Selling a Share of the Company or a Share of the Startup?

In my venture practice, I encounter a situation where startup founders, not deeply knowledgeable about legal matters, confuse two things: an investor’s investment in the company and the sale of their share in the company to the investor. What is the difference between these two actions? When an investor puts money into a company, that money becomes the property of the company, and it spends it on developing the project. The authorized capital of the company, and consequently, the value of the company itself, increases. For example, the authorized capital of the company was 9 million tenge, and 100% of the shares belonged to the startup founder. When an investor invests 1 million tenge in the startup, the authorized capital of the company becomes 10 million tenge, and the shares in the company are distributed as follows: 90% belong to the startup founder, and 10% to the investor. This is a classic case. There is another situation. Sometimes a startup founder experiences financial difficulties and want to get some money for themselves, for example, to have somewhere to live and something to eat until they become wealthy. In this case, the startup founder sells a part of their share in the company to the investor. This money goes not to the company but to the startup founder personally. The company does not become richer as a result. The startup founder becomes richer. Let’s say, when creating a startup, the founder invested 10 million tenge in it. They have 100% of the shares in the company. Later, they decided to sell 10% of this share to an investor. After this transaction, the authorized capital of the company remains the same – 10 million tenge, and the shares in the company are distributed as follows: 90% belong to the founder, and 10% to the investor. In this case, the investor pays money for the share to the startup founder. It turns out that the company does not receive these funds for its development. This is the difference that some startup founders do not understand, and they casually use both phrases in negotiations: “I am ready to sell the investor a part of my share” and “I am attracting investments into the startup.”