

If you would like more information on the difference between shareholders and stakeholders, or guidance on the duties and rights of each group, RBR Advisory can help. We operate a large network of offices around the UK, so you’re never far away from professional help. Please contact one of the team to arrange a free same-day consultation.