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LEGAL DICTIONARY

Stakeholder

A stakeholder is a person or organization that has a vested interest in or that can be affected by a business or entity. This may be due to financial investment or an interest in the outcomes of a company or entity’s activities.

Find out below why stakeholders are an essential consideration for any business, whether it is a new startup or a long-established LLC or corporation. This article explains more about whom the most important stakeholders can be both inside and outside of companies and the different types of stakeholders you might encounter.

What is a Stakeholder in Business?

In business, a stakeholder is anyone who is affected by the operations of the company or organization. For small companies, this could involve just a handful of individuals, but for big expansive corporations, this could feature thousands if not millions of people.

There are many ways that a business relies on its stakeholders whether due to financial, productive, or even political support. These essential parties are often detailed in company business plans, and it is vital that those running the business ensure that they are all kept happy to some level.

Types of Stakeholder

There are two main types of stakeholders. These can be categorized as internal stakeholders: people who are employed by or own a business, and external stakeholders: the people who are affected by the operations of the business.

Internal stakeholders are usually made up of the following parties:

  • Business owners
  • Company employees
  • Managers

Whilst on the other hand, external stakeholders include:

  • Suppliers
  • Creditors
  • The government
  • Customers
  • Shareholders
  • The local community

Stakeholder vs. Shareholder

Businesses are entities that have a lot of different stakeholders. However, in most cases when the term stakeholder is used in business language, it often refers to people who have made a financial investment in the company.

This includes investors such as shareholders or creditors. This common use of the word “stakeholder” in this context is due to the fact that these parties will often hold an actual financial stake in the company.

Whilst this is common, this doesn’t give the complete picture of who stakeholders are for businesses. Of course, there are many other people who can be classified as stakeholders who are not shareholders nor who have any money invested in the business.

Example of Stakeholder

As we’ve already seen, stakeholders are broken down into two categories: internal stakeholders and external stakeholders.

A good example of an internal stakeholder would be someone who manages or works within the business. They are affected by its operations more than anyone else, and also have more control over the direction of those activities.

External stakeholders on the other hand are usually not in direct control of what the organization does, but are affected by its performance and operations in some way. This includes the wider society that exists around the business that would have a vested interest in the legality and economic impact of the company on its community.

Stakeholders Pros and Cons

There are many advantages and disadvantages to stakeholders that must be considered when starting or running a business.

The first and most important issue to consider is how the interests of stakeholders align. If their goals are similar, then there will be a more synergetic and positive relationship between all parties. If, however, their aims diverge, problems can arise.

However, one of the biggest advantages of internal stakeholders is their experience. They usually bring extensive knowledge about their field and can generate high value for companies. Yet, the cost of this is that they could focus more on their own interests than the interests of the company and the wider community.

Stakeholders, broadly speaking, also can help provide a way to understand potential problems facing a business. They can help raise possible issues before the company has started working on a project or setting up first-time operations. However, whilst these are valuable insights they can also hamper progress, especially if the problems are overstated or driven by self-interest.

A stakeholder is a person or organization that has a vested interest in or that can be affected by a business or entity. This may be due to financial investment or an interest in the outcomes of a company or entity’s activities.

Find out below why stakeholders are an essential consideration for any business, whether it is a new startup or a long-established LLC or corporation. This article explains more about whom the most important stakeholders can be both inside and outside of companies and the different types of stakeholders you might encounter.

What is a Stakeholder in Business?

In business, a stakeholder is anyone who is affected by the operations of the company or organization. For small companies, this could involve just a handful of individuals, but for big expansive corporations, this could feature thousands if not millions of people.

There are many ways that a business relies on its stakeholders whether due to financial, productive, or even political support. These essential parties are often detailed in company business plans, and it is vital that those running the business ensure that they are all kept happy to some level.

Types of Stakeholder

There are two main types of stakeholders. These can be categorized as internal stakeholders: people who are employed by or own a business, and external stakeholders: the people who are affected by the operations of the business.

Internal stakeholders are usually made up of the following parties:

  • Business owners
  • Company employees
  • Managers

Whilst on the other hand, external stakeholders include:

  • Suppliers
  • Creditors
  • The government
  • Customers
  • Shareholders
  • The local community

Stakeholder vs. Shareholder

Businesses are entities that have a lot of different stakeholders. However, in most cases when the term stakeholder is used in business language, it often refers to people who have made a financial investment in the company.

This includes investors such as shareholders or creditors. This common use of the word “stakeholder” in this context is due to the fact that these parties will often hold an actual financial stake in the company.

Whilst this is common, this doesn’t give the complete picture of who stakeholders are for businesses. Of course, there are many other people who can be classified as stakeholders who are not shareholders nor who have any money invested in the business.

Example of Stakeholder

As we’ve already seen, stakeholders are broken down into two categories: internal stakeholders and external stakeholders.

A good example of an internal stakeholder would be someone who manages or works within the business. They are affected by its operations more than anyone else, and also have more control over the direction of those activities.

External stakeholders on the other hand are usually not in direct control of what the organization does, but are affected by its performance and operations in some way. This includes the wider society that exists around the business that would have a vested interest in the legality and economic impact of the company on its community.

Stakeholders Pros and Cons

There are many advantages and disadvantages to stakeholders that must be considered when starting or running a business.

The first and most important issue to consider is how the interests of stakeholders align. If their goals are similar, then there will be a more synergetic and positive relationship between all parties. If, however, their aims diverge, problems can arise.

However, one of the biggest advantages of internal stakeholders is their experience. They usually bring extensive knowledge about their field and can generate high value for companies. Yet, the cost of this is that they could focus more on their own interests than the interests of the company and the wider community.

Stakeholders, broadly speaking, also can help provide a way to understand potential problems facing a business. They can help raise possible issues before the company has started working on a project or setting up first-time operations. However, whilst these are valuable insights they can also hamper progress, especially if the problems are overstated or driven by self-interest.