A company shareholder in the UK is a person or legal entity that owns shares in a company, whereas a company stakeholder is someone who has a broader interest or concern in the operations or performance of a company. In this article, we will explain more about the important differences between shareholders and stakeholders in the UK and how each influences how a company is run.
Company directors and owners in the UK have a great deal of terminology to understand to ensure that they comply with their legal duties and obligations. Two such terms which are often misunderstood or even used interchangeably incorrectly are ‘shareholder’ and ‘stakeholder’. So what is the difference?
- A shareholder (also called a ‘member’) is anyone who owns part of a company in the form of shares (i.e. one or more shares). Shareholders have rights and responsibilities in relation to the company they own part of.
- A stakeholder is anyone who is affected by the decisions of a company, whether on the inside of that company (e.g. as an employee) or the outside (e.g. as an investor).
Yes, stakeholders are often also shareholders. Common examples of where a stakeholder can be a shareholder include employees, local community members, customers, and investors who own shares.
A shareholder must own at least one share in a company, but there is no limit to how many they can hold. In general, shareholders are interested in making a financial return by purchasing shares in companies that they speculate will increase in value over time.
Individuals and entities that are company shareholders and have no other interests in the company are not involved in its day-to-day operations. This is different if the individual is an owner or director of a company with shares, as they will have combined interests as a shareholder and stakeholder.
All companies can benefit from identifying their stakeholders so that they can pre-emptively identify their demands or interests. This allows them to address any trends, issues and concerns which, in turn, are essential to the future success of the company. The reality is that if a company neglects the needs of certain stakeholders, it may be negatively affected. For example, a company with a manufacturing site may benefit from understanding and working with the local community to ensure that any problems (e.g. environmental concerns) are identified and resolved. Doing so can help avoid future operational problems that may cause an interruption of business. Another example is understanding the needs of suppliers and how best to work with them.
The rights of shareholders are set out in the Companies Act 2006, a company’s articles of association of the company, and any shareholders’ agreement in place. Shareholders typically have the right to:
- Attend general meetings
- Voting on company proposals (ordinary or special resolutions)
- Receive a share of the company’s profits (dividends)
- Return of capital in the event that the company becomes insolvent
- Information about the company – e.g. annual accounts, register or members, director service contracts
- Pre-emption – this requires the company to give existing shareholders the right of first refusal when new shares are allotted, usually in proportion to their current shareholding.
In smaller companies, shareholders are also company directors. Many small or micro companies have a single director with a 100% shareholding or two directors with a 50% shareholding each. Directors with shares differ from pure shareholders because they are involved with the day-to-day running of the company business. Directors of companies limited by shares have a wide range of other legal duties and responsibilities, including to:
- Act honestly and in good faith
- Act within powers (follow the company’s constitution)
- Avoid accepting benefits from third parties that could influence decisions
- Avoid conflicts of interest
- Comply with insolvency laws (especially when the company is insolvent)
- Consider the company’s stakeholders (employees, suppliers, customers, etc.)
- Declare interest in transactions or arrangements with the company
- Ensure compliance with legal and regulatory requirements
- Ensure financial statements are not misleading
- Exercise independent judgment
- Exercise reasonable care, skill, and diligence
- Handle confidential information appropriately
- Maintain proper accounting records
- Make decisions in the best interest of the company
- Promote the success of the company for the benefit of shareholders, and
- Protect company assets
Company Stakeholders
Understanding the role of a company stakeholder
A company stakeholder is anyone with an interest in the activities of a company, whether internally or externally. Stakeholders can include:
- Customers who purchase products and services want to know that the company they are buying from is socially responsible and reducing its environmental impact.
- Suppliers who benefit from the performance of the companies they supply
- Local communities that rely on companies for employment, goods and services, and purchasers of local goods and services.
- Investors who want to know that the company is being run effectively and in compliance with the law, and
- Employees who want to know that the company they work for can continue to employ them.
Internal stakeholders include employees and the board of directors, who all have a stake in the company and how it is run.
External stakeholders do not work for the company and may include customers, government bodies and agencies, members of the local community, local businesses, and investors.
What are the rights of stakeholders?
The rights of stakeholders will depend on their relationship to the company and, therefore, can vary considerably. Stakeholders with shares have the right to vote on company matters and attend AGMs (as outlined above). Suppliers may have certain contractual rights in relation to the company (e.g. to be paid within a certain number of days). Employees have robust employment rights as set out in UK law, including the Employee Rights Act 1996. They can also exercise influence through membership of a trade union.
Some stakeholders may have little in the way of direct rights, but they may have some leverage under the law. For example, a local community may be able to exercise its rights under environmental law (e.g., to prevent noise and pollution).
How can companies better engage with stakeholders?
Companies often go to great efforts to engage constructively with their stakeholders through a series of measures, including:
- Asking for feedback from stakeholders and taking action where necessary
- Identifying stakeholders
- Putting back into the local community, e.g., running or sponsoring charity events or putting money into local infrastructure.
- Regular liaising and communicating with stakeholders
- Seeking involvement from stakeholders when making important decisions and
- Seeking to resolve any disputes or complaints in a constructive and timely manner
The main difference between shareholders and stakeholders is that shareholders own a share of a company, whereas stakeholders do not. That is not to say that a shareholder cannot be a stakeholder and vice versa. Often stakeholders are also shareholders by virtue of owning a share or more in a company in which they have wider interests (e.g. as an employee).
Another of the key differences is the ability to exercise control and influence. Shareholders have a say in the decisions of any company in which they own shares, whereas stakeholders may have limited influence depending on their relationship with the company.
The interests of shareholders and stakeholders are markedly different. Stakeholders are focused on the social, environmental, and economic factors, whether inside or outside the company (e.g. employees, customers, suppliers, or community members). Shareholders tend to look at the financial performance of the company and the profit they can realise from their shareholding.
The following table sets out the key features of company shareholders compared to stakeholders.
| Feature | Shareholder | Stakeholder |
|---|---|---|
|
Goals |
Financial returns through dividends and increases in share value. |
Security of employment, product quality, environmental protection, sustainable practices, fair treatment, ethical governance, and overall company impact. |
|
Interests |
Interested in the financial performance of the company. |
Interested in social, environmental, and economic factors, whether inside or outside the company (e.g. employees, customers, suppliers, or community members). |
|
Investment |
Invests capital into the company by purchasing shares. |
May not have a financial investment. |
|
Power to make company decisions |
Through voting on key company issues, such as mergers or board elections. |
Generally less than for a shareholder. May be able to influence decisions through lobby groups, employee action, or public pressure. |
|
Rights |
Rights of shareholders (e.g. able to vote and attend AGMs). |
No voting rights. |
|
Roles |
Individuals, investors, pension funds. |
Employees, customers, suppliers, local communities, government agencies, environmental groups. |
Final words
Shareholders tend to focus on the financial returns they can realise in terms of dividends and share price increases. Stakeholders have a broader range of concerns, including social, environmental, and ethical considerations. As such, shareholders and stakeholders have quite different roles and aims but do have common interests. While their perspectives and priorities may differ, both are interested in the company’s performance and outcomes. In addition, shareholders and stakeholders influence and are influenced by the company’s decisions, operations, and long-term sustainability.
Uniwide Formations offers share services for companies in the UK, making it easy and efficient to transfer and issue shares. To understand how we can help you with Companies House company share compliance, please speak to a member of our expert team.
