What is the difference between a stakeholder, a stockholder, and a shareholder? Many of my students who work in the financial world, they use these terms interchangeably, but they have specific meanings.
So let’s start with the word stake. Stake comes from the Old English word stako, which was literally a wooden or metal stake driven into the ground to mark the boundaries of private property. The word also means something that is wagered or bet in a game, which entails the risk of losing it—hence the expression “what’s at stake?” What might we lose?
Stock means the goods or merchandise that are kept in the premises of a business, like a warehouse, and made available for sale and distribution—hence the term livestock, which are farm animals regarded as assets such as cattle and poultry. It is also used as a verb, which means to have or to keep a supply of a particular type of product available for sale, so you can say: “Most supermarkets now stock a wide range of organic products.”
Share means a portion belonging to or contributed by one person: “I finished my share of the house chores.” It could also be the part given or belonging to one of a group of people that own something together: “He gave me his share of the cookies.”
A small, medium, or large-sized enterprise might offer a percentage of the company, or a stake, to a private investor in order to raise capital. So a stakeholder thus owns a percentage of the company through bonds, equity, or stock. Stock is much easier to exchange for money. So in financial terms, stock can also mean the capital raised by a business or corporation by issuing shares. Stock is the percentage of the company that is available to public investors, so you can say: “Between 1994 and 1999, the value of the company’s stock rose by 86%.”
Share is the individual stock—any one of the equal parts into which a property or corporation is divided, so you can say: “I bought 100 shares of Microsoft stock.”
So when a company is large enough and it meets all the requirements by the Securities and Exchange Commission, which is an independent federal government regulatory agency responsible for protecting investors, it is allowed to hold an Initial Public Offering, also known as an IPO. This means they are allowed to issue shares of stock for public investors to be able to trade these shares in an online market, usually to raise capital. Going public is a significant step for any company.
So keep in mind, there is much more risk in being a stakeholder than being a stockholder. So every shareholder is a stakeholder, but not every stakeholder is a shareholder.
