Peanut Allergy. Kitty, who had a love of baking, decided to open her own bakery. She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership. Unfortunately, Kitty had not paid attention in business law class. She proceeded, with little thought, to simply open her business called Kitty's Baking. Bobby came in to order some cookies for his girlfriend, Bitsy, who was allergic to peanuts. Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts. Kitty told him not to worry because she would make up a special batch just for him. Kitty had hired some assistants because she was so busy. She told an assistant, Cathy, to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order. Cathy, however, forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts. Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car. Bitsy became violently ill, vomited in Bobby's car, and had to have her stomach pumped. Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Bobby and Bitsy, Kitty discussed with her parents her problems with the bakery. Kitty's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities. Which of the following is true regarding Kitty's statement that she had no personal liability?

She was correct.

She was correct only if she can establish that she has paid all her business taxes on time.

She was correct only if she can establish that she has at least 5 employees.

She was incorrect.

She was incorrect unless she signed an agreement with a financial institution in order to get a loan for the business and agreed in the document that she would not accept personal liability for any losses.