Circular Board Resolutions – Validity Under Sri Lankan Law

Key Takeaway: Under Section 161 of the Companies Act No. 07 of 2007, a circular board resolution is only valid when signed by all directors entitled to vote — not a majority, not most — all of them. Certifying a resolution before this condition is met is not a shortcut; it is a governance failure with serious legal consequences.

For any company operating in Sri Lanka, the circular board resolution is a familiar administrative tool. When a board decision is needed without the delay of convening a formal meeting, a resolution is circulated for directors to sign. On the surface, it appears efficient. In practice — when the requirements of the Companies Act are ignored — it can become one of the most dangerous documents a company produces.

I have been in practice as a Chartered Corporate Secretary since 2008, and over the years I have observed a pattern that concerns me deeply: companies certifying circular resolutions without meeting the legal requirements of Section 161 of the Companies Act No. 07 of 2007, and in some cases, officers obtaining the company secretary’s certification before even a single director has signed.

This article explains what the law actually requires, why shortcuts in this area carry serious legal and financial risk, and what every director, officer, and company secretary must do to protect the company.

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What Is a Circular Board Resolution? (And What the Law Actually Says)

A circular resolution — also called a written resolution — is a mechanism that allows a board of directors to pass a resolution by obtaining each director’s signature on a written document, rather than by vote at a physical meeting.

In Sri Lanka, this mechanism is governed by Section 161 of the Companies Act No. 07 of 2007. The section provides that a resolution in writing signed by all directors entitled to receive notice of a board meeting and to vote on the resolution is as valid and effective as if it had been passed at a duly convened and held board meeting.

⚖️ Section 161 — Companies Act No. 07 of 2007:
The resolution must be signed by ALL directors entitled to receive notice of the board meeting and to vote on the resolution. A majority of signatures is not sufficient. The resolution may consist of several documents each signed by one or more directors.

This requirement is absolute. There is no provision in Section 161 for a “majority” written resolution. The unanimous signature requirement is what distinguishes a valid circular resolution from an invalid one — and the consequences of getting this wrong are significant.

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The Governance Gap: What Is Actually Happening in Sri Lankan Companies

Problem 1 — Certifying Without All Director Signatures

The most common failure is the company secretary certifying a circular resolution as duly passed when not all entitled directors have signed. This happens because of commercial urgency, misunderstanding of the law, or direct pressure from management. In every case, the result is the same: a legally void resolution that cannot serve as authority for any action the company takes.

Legal Consequence: A circular resolution certified without all required signatures is void under Section 161. Any company action taken on the basis of that resolution — opening a bank account, signing a contract, obtaining a loan — may be challenged as unauthorised.

Problem 2 — Officers Obtaining the Company Secretary’s Signature Before Directors Sign

This is an even more serious governance failure. In some companies, officers approach the company secretary to certify a circular resolution before a single director has signed it, reasoning that collecting the certification first will save time. This is not a procedural shortcut — it is the creation of a false document.

The company secretary’s certification is a declaration to the world — to banks, lenders, counterparties, and courts — that the board has passed a resolution. Certifying a resolution that bears no director signatures is a false declaration. It creates an instrument that purports to evidence a board decision that has never been made.

Warning to Company Secretaries: Your certification is a legal act, not an administrative formality. Issuing it prematurely — under pressure or otherwise — may expose you to personal liability under Section 197 of the Companies Act No. 07 of 2007.

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Scenario 1: Opening a Bank Account on an Invalid Circular Resolution

The Situation

ABC (Pvt) Ltd has three directors. A circular resolution is prepared to open a new operating account. Two directors sign. The third — who is overseas — is unreachable. The finance manager pressures the company secretary to certify immediately so the bank submission is not delayed. The company secretary certifies. The account is opened.

⚠️ What Happens Next: The third director returns and discovers the account. She disputes it and alleges misappropriation through it. The resolution — missing her signature — is void under Section 161. The company cannot rely on it as authority. Transactions conducted through the account may be challenged. The company secretary faces personal liability. The bank faces exposure for acting on a defective resolution.

Scenario 2: Obtaining a Loan Facility — A Falsely Certified Resolution

The Situation

XYZ (Pvt) Ltd urgently needs a short-term loan. The CFO prepares a circular resolution authorising the borrowing and pledging assets as security. To “save time,” the CFO obtains the company secretary’s certification first — before approaching any director for signature. The loan is drawn, and assets are pledged.

⚠️ What Happens Next: Two directors allege they never signed and were not aware. The certified resolution — signed by the secretary before any director — is produced in proceedings. The resolution is void. The lender faces difficulty enforcing the security. The CFO may be personally liable for misrepresentation. The secretary faces liability for false certification under Section 197.

Scenario 3: Entering a Major Contract Without a Valid Board Authorisation

The Situation

DEF (Pvt) Ltd has four directors. A circular resolution is prepared to authorise a five-year supply agreement worth LKR 500 million. One director — who has a known interest in a competing bid — is deliberately not sent the circular. Three directors sign. The secretary certifies. The contract is executed.

⚠️ What Happens Next: The excluded director discovers the contract and challenges it. He was entitled to receive notice under Section 161. His deliberate exclusion voids the resolution. The contract is challenged. The counterparty, already in performance, claims damages. Directors face breach of fiduciary duty claims. The company secretary — who certified without verifying that all entitled directors received the circular — is implicated.

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The Full Legal Framework — Key Sections of the Companies Act No. 07 of 2007

Section	Subject	Relevance to Circular Resolutions
Section 161	Written Resolutions	The primary governing provision. Requires ALL entitled directors to sign. Sets out the unanimous signature requirement.
Section 162	Minutes of Resolutions	Requires circular resolutions to be recorded in the company’s minute book as part of its statutory records.
Section 163	Directors’ Duties	Directors must act in good faith and in the best interests of the company. Circumventing the circular resolution process may breach this duty.
Section 157	Board Meetings	Where urgency is genuine, an emergency board meeting is the correct alternative — not a defective circular resolution.
Section 192	Conflict of Interest	A director with a conflict of interest must disclose it. A conflicted director may be excluded from voting — but the exclusion must be properly documented, not used as a pretext to avoid an objection.
Section 197	Liability of Officers	Officers — including company secretaries — may be personally liable for acts done in contravention of the Act.

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A Compliance Checklist for Every Circular Resolution

Every company should adopt a formal internal procedure for circular resolutions. This checklist should be followed without exception:

• Step 1: Prepare the circular resolution in proper written form clearly stating the matter to be resolved. (Section 161)
• Step 2: Identify ALL directors and confirm who is entitled to receive notice and vote. (Section 161)
• Step 3: Check for conflicts of interest and document accordingly. (Section 192)
• Step 4: Send the circular to ALL entitled directors simultaneously — never selectively. (Section 161)
• Step 5: Collect signatures from ALL entitled directors before any certification. (Section 161)
• Step 6: Do NOT certify the resolution until ALL required signatures are obtained. (Section 161)
• Step 7: Enter the signed resolution in the company’s board minute book. (Section 162)
• Step 8: If urgency prevents collecting all signatures, convene an emergency board meeting instead. (Section 157)

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Frequently Asked Questions

Q: Can a circular resolution be passed with a majority of directors’ signatures in Sri Lanka?

No. Under Section 161 of the Companies Act No. 07 of 2007, a circular (written) resolution requires the signatures of ALL directors entitled to receive notice of the board meeting and to vote. A majority is not sufficient. This is one of the most commonly misunderstood requirements of the Act.

Q: What happens if a director is overseas and cannot sign the circular resolution?

If a director entitled to vote cannot be reached, the circular resolution cannot be validly passed. The company has two lawful options: wait until all signatures are obtained, or convene an emergency board meeting under Section 157 where a quorum may suffice. Using the circular resolution with incomplete signatures is not a lawful option.

Q: Can a company secretary be personally liable for certifying an invalid circular resolution?

Yes. Under Section 197 of the Companies Act No. 07 of 2007, an officer — which includes a company secretary — may be personally liable for loss arising from acts done in contravention of the Act. A certification is a legal declaration; a false one carries real risk.

Q: Does a director with a conflict of interest need to sign a circular resolution?

Under Section 192, a director who is disqualified from voting due to a conflict of interest need not sign. However, the conflict must be properly disclosed and documented. A director cannot be excluded simply to avoid an inconvenient objection — the exclusion must follow due process.

Q: Is there a difference between a circular resolution and an ordinary board resolution?

Yes. An ordinary board resolution is passed at a board meeting by a majority of directors present (subject to quorum requirements). A circular resolution under Section 161 is passed outside a meeting but requires unanimity among all entitled directors. Both have equal legal effect when validly passed.

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A Direct Message to Directors, Officers, and Company Secretaries

To Directors: Your signature on a circular resolution is not a formality. It is your exercise of a fiduciary duty. Before signing, understand what you are authorising. If you discover a resolution has been certified purportedly in your name without your signature, investigate immediately and seek legal advice.

To Officers (CEOs, CFOs, General Managers): Obtaining the company secretary’s certification before directors have signed is not a time-saving measure — it is the creation of a false instrument. The lawful solution to urgency is an emergency board meeting under Section 157, not a defective circular resolution. Any officer who pressures a company secretary to certify prematurely is exposing themselves, the company, and the secretary to serious liability.

To Company Secretaries: You are the gatekeeper of the circular resolution process. Do not certify until you have personally verified all entitled directors have signed. If you are pressured to certify prematurely, decline in writing and document the request. Your professional integrity and your personal liability depend on holding this line.

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Conclusion

The circular board resolution is a legitimate and efficient governance tool — when used correctly. Section 161 of the Companies Act No. 07 of 2007 sets out clear, non-negotiable requirements: all directors entitled to vote must sign before the resolution can be validly certified and relied upon.

When companies bypass these requirements in the name of urgency or convenience, they do not save time — they create liability. Invalid bank accounts, unenforceable security, challenged contracts, personal liability for directors and officers, and reputational damage are the real costs of getting this wrong.

Good governance is not about adding process for its own sake. It is about protecting the company, its shareholders, its directors, and its officers from avoidable risk. On the question of circular resolutions, the law is clear. Compliance is non-negotiable.

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