This is a question best discussed with a CPA and an attorney, who can provide input on what will work best for you specific situation, including that you select the business form that best provides you with liability protection.
Additionally, when you form a partnership, there should be documentation of profit and loss sharing arrangements, compensation, what is expected from each partner, and what happens if things don't work out or if one of the partners passes away.
A very brief overview of the tax treatment of LLCs and corporations:
In general, when you form a LLC, the default is that it is taxed as a partnership. This will result in each partner paying both income taxes and self-employment taxes on their share of the profits. In a partnership situation, the owners do not take payroll - they are paid with draws. (This is very similar to the way a sole proprietorship works).
An LLC does have the option to be taxed as a corporation (either as a subchapter S corporation, or as a "regular" C corporation). In either corporate format, the owners do take a salary (required), so payroll would need to be established (including payroll tax withholding and payment accounts).
In an S corporation, the profits of the corporation are passed through to the owners, who will then pay income tax on their share of the profits. The owners do not pay self-employment taxes. Any distributions (dividends) taken are not taxed unless they exceed the owner's basis in the company.
In a C corporation, the corporation itself pays the income taxes on all profits. Dividends are taxable to the owners.
Note: The coporate tax treatment applies to both business that are incorporated and to LLCs that elect to be taxed as corporations.
