Any person who is directly or indirectly affected by the functioning of a company is a stakeholder. Stakeholders include the company’s shareholders, creditors, employees, customers and the government. A company’s stakeholders may be in contact with the company on a daily basis or may occasionally touch base. Stakeholders can be affected by changes in policies, practices and systems of the company.
A company belongs to its shareholders, who have spent money and bought the shares of the company. There is a direct relationship between their investments and the financial stability of the company. The better the company’s position, the more money they are paid.
There are two types of shares: preference shares and equity shares. Both classes of shares are paid after the company has met its obligations such as paying creditors and providing for taxes, depreciation and amortization. Preference shareholders are paid a fixed rate of dividend before equity shareholders. Equity shareholders get to share the surplus profits.
These individuals have loaned their money to the company -- either as cash or by supplying raw materials for production. The company pays creditors interest on their loans, irrespective of whether the company makes profits. Creditors often hold the company's assets for security. If the company defaults on the repayments, these creditors have a legal right to claim the assets. Creditors face a risk of losing their investments if the company files for bankruptcy.
The interests of employees are tied to the well-being of the company. When a company is doing well, employees' jobs are secure. When the business faces adverse conditions, there is a risk that the company would retrench some of its employees. Therefore, employees try to be cautious and work diligently to maintain their jobs. When the company is doing well, there also is a potential for rewarding employees, such as bonuses and promotions.
Government also is a key stakeholder in a business. The government needs to know the exact financial condition of the business to calculate the amount of taxes owed. Companies periodically are required to furnish their financial statements to the government. The government is then able to analyze if it needs to charge taxes at higher rates or offer subsidies to the companies. When the companies are making profits, the general state of the economy is also good.
A company's customers also are affected by business conditions. When the company is not doing well, its concentration on its customers diminishes. The company produces substandard products and does not research into what the customers want. When the conditions are good, the company wishes to make greater profits and provides utmost attention to its customers, trying to match the customer requirements in every way possible.
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