Due to the inalienability of labor, the labor-managed firm must accept new workers when membership transactions occur. But because capital is alienable, a capitalist firm's physical assets can stay the same when one investor sells equity shares to another. LMF membership markets are therefore vulnerable to adverse selection involving worker characteristics, while capitalist stock markets do not have parallel problems involving investor characteristics. This asymmetry can account for the fact that professional partnerships and worker cooperatives require an insider to obtain permission from other insiders before selling a membership position to an outsider, while shares in large corporations are routinely traded on anonymous markets. This chapter develops a formal model of the adverse selection problem arising for worker partnerships. The model shows why such firms assign property rights over membership positions to continuing rather than departing members, and indicates that an open market for membership rights can decrease total surplus. However, these problems must be weighed against the potential benefits from an LMF membership market.