You have been approached by a close family friend who is putting together a limited liability company to purchase a condominium complex near Cocoa Beach in Florida. He is asking you along with a number of family members and friends to each invest $10,000 in his company. The condominium complex is for sale for

$5 million. Your friend hopes to convince 50 people to invest $10,000 apiece, which will raise $500,000, and borrow the remaining $4.5 million to close the deal.

You told your friend, “I don’t mind investing the $10,000, but I’m really nervous about being on the hook for a $4.5 million loan if the deal goes bad. Your friend insists that all you will have at risk is your $10,000 and you won’t be liable for anything else, no matter what happens. Is your friend right or wrong? Explain your answer.