Considering investing in a company? If you choose to invest your money into a company, you can either be an investor or a shareholder, depending on whether or not the company issues shares. Although the terms shareholders and investors are often used interchangeably, there are a few differences to note. In this article, we will explain the key difference between an investor and a shareholder.
A shareholder is anyone who buys shares in a company that distributes shares. When you buy a share, you actually own part of that company. The percentage of your ownership is contingent upon how many shares you own. Due to this level of financial commitment to the business, shareholders are highly interested in the profitability of the company that they chose to buy into.
A shareholder can be a single individual, an employee, a company or an institution.
Why become a shareholder?
As we’ve just covered, shareholders are equity owners in the company that they hold their shares in. Subsequently, shareholders can benefit from the company’s future growth by selling their shares. As the company grows, so does their share price. Shareholders can choose to sell their shares to make profit or wait until the company decides to pay dividends.
Depending on the class of securities, the company constitution and the shareholders agreement, shareholders may partake in the financial workings and certain management actions of the company. Generally, shareholders have the right to:
- access financial records;
- sue company directors for any wrongful actions;
- vote and engage in corporate decision making; and
- trade or transfer their share ownership.
What is an investor?
Similarly to a shareholder, an investor is anyone who invests money into a company with the purpose of taking ownership interest in that company. An investor places their money into the business to assist the business in growing and developing, in order to generate a large financial return after the term of their investment is up.
However, an investor can invest money into a company that does not distribute shares. For example, many investors choose to invest money into a start-up company, in the hopes that the company will excel in later years.
Why become an investor?
There can be a number of benefits for both shareholders and investors. The major thing to consider when deciding to become an investor is to look for the potential profitability of the company. Many investors put money into companies in the early stages of the business, in order to provide the business with the funds to build, grow and develop their brand. The main purpose of investing in a company is to receive a stake or return from the business.
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So, are shareholders and investors the same? No. Although the differences are quite subtle; a shareholder is an entity owner of a company when it is possible to buy and hold shares, whereas an investor is someone that puts money into a business that does not have shares issued. If you can’t decide whether to become an investor or a shareholder in a company, we recommend seeking legal advice. Our sister company, Legal Kitz, can assist you in ensuring your concerns are addressed, whilst providing quality advice that is tailored to your situation. You can request a free 30-minute consultation with their experienced and highly qualified team via our website now.
FAQs
So, are shareholders and investors the same? No. Although the differences are quite subtle; a shareholder is an entity owner of a company when it is possible to buy and hold shares, whereas an investor is someone that puts money into a business that does not have shares issued.
What is the difference between investors and shareholders? ›
Investors can invest their money in exchange for shares (equity), as a loan (debt) or as convertible instruments, such as SAFEs and Convertible Notes. On the other hand, a shareholder is a specific type of investor who owns shares in a company.
What is the difference between a stakeholder and a shareholder? ›
A stakeholder is anyone who is impacted by a company or organization's decisions, regardless of whether they have ownership in that company. Shareholders are those who have partial ownership of a company because they have bought stock in it. All shareholders are stakeholders, but not all stakeholders are shareholders.
What is the difference between a business and an investor? ›
A business partner is someone who shares in the risks and rewards of the business and is involved in decision-making and operations. An investor, on the other hand, provides funding but is not involved in the day-to-day operations of the business and is primarily interested in making a return on their investment.
What is a shareholder or investor quizlet? ›
anyone who owns at least one share in a company. main role. provide funds.
What is the difference between a shareholder and a business owner? ›
Shareholders are owners of the company, technically part-owners if there's more than one, but they aren't always involved in the day-to-day running of the business – that duty is left to the directors and company management. However, company directors can also be shareholders.
What is the difference between owners and shareholders? ›
Unlike the owners of sole proprietorships or partnerships, corporate shareholders are not personally liable for the company's debts and other financial obligations. Therefore, if a company becomes insolvent, its creditors cannot target a shareholder's personal assets.
What is the difference between a stakeholder and an investor? ›
Stakeholders are a broader group compared to shareholders or investors, as they have a wider interest in the company and include: employees of the company, customers who rely on the company to provide a particular good or service, suppliers and vendors who rely on sales to the company for a revenue stream.
What is the main difference between stockholder and shareholder? ›
To delve into the underlying meaning of the terms, "stockholder" technically means the holder of stock, which can be construed as inventory, rather than shares. Conversely, "shareholder" means the holder of a share, which can only mean an equity share in a business.
What is the difference between members and shareholders? ›
A shareholder is a person who owns the share in a company whereas a member is a person whose name is entered or recorded in the register of Members maintained by the Company.
An investor purchases an asset in the hopes that its value will grow and they can then sell it for more than they bought it for, earning a profit. Income is the regular payment of funds from the purchase of an asset.
What is the difference between an investor and an owner? ›
Although the differences are quite subtle; a shareholder is an entity owner of a company when it is possible to buy and hold shares, whereas an investor is someone that puts money into a business that does not have shares issued.
How do investors make money in small business? ›
Small business investing involves investors contributing funds to a small business with high growth potential through either debt or equity investing, or a combination of both. The goal is to earn returns through either a percent of profits from business revenue or from repayment of principal and interest on loans.
Who are investors other than shareholders? ›
Broadly speaking, there are six types of institutional investors: endowment funds, commercial banks, mutual funds, hedge funds, pension funds, and insurance companies.
What is the difference between a shareholder and an equity shareholder? ›
Specifically, shareholders are a particular type of equity holders. "Equity holders" is a broader term that refers to shareholders as well as everyone else with an ownership interest in a business. What is a shareholder? A shareholder is a person who owns shares of stock in a company.
What is the difference between investors and stocks? ›
The biggest difference between stock trading and investing is the investment timeframe. Traders invest for the short-term, whereas investors hold onto assets for the long-term. In reality, trading, or day trading, is a style of investing. The focus of traders and investors is also different.
Is an investor a stakeholder or shareholder? ›
Stakeholders are people who depend on the company, including investors. But a stakeholder's relationship with a company can be more complex than that of a shareholder. Stakeholders can be company employees, suppliers, vendors, customers and even the local community.
Are investors considered owners? ›
If you make a loan to the company, you will receive regular interest payments and your investment amount back at some point. As a lending investor you are not an owner. If you buy equity in a company you have made an ownership investment. The return you earn will be your proportional share of the business's profits.
How do investors get paid back? ›
The most common is through dividends. Dividends are a distribution of a company's earnings to its shareholders. They are typically paid out quarterly, although some companies pay them monthly or annually. Another way companies repay investors is through share repurchases.
