Understanding circular resolutions, motions, and best practices for effective corporate governance

Understanding circular resolutions, motions, and best practices for effective corporate governance

Updated: July 22, 2024
7 min read
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For company leaders like board members and directors, making quick decisions and keeping the whole thing running smoothly are their biggest jobs. However, the importance of corporate governance growth and this focus on high-level decisions can create the perception that there’s not enough time to handle daily operational issues.

Fortunately, there is no need to sacrifice valuable time on routine matters and use circular resolutions instead. 

Let’s take a closer look at the ins and outs of the circular document in this article and how to conduct a circular board meeting properly.

What is circular resolution? 

Circular resolutions are appropriate for routine matters that rouse no contention or controversy and must be passed between board meetings. Also, a directors’ circulating resolution might be passed if an issue is pressing, requires immediate action, and can’t wait until the next board meeting.

But what is circular motion? When the board of directors of an organization signs a document with wording implicating that they are in favor of the proposed resolution, it’s called a circular motion.

Companies with established procedures will utilize circular approval instead of passing a resolution at a convened board meeting. 

We’ve already established that circular resolutions allow boards to approve matters outside formal meetings. But what about circular resolution format?

First, a circular resolution usually involves a written document outlining the proposed action or decision. Then, board members individually review and approve or disapprove.

Let’s delve into the best practices for board meeting resolutions, alongside some unique and valuable strategies.

  1. Keep it simple. Clearly state the proposed action without using complicated legal or technical language that confuses people.
  2. One motion, one issue. Break down complex decisions into single, digestible motions to avoid confusion when voting.
  3. Use motions to table. Strategically “hit the pause button,” to analyze problematic issues before making a final decision.
  4. Don’t forget about the meeting minutes. Write down the main ideas discussed about the motion, not just the result for future reference.
  5. Use the board portal. Save your precious time by streamlining motion distribution, voting, and document sharing with iDeals Board. For example, it makes communication a breeze for geographically dispersed boards.

Note: Learn more about digital governance in the article. 

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Some basic ground-rules

Issuing a circular resolution falls in the lap of the board’s Chair. If the Chair is unavailable, this task is then undertaken by a Secretary acting on their behalf.

Regardless of who’s charged with the above duty, they must clearly establish the timeframe and format for voting. Then, when the Chair (or Secretary) is aware of the outcome of the board circular resolution, they’re responsible for communicating the result to board members.

It’s suggested practice to record the minutes of the outcome and issue it with the next available board resolution number. Experts on board governance emphasize the importance of taking these actions within 30 days of the resolution’s approval – or before the next meeting (depending on what takes less time). Important to include this in the meeting agenda. 

Note: Explore the basics of the consent agenda in our dedicated article. 

Circular resolutions are great and helpful tools, but there are a few legal things to keep in mind. 

First, specific jurisdictions might have their own regulations. Some important matters, like mergers and acquisitions, might legally need a proper board meeting for everyone to be on the same page. 

For example, in the United States, Delaware is a popular state for incorporating businesses. Delaware General Corporation Law (DGCL) allows for written consent resolutions as an alternative to formal board meetings. However, there are limitations:

  1. Unanimous written consent. According to DGCL Section 228(a), all directors authorized to vote must give their written consent before a resolution may be passed. Thus, no director may protest or demand a meeting.
  2. Meeting requirements for certain matters. Some items, such as amending the certificate of incorporation, still require a formal board meeting for approval.

Second, if a certain number of directors, usually a majority, object to a circular resolution, they can call for a formal meeting to hash things out before a vote. 

Use circular resolutions sparingly

The only way a circular resolution of directors should be reached is if absolutely zero discussion is required for all board members to be on the same page.

Yes, circular motions for the board provide brevity and time efficiency. But, by definition, they eliminate conversation from the entire equation. 

So, the board should call for an emergency meeting even if an issue arises that merits minimal conversation. Also, it’s good practice for the committee to unanimously agree on the next form of action once a member opposes the use of a circular resolution.

The best cases for using circular resolutions are the following:

  • Routine approvals
  • Non-critical operational matters
  • Time-sensitive decisions
  • Unanimous consent matters
  • Expediting committee work

Now, there’s no questioning the overall usefulness of a circular motion. Boards should just avoid being too flagrant with the implementation of this tactic. 

Other considerations for board meeting motions

It’s integral to define what kind of decisions can be reached using a circular motion or resolution.

From there, boards should decide on the minimum votes required to necessitate the passing of a recommendation. Many boards of directors adhere to a majority vote system of 51%. 

Lastly, there’s the matter of the correct form of response expected from a committee member. Some boards of directors use receipts of a signed consent form via mail or email. Others deliver consent through email, voting buttons via email, or verbally. 

Though, a way to deliver consent through a circular motion that’s becoming increasingly popular is the use of an electronic board portal.

Boards of directors will save time and money with circular motions

The time of company directors is incredibly valuable and shouldn’t be wasted on issues that could have already been handled.

As such, properly implementing circular motions will trim some of the proverbial fat from board meetings, so its members can focus on what matters most to the company.

However, the advantages of circular resolutions go beyond just saving time. They can also help to spend less on administrative costs. Statistics say that meetings may cost up to $250,000 a year. So, having fewer board meetings means spending less on things like meeting logistics, catering, and venue rentals. 

Effective use of circular agendas

Unlike traditional agendas that unveil information during the meeting, circular agendas pre-circulate key materials and proposed actions to board members. Hence, they can come prepared to discuss and decide.  

By the way, you can easily edit this and tailor the template to your organizational needs. In general, the circular agenda template might look like the following:

Meeting titleClearly state the topic of the meeting.
Date and timeIndicate the date and time of the meeting.
AttendeesList all participants expected to attend the meeting.
ObjectiveDefine the overall goal or desired outcome of the meeting.
Review and approval of previous minutesSummarize key takeaways and action items from the last meeting (if applicable).
Action items and decision-makingDelegate tasks with clear ownership and deadlines. Make key decisions.
Q&A (Optional)Address questions from attendees.
Wrap-up and next stepsSummarize key points, reiterate action items, and determine the next steps.

Circular resolution template

Board meeting preparations can be time-consuming. Here, we’ve developed a circular resolution template to simplify the drafting, circulation, and voting process. With this template on your table, you can save precious time and focus on what truly matters – decisions and actions!

Resolution titleBrief, clear title summarizing the proposed action.
Proposed byName of board member or committee proposing the resolution.
DateDate the resolution is circulated for voting
Description of actionExplanation of the proposed action.
Supporting documentsLinks or references to any relevant documents for review.
Voting optionsClearly state the available voting options.
Voting instructionsExplain how board members should vote.
Deadline for votingDate and time by which votes must be received.
Quorum requirementMinimum number of votes required for approval (typically a majority).
Record-keepingExplain how voting records will be maintained.

Key takeaways

  1. Circular resolutions allow boards to approve routine or urgent matters outside formal meetings.
  2. Effective motions should be clear, focused on a single issue, and use the “table” option for complex matters.
  3. Meeting minutes should capture key discussion points, not just the vote outcome.
  4. Circular resolutions are best used sparingly for unanimous consent and time-sensitive decisions.
  5. Circular agendas pre-circulate information for informed discussion and decision-making.

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