Constituent Definition

A constituent is a person, group, or entity that has a significant interest or relationship with a company, such as customers, investors, or employees.

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What is a Constituent?

When searching for the constituent definition in general terms, you might find two definitions:

  • (Noun) as used in politics — A resident of a district or member of a group represented by an elected official
  • (Adjective) Being a part or component of a whole

You may encounter constituent examples in everyday life when discussing a political representative. 

Another common use of the word involves a constituent company. A constituent company is one that’s listed on the S&P 500 or Dow Jones Industrial Average (DJIA). We refer to members of an index as components of the index; thus, “constituent companies.” 

There are two other important definitions you need to know as a small business owner.

Constituent Business Definition

You might encounter a constituent in two business situations. The constituent business definition encompasses two meanings:

  • Constituent company — a party to a merger
  • Constituent — a stakeholder in a business

What the term refers to will depend on your current business stage. In the next section, we’ll prepare you for doing business with a constituent and the benefits of this business form.

What are constituent companies in a merger?

A common growth strategy is the use of a merger. A merger happens when companies join together to form a larger organization. The merging companies are called “constituent companies” because they become parts of a new company, called the “surviving corporation.” If you’re involved in a merger, remember that the term “constituent” only refers to the merging companies, never a parent company. This constituent meaning is important because each party to a merger has different legal requirements, including member voting requirements.

What is a business constituent?

When making a business decision, a business owner needs to consider all of their constituents. In this context, the definition of constituent means anyone affected by the project. We like to think of the business as a “representative” of the stakeholders (see constituent definition above). Like a politician, the business exists to meet the stakeholders’ needs. 

Accordingly, when business planning, consider the impact of your business on your:

  • Project team
  • Employees
  • Customers
  • Suppliers
  • Investors
  • Members of the community where you conduct business
  • Environment
  • Overall business goals

When weighing the needs of your constituents, take some time to ponder your constituent advantages and disadvantages with the project. Most business owners can face liability if they don’t do what’s in the best interest of their company. Try using the constituent disadvantages in your business plan as evidence to support your executive decisions.

Summary

The constituent definition includes one of four meanings: (1) the people represented in a political district, (2) a company represented on a major stock index, (3) a company that’s a party to a merger, or (4) a project stakeholder. The constituent meaning and the considerations will depend on your business stage.

We Can Help

If you’re looking for help with a constituent, you’re likely at a crossroads with your business. Either you’re involved in a merger, or you’re planning a new venture. Our products and services were made for you. With our team of business experts, we’ll provide you with the guidance you need to grow your business.

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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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