Suppose that I found a C corporation, Superlative Widgets Inc., within the U.S. I would like to both fund the corporation and issue myself 100,000 shares in a way that avoids or minimizes my personal tax liability. However achieving this seems to require a clear understanding of how founder shares are created. What exactly is the nature of this process?
Here are two possibilities:
I file forms to create Superlative Widgets Inc. as a new legal entity, with myself as its incorporator. Then, operating as the company's board of directors (?), I approve the company to issue 100,000 shares. Next, I obtain a 409A valuation, using average numbers and probabilities common in studies on startups, and compute the "fair market value" per share, which—say—turns out to be $0.25. Finally, I purchase all shares at this price, opening a company bank account and depositing $25,000 into it.
I file forms to create Superlative Widgets Inc. as a new legal entity, with myself as its incorporator. I then create a company bank account and deposit $1000 in this account. Next, operating as the company's board of directors or other custodian, I approve the company to issue 100,000 shares. Since I am the incorporator of the company, I become its sole shareholder, owning all shares, as an immediate implication of issuing the shares.
Oddly, neither of the above seems entirely sensible. In the first case, it appears that I must fund the corporation with at least $25,000 or pay income taxes on the difference if I buy the shares at a lower price – this conclusion seems absurd given that the company is newborn and contains no actual content. In the second case, there is no attempt to compute fair market value at all, which seems like it may be at odds with tax law (see this article for example). What then is the right way to think about creation of founder shares in a new company?