In recent years, the way companies in India are run has started to change. Traditionally, businesses focused mainly on making profits for their shareholders, i.e., the people who own shares in the company. But now, there is growing recognition that companies also impact many others, like employees, customers, suppliers, and communities -these are called stakeholders. Understanding the difference between shareholders and stakeholders is essential for anyone involved in or affected by a business.
This blog aims to elaborate on the meaning of the shareholder and the stakeholder, the rights associated with them, and the difference between them.
What is a Shareholder?
A shareholder is someone who owns part of a company through shares and expects financial returns.
- They are financial investors in a company.
- Their main goal is usually to see the value of their shares increase.
- They often have voting rights in company decisions.
- Shareholders benefit when the company makes money, but also take a hit when it performs poorly.
Types of Shareholders
Shareholders are a specific kind of stakeholder: they own a part of the company. They are also called “stockholders.”
There are two main types of shareholders:
1. Common Shareholders
These are the most common types of shareholders. If you have ever bought stock in a public company like Apple or Coca-Cola, you’re a common shareholder, and you fall under this category of shareholders.
Rights of common shareholders:
- Vote at annual meetings (e.g., for electing the board of directors)
- Receive dividends only if the company pays them
- Sell shares at any time
- Get a share of company assets if the business closes, but only after debts are paid
2. Preferred Shareholders
They have special rights and usually get paid before common shareholders.
Rights of Preferred Shareholders:
- Fixed dividends are paid before common shareholders.
- Priority during liquidation
- No or limited voting rights
Statutes governing shareholders in India
In India, shareholders are protected mainly under the Companies Act, 2013, along with financial market regulations and supporting legislation.
- The Companies Act, 2013
This is the primary statute governing shareholder rights.
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)
This statute is applicable to listed companies. It includes:
- Timely disclosure of financial performance
- Shareholder grievance redressal
- Voting and e-voting provisions
- Transparency in related-party transactions
- Securities Contracts (Regulation) Act, 1956
It governs share trading and stock exchange operations.
- Depositories Act, 1996
It provides a legal framework for dematerialised securities and protects shareholder interests in electronic formats.
What is a Stakeholder?
A stakeholder is anyone in the company who has an interest in the company and is affected by the decisions and management of the company. The stakeholders include employees, customers, suppliers, creditors, the community, and even the environment.
Examples of stakeholders include:
- Employees, as they rely on the company for jobs and income
- Customers, as they rely on the company’s products or services
- Suppliers, as they depend on the company for business
- Local communities sometimes get benefits from the operations of the company
- Government and regulators, as they have a stake in the company, follow laws and pay taxes
Types of Stakeholders
Stakeholders can be divided into two main categories: Internal and External.
1. Internal Stakeholders
These are people who are inside the company and directly involved in its daily operations.
- Employees: They work for the company. They care about job security, fair wages, safe working conditions, and career growth.
- Managers and executives: They make decisions about how the company is run. Their main concerns include company performance, employee productivity, and meeting targets.
- Owners or founders: In private companies, the people who started or own the company may also manage it. Their stake is both emotional and financial.
2. External Stakeholders
These are people or groups outside the company who are still affected by its actions.
- Customers: They rely on the company for products or services. Their interests include quality, price, and safety.
- Suppliers and vendors: They provide goods or services to the company. They care about getting paid on time and maintaining long-term business relationships.
- Creditors and lenders: These are banks or institutions that lend money to the company. They want the company to stay financially healthy so that their loans are repaid.
- Government and regulators: They enforce laws, collect taxes, and ensure the company follows rules.
- Local communities: If a company operates in a town or region, the local people care about jobs, pollution, traffic, and social responsibility.
- Environment (as a silent stakeholder): Though it doesn’t speak, many companies now treat nature and sustainability as important stakeholders.
Statutes governing stakeholders in India
Stakeholders include employees, customers, creditors, communities, suppliers, and regulators. Their rights are protected under different laws depending on their relationship with the company.
1. The Companies Act, 2013
- Labour Laws (Employees)
- Factories Act, 1948
- Payment of Wages Act, 1936
- Minimum Wages Act, 1948
- Industrial Disputes Act, 1947
- Code on Wages, 2019 (part of the unified labour codes introduced to modernise labour law)
2. Consumer Protection Act, 2019
It protects consumers from defective products, misleading advertisements, and unfair trade practices.
3. Environmental Protection Act, 1986
It regulates corporate environmental responsibility, including pollution control and sustainable operations.
4. Insolvency and Bankruptcy Code (IBC), 2016
It provides legal recourse for financial stakeholders such as creditors during insolvency or liquidation.
5. Indian Contract Act, 1872
This act applies to suppliers, service providers, and third-party agreements related to company operations.
Difference Between Shareholders and Stakeholders
| Stakeholders | Shareholders | |
| Definition | Individuals or groups who are affected by or can affect a company’s operations. | Individuals or institutions that legally own shares in a company. |
| Ownership | May or may not have any ownership in the company. | Legally own part of the company through stock or equity. |
| Interest | Broader interest in the company’s activities and long-term impact. | Primarily interested in financial return on their investment. |
| Examples | Employees, customers, suppliers, government, local community, and creditors. | Retail investors, institutional investors, and company founders. |
| Scope of concern | Includes social, environmental, operational, and ethical outcomes. | Focused mainly on company performance, profits, and share price. |
| Time horizon | Usually have a long-term interest in the sustainability of the company. | Can be short-term or long-term, depending on investment goals. |
| Dependency | The company’s success directly or indirectly affects them. | Their investment is affected by the company’s performance. |
| Decision influence | May influence decisions through lobbying or feedback (e.g., employees, unions). | Influence decisions primarily through voting rights at shareholders’ meetings. |
| Legal rights | Generally, they have limited legal rights over company decisions. | Have legal rights such as voting in board elections and major changes. |
| Priority in business | In stakeholder-focused companies, they are equally or more prioritised. | In shareholder-focused companies, the interests of shareholders are often the top priority. |
| Risk exposure | Exposed to operational or indirect risks (e.g., job loss, supplier failure). | Exposed to financial risk (e.g., loss of investment value). |
| Type of relationship | Can be internal (e.g., employees) or external (e.g., community, regulators). | Only financial, based on ownership of shares. |
Conclusion
India’s corporate laws are slowly shifting toward the stakeholder model. The Companies Act, 2013, CSR rules, and ESG reporting reflect an understanding that companies do not operate in isolation. New rules like CSR, ESG reporting, and the Companies Act, 2013 show that businesses are expected to care about the communities and environment around them—not just their bottom line. But for these changes to truly make a difference, we need stronger enforcement and more public understanding. Whether you’re an investor or someone starting a business, it’s important to know: shareholders care about profit, but stakeholders include everyone affected by a company—workers, customers, the environment, and more. Real progress means keeping all of them in mind, not just the money.
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