Of course it is possible for transcription to occur on a circular DNA - it hapens all the time!. Circular DNA usually occurs as a twisted form called a superhelix, a.k.a., supercoiled DNA. A second enzyme, topoisomerase, nicks the DNA backbone to allow the DNA to unwind (introduces negative supercoil) at the transcription or replication fork so transcription or replication can take place. But transcription and replication can also occur on linear DNA, in which case there is no need for topoisomerase because supercoiling is absent. A certain Borrelia species is known to possess both linear and circular DNA, and if you linearize the circular ones, transcription levels fall dramatically, and similarly, circularization of the linear ones decimates transcription.
In absence of topoisomerase (as in vitro), will the coiling of circular plasmid reduce transcription activity? Is that the main reason, why most in vitro transcription reactions are done with linearized plasmid?