In export control practice, the BIS “50% Rule” is often regarded as a relatively clear and operational screening tool.
Under its basic logic, where one or more restricted parties directly or indirectly own 50% or more of an entity, that entity may be treated as subject to the same restrictions. This design allows companies to conduct an initial risk screening based on ownership structure.
Precisely because of its clarity, the 50% threshold is frequently used in practice as a key decision point.
However, recent transactional experience suggests that, when applying the 50% Rule, there are several aspects that warrant closer attention.
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First, risk assessment does not necessarily end where ownership falls below 50%.
In one transaction review, the counterparty’s ownership structure included a restricted party holding approximately 40%. From a strict 50% Rule perspective, the threshold was not met, and therefore the entity would not automatically be treated as restricted.
Nevertheless, the review did not stop there. Questions naturally followed: the level of influence of the restricted party, the nature of the business activities, and whether the transaction might be reassessed under other regulatory frameworks, such as end-use or end-user controls.
While these considerations fall outside the formal scope of the 50% Rule, they are often difficult to ignore in an overall compliance assessment.
In other words, falling below 50% may clarify that the rule does not automatically apply, but it does not necessarily eliminate risk.
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Second, ownership restructuring requires a broader contextual understanding.
In another scenario, a company adjusted its ownership structure prior to a transaction, reducing the shareholding of a restricted party from above 50% to below the threshold. From a formal perspective, this change may affect the applicability of the 50% Rule.
However, further review typically focuses on whether other elements have changed as well — for example, the underlying business relationships, the source of technology, or the broader supply chain arrangements.
If these factors remain largely unchanged, the adjustment may primarily affect the formal application of the rule, without necessarily altering the underlying risk profile to the same extent.
Accordingly, ownership restructuring should be assessed in conjunction with the broader operational context.
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Third, aggregated ownership should be considered carefully.
In some cases, no single restricted party holds 50% or more. However, when multiple such parties hold interests in the same entity, the combined ownership may approach or exceed the relevant threshold.
In these situations, questions often arise as to whether holdings should be aggregated, and whether relationships among shareholders are relevant to the analysis.
Therefore, while individual ownership percentages are important, the overall structure should also be examined as part of the assessment.
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Finally, the 50% Rule should not be viewed in isolation.
Export control regimes encompass a range of other considerations, including end-use, end-user, and technology-related restrictions. In practice, a transaction that falls outside the scope of the 50% Rule may still be subject to other regulatory requirements.
As such, ownership analysis is typically conducted alongside a broader compliance review, rather than as a standalone determination.
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Overall, the 50% Rule provides a clear and useful threshold for initial screening.
However, in specific transactional contexts, it is advisable to consider the ownership structure together with other relevant factors, including commercial arrangements and applicable regulatory frameworks, to ensure a more complete compliance assessment.
