state privileges like limited liability allow companies to grow way beyond what is natural...
thus the costs for goods sold by corporations don't include the risks that are being assumed by society.
also, other negative externalities reward corporations by making the costs paid for products cheaper.
Most libertarians would agree with you that state-supported corporations need to be done away with. However, in a free market some sort of business liability insurance would arise that would offer businesses many of the same benefits they get from incorporating, only on a voluntary basis. Given that, there is no reason to believe businesses would be any smaller than they are today. They may even be larger than they are today, as a side effect of replacing government regulation with private solutions.
I don't think that's what the mutualists are after, though - as Marxists in sheep's clothing, they hold on to that silly little notion that one person making a profit harms other people. Businesses make profits; ones that make lots of profits tend to grow, and therefore big businesses are evil.