Profits of a C corporation are subject to taxation at the entity-level. If distributed, they are again subject to taxation in the hands of the shareholders. In other words, the profits are subject to two levels of federal income tax.
A small C corporation is particularly sensitive to this issue in the context of sale of the business, a scenario many of the businesses engaged in professional services routinely face as owners age and seek to retire. Often, the owner has no ready, willing and able successor to continue the business. Sale of the business, then, is often the best avenue for an exit.
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