Imagine you owned a 10% percent stake in a million-dollar restaurant with nine other people that earned $100,000 per year in profits for thirteen years in a row. Although the amount of profits never grew, the profits that did arrive from operations were used to make some modest dividend returns to owners and modest building improvements. But most of it was used to buy out as many of the fellow owners as possible.
Over the course of those thirteen years, five of the owners got bought out. You’d find yourself now owning 20% of a million-dollar restaurant earning $100,000. Your look through earnings jumped from $10,000 to $20,000 and your net worth in the business climbed from $100,000 to $200,000 without any additional capital on your part. And, other than those modest dividend payments along the way, there were no tax payments required along the way as your share of the profits doubled.