Stakeholders vs. Shareholders

The terms shareholder and stakeholder can oftentimes be confused or improperly used interchangeably. Every business has shareholders and stakeholders, both of which are essential to the success of a business, but their relationships to the organization are different and therefore it is important to understand the difference between the two. Identifying and understanding the needs of all stakeholders, whether individuals, organizations, or the environment, is crucial for business leaders to understand how their enterprise will impact the greater community. Misaligned interests between stakeholders and shareholders is not uncommon and can threaten the fulfilment of an enterprise’s mission, but fortunately there are measures entrepreneurs can take when forming the legal structure of their enterprise to reduce the chance of misalignment between the two groups. This article defines shareholders and stakeholders, identifies their key differences, and begins to explore how entrepreneurs can consider all stakeholders during the conception of an enterprise to compel their mission.


As defined by Investopedia, “a shareholder can be an individual, company, or institution that owns at least one share of a company and therefore has a financial interest in its profitability.” Shareholders earn a return on their investment when a company increases shareholder value by growing, becoming more profitable, and/or increasing free cash flow. Here are some key characteristics of a shareholder:

  • Own at least one share of the company
  • Are not liable for the company’s debts 
  • Have voting rights to affect the management of a company
  • Receive dividends (if paid by the company)
  • Can sue the company directors or senior officers for violations of fiduciary duty


As defined by Investopedia, “a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation.” Stakeholders can be people, organizations, or the environment, and are affected by the activities of a company or its projects, and therefore tend to have a long-term relationship with the company. Here are some examples of stakeholders:

  • Employees
  • Owners and shareholders
  • Customers
  • Program beneficiaries
  • Suppliers
  • Employees in supply chain
  • The environment
  • Communities
  • Bond holders
  • Creditors
  • Competitors

As you can see, shareholders are listed as stakeholders; it is important to remember that shareholders are always stakeholders, but not all stakeholders are shareholders.

Key Differences

Shareholders can generally sell their ownership or buy more shares at will, whereas stakeholders are usually bound to the activities of a company and the related impacts regardless of choice. This tends to make the relationship stakeholders have with a company more long-term, while shareholders have no long-term need for a company. For example, if a company has to shut down a plant due to a chemical spill, a shareholder may sell their stock and invest in a better company, but members of the community the plant was in will feel the effects of job loss and environmental degradation for years to come. A good way to think about this is that stakeholders are inherently tied to the benefits and burdens of a company’s externalities, while shareholders opt-in to have their finances linked to the financial performance of a company.

The interests of stakeholders and shareholders can conflict as well. Shareholders may want a company to outsource certain production to boost growth and profitability even though many stakeholders like suppliers, employees, and the environment will be negatively affected. Shareholders are typically concerned with stock price, dividends, and financial health, whereas stakeholders are concerned with the impact of a company’s activities. 

Shareholder Theory vs Stakeholder Theory

It has been debated whether a company should primarily consider its shareholders or stakeholders when making business decisions and adhering to fiduciary duty. Historically, shareholder theory has been widely accepted and used, noting that a corporation’s duty is to maximize shareholder returns. However, the emergence of corporate social responsibility (CSR) and environment, social, and corporate governance (ESG) has begun to shift the public view of the duty companies have to their stakeholders. Stakeholder theory argues that a firm should create value for all stakeholders, not just shareholders, because of the interconnected relationships between a business and its customers, suppliers, employees, investors, the environment, communities and others who have a stake in the organization.


Making decisions to maximize shareholder value at the expense of other stakeholders is a dangerous principle; its application, although it has benefitted many shareholders who were positioned effectively, has contributed to climate change, systemic inequities, and many of the world’s other problems. The idea that a company’s sole purpose is to make money for shareholders threatens social enterprises and fails to recognize that businesses are part of the very fabric of our society and affect the livelihood of all people and the health of our planet. Appeasing stakeholders is important for securing the capital needed to run a business, but aligning interests with all stakeholders is vital to the overall success of a business. 

Entrepreneurs creating a social enterprise can strategically utilize the term stakeholder(s), as well as other impact terms found on the ITP platform, in their governing documents to ensure that the enterprise’s fiduciary duty compels its social mission rather than conflict with it. Representing all stakeholders in the legal structure of a company is an important step towards aligning social enterprises with capital markets, and will help dissolve the myth that fiduciary duty and social mission are mutually exclusive. See the related articles below for strategies being used by entrepreneurs to advance their missions through the legal structuring of their enterprises.

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Steward Ownership

Steward-ownership refers to a set of legal structures that instill two core principles into the legal DNA of a business: self-governance and profits serve purpose. These structures ensure that control (voting rights) over the business is held by people inside the organization or very closely connected to its mission. Voting control in steward-ownership forms is not a saleable commodity. Profits in steward-ownership are understood as a tool for pursuing the company’s purpose. After paying back capital providers and sharing economic upside with stakeholders, the majority of profits are reinvested in the business. Steward-ownership forms include an asset-lock, which prevents the proceeds from a sale from being privatized.  This structure aligns decision making power with active stakeholders close to the business, instead of remote investors or shareholders

For a more detailed discussion of Steward Ownership, listen to this discussion with Camille Canon of Purpose Foundation

Principles of Steward Ownership

Purpose, an organization dedicated to promoting and supporting steward ownership, outlines two critical attributes of steward ownership:

  1. Governance is executed by stakeholders directly involved in running the company or directly connected to it, rather than by investors or outside influences.
  2. Profits are primarily reinvested or donated towards advancing the company‘s purpose.

Benefits of Steward Ownership

The principles of steward ownership dictate that the “steward-owners” be those who have the best interests of the company at heart. Since these steward-owners prioritize purpose over financial performance, these companies are more long-term oriented and studies show that their survival probability is 6X higher after 40 years. Research by Professor Steen Thomsen, chairman of the Center for Corporate Governance at Copenhagen Business School, shows that companies with ownership structures like this are trusted more by their customers, offer their employees better pay, and have better employee retention. 

Legal Structure

Currently, there is no one-size-fits-all legal entity for companies pursuing steward ownership; structures vary among legal jurisdictions and companies. Despite legal differences, uniting threads between them are that stewards must pass voting rights onto successors upon leaving their role and must be committed to protecting the company’s purpose and mission over time.

Legal structure examples summarized from content in this booklet from Purpose

Sample Term 1 – Steward Ownership

Download a sample summary and term sheet that represents an overview of a private offering to purchase Series A non-voting preferred stock in a company.

Background and Case Studies 

There is a strong history of steward-ownership in Denmark, the Netherlands, and Germany.  Zeiss, the German optics manufacturing company, is one of the first examples of a modern steward-owned company, which has been in operation for over 100 years. Zeiss, transitioned to steward ownership after the passing of its founder, Carl Zeiss. The Carl Zeiss Foundation is the sole owner of Zeiss, and its corporate constitution ensures that the company cannot be sold and profits are either reinvested or donated for the common good. 

Over the years, hundreds of steward-owned companies of various sizes and structures have been incorporated. Well-known examples include Bosch, Novo Nordisk, John Lewis department stores, and Mozilla. 

Organically Grown Company, a leader in sustainable and organic agriculture in the United States for over 40 years, transitioned to an alternative ownership structure in the form a Perpetual Purpose Trust in 2018. Download the full case study:

Further Resources