I'm forming a partnership with a friend to develop an internet application. My friend already owns an LLC equivilant business together with a partner in Eastern Europe. Their current company develops applications for various clients and employs about 15 programmers.

Our new partnership will develop an original application. I will have 50% ownership and the remaining 50% of the company would be split evenly between my friend and his business partner. I was thinking we would start the business just as a general partnership in the beginning and then possibly incorporate it later in the U.S. (I'm based in California).

What I'm wondering is whether the business should be structured with my friend's current business entity as my partner or with my friend and his current partner as individual partners in the new business. Or does that even matter?

We will be dividing development costs evenly. Most of the actual development work will be done by one or more of their current employees although I personally will also work on some parts of the code. My half of the development costs is based only on the actual costs for them to employ the developer calculated on an hourly basis. (So it doesn't include any profit for them as one of their typical client deals would.) Any work I or the two partners do on the app will be uncompensated directly. We will split any future profits.