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Source: istock

What's the Difference Between an Investor and a Stakeholder?

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Are investors stakeholders? It seems like an unusual question at face value. After all, you would think that most people in finance might have some idea regarding what separates the two terms. 

In order to understand how the similarities between an investor and a stakeholder play out financially, we need to understand the differences first.

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Source: iStock

What is a stakeholder?

The official definition of a stakeholder is a member of a group or groups without whose support an organization would cease to exist. In that way, stakeholders could be anyone involved in running or governing a business. There are three different kinds of stakeholders.

Primary stakeholders, otherwise known as internal stakeholders, tend to engage in economic transactions directly with the business. Examples of primary stakeholders would be stockholders, customers, suppliers, creditors, and employees of the said organization.  

Secondary stakeholders tend to be external stakeholders who are affected by the business's actions, although they don't engage in direct economic exchange with the business. They can also directly or indirectly affect the business's actions. Secondary stakeholders can include the general public, communities, activist groups, business support groups, and the media.

Excluded stakeholders aren’t truly stakeholders at all in the strictest sense. They include children or the disinterested public. Excluded stakeholders don't have an economic impact on the business. So, why include them at all? They date back to a former definition of the term that has since evolved. 

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Source: iStock

What is an investor?

The official definition of an investor is a person that allocates capital with some expectation of a return on that capital. An investor could be a business partner, a lender, or anyone who decides that by investing money into a business, they will see a return on the investment and some financial gain. 

There are many types of investments including commodity, currency, debt securities, equity, forwards, futures, real estate, token, and derivatives like put and call options. 

Are there different types of investors?

There are two different types of investors. Primary investors are people who provide businesses with capital, while secondary investors are people who buy stock. Secondary investors are also known as shareholders. Their contribution may be different, but they both assist the business in different ways. 

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Source: istock

What is the difference between investors and stakeholders?

There are not many differences between investors and stakeholders. Investors, whether they are primary or secondary, are actually considered to be primary stakeholders in the business. Usually, their support is necessary for the business to survive. In the early days of a fledgling business, a good investor can be the difference between taking off and exploding on the runway. 

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Source: iStock

Investors and stakeholders are both important

There is a theory that says stakeholders can affect or be affected by the organization's actions, objectives, and policies. So, anyone and everyone whose life is touched by a particular organization is a stakeholder. 

Overall, investors can be lumped into the stakeholder group, which highlights their overall impotence. 

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