Yes, I always do it that way when I form a corp. Being an S corp is no hindrance. You must be sure the stock qualifies as Section 1244 stock. Some of the requirements include adopting a plan:
(a) The amount of stock proposed to be issued under this plan plus the aggregate of money and other property received by the corporation for its stock as a contribution to capital and as a paid-in surplus, does not exceed $1,000,000;
(b) Since its inception, the corporation has received, and contemplates that in the future it will receive, more than 50 percent of its aggregate gross receipts from sources other than royalties, rents, dividends, interest, annuities and sales or exchanges of stock or securities; and
(c) This plan is adopted before or contemporaneously with the investment of funds and attainment of Shareholder's status by the Investors in this offering.
(d) Stock shall be issued only pursuant to this plan and shall be issued for the same price per share and only for money or cancellation of indebtedness or other property (other than stock or securities) as provided in Internal Revenue Code Section 1244.
Consult a business attorney to be sure you get it right.
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Yes it can. Attorney Martin gives a good summary of the rule here. When you are doing a technical formation of a corporation you should have an attorney review your filing to make sure you have done everything correctly. This is not something that you want to find out down the road was done incorrectly.
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Mr Martin completely nails this issue. One additional point is that when the stock is issued we always place a legend on the stock certificates such as "Section 1244 stock" to support this tax advantage and to make it even clearer as to your intent.
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