[rayiner]

Imagine I want to set up a package delivery service in a world where corporations don't exist. Package delivery services are pretty risky businesses: delivery drivers race through crowded streets and are liable to run into someone or someone's property sooner or later.

Now, say I want to figure out a way to insulate myself from that sort of liability. So I enter into an agreement with a driver. I'll buy him a delivery truck, and he'll deliver the packages. In return, he'll give me 75% of what's left over after his expenses. Now I'm insulated from legal liability. I'm just an investor. If he runs over someone, that person can't sue me in my personal capacity. All I have at risk is the truck I bought him. But wait. What's the tax treatment of this arrangement? The driver will be taxed on his net income (revenues - expenses). Then he'll give me 75% of what he has left over. Then I'll be taxed on that amount.

Separate taxation of corporation arises naturally from treating corporations as distinct legal persons.

[judk]

"Corporations are legal persons" is begging the question. "Legal person" means 'designated entity with special rules', it doesn't carry any intuition or logical consequences beyond whatever the chosen rules are.

[rayiner]

That's not true. In law, "person" is an abstraction in the same way a file descriptor is an abstraction in UNIX. The whole point is to carry along with it a built-in set of intuitions.

[arikrak]

LLCs provide limited liability but only have one tax on the personal profit. Why is a separate tax needed for larger companies?