The Agreement Names the Owner as Member and Manager — With No Successor Named
This is the most common problem. The operating agreement names the owner personally as the sole member and manager. There is no successor member. There is no successor manager. There is no plan for who steps in when the owner cannot continue.
When the owner dies or is incapacitated, the operating agreement gives no guidance. The Georgia probate court decides who runs the business instead. Not the family. Not the business partners. Not the operating agreement. For a business estate, that court process can take 18 to 30 months. It may not even produce the outcome anyone wanted.
The fix takes two changes. First, name the revocable living trust as the successor member. Second, name the successor trustee as the successor manager. Give that person clear power to run the business, sign contracts, and make decisions from day one. For the full picture of what happens to your ownership interest with none of these fixes in place, see What Happens to a Georgia LLC When the Owner Dies.
The Agreement Requires Unanimous Consent for Transfers — Including Trust Transfers
Many Georgia operating agreements include a transfer restriction. Membership interests cannot be transferred without every member’s consent. This protects co-owners from having a stranger forced on them as a new partner. It is a reasonable rule, most of the time.
The problem shows up when the owner creates a revocable living trust and wants to move the LLC interest into it. That trust transfer counts as a membership transfer under most agreements. It triggers the unanimous consent rule. If one co-owner refuses, or cannot be reached, the transfer into the trust cannot happen. The LLC interest stays in the owner’s personal name. It goes through probate when the owner dies. The trust never gets a chance to do its job.
The fix is a carve-out for transfers to the owner’s own revocable living trust. The carve-out should say plainly that a transfer to a trust, where the owner is both trustee and main beneficiary, does not need consent and is not a prohibited transfer.
The Agreement Has a Dissolution Clause That Triggers on Member Death
Some older Georgia operating agreements, especially ones drafted before 2014, say the LLC dissolves when a member dies. That rule came from older partnership law. It does not match Georgia’s current LLC statute, which allows the business to continue by default.
If your agreement still has this dissolution-on-death clause and was never amended, the LLC may have to wind up and dissolve when the owner dies. It does not matter how much the business is worth. It does not matter what the family wants. It does not matter whether a trust is ready to receive the ownership interest. A trust that receives an interest in a dissolving LLC gets a liquidation claim, not a working business.
This clause has to be found and removed. It is the single most dangerous provision in Georgia operating agreements drafted before 2014.
The Agreement Addresses Management After Death — But Not During Incapacity
Even operating agreements updated for succession planning often stop at death. They name a successor for when the owner dies. They say nothing about who runs the business if the owner has a stroke, an accident, or a serious illness. This gap shows up while the owner is still alive.
A durable power of attorney gives an agent power over the owner’s personal money. It does not automatically cover LLC management. The operating agreement has to say so directly. Georgia courts will not just let a family member step in and run the LLC. A guardianship or conservatorship case is required. That takes months.
The fix is a specific incapacity clause. It should name who runs the business while the owner is alive but unable to act. It should say what counts as incapacity, usually a doctor’s decision. It should spell out exactly what the interim manager can and cannot do.
The Agreement Was Drafted for Two Owners — Now the Business Has Three
Business ownership changes over time. A company that started with two owners may now have three. A co-owner may have left and been replaced. A key employee may have been given equity. In every case, the operating agreement may no longer match who actually owns the business.
An operating agreement that names the wrong owners is not a small paperwork issue. It is a legal problem. Voting rights, distribution percentages, buyout terms, and management power are all tied to the members named in the document. An unnamed member still has rights under Georgia statute, but maybe not the rights everyone intended. A member who is named but no longer an owner may look like they still have rights they should not have.
Every ownership change needs a formal amendment. An email or a handshake deal is not enough. If your LLC’s ownership has changed since the agreement was last updated, the agreement needs to be amended now, not at the next crisis.
The Agreement Has Never Been Updated Since Formation
The most common operating agreement problem in Georgia is the simplest one. The agreement was drafted at formation. No one has looked at it since. The business has changed a lot since then. The owner’s family situation changed. The business structure changed. New assets came on board. A buy-sell agreement got signed, but no one coordinated it with the operating agreement. A trust was created, but the operating agreement still names the owner personally.
If your business has run for more than three years on its formation-era agreement, assume it has problems. A full review checks six things:
- A named successor member and manager
- A trust transfer carve-out
- A dissolution clause
- An incapacity clause
- Buy-sell agreement consistency
- Current ownership accuracy
A full fix, covering the operating agreement, trust, and buy-sell agreement together, typically costs $8,000 to $10,000. See How Much Does Business Succession Planning Cost in Atlanta for the full breakdown.
For the full list of ways these documents can conflict with each other, see Problems With Business Succession Plans in Georgia.
