Organizing A Software Development Company?

kjh1 asks: "I am interested in forming a business with a friend of mine doing back-end Web development for potential clients across the States. I've been investigating our options as far as business structure goes (Corporation, S-Corp, LLC, partnership, etc.) and am still undecided as to which one is the best for us. Essentially, we have no real overhead or expenses but the time we spend coding. However, we would like to have some liability protection - the kind that a corporation/LLC would give us. We would also like to minimize the amount of money that we need to spend on lawyers and/or accountants."

"Here are some of the questions that came up:

1. What is the best business structure to help us meet our goals?
2. What are the tax/legal issues surrounding coding in one state for a client in another state?
3. Where is the business considered to be taking place?
4. What if one of our 'employees' is working in a 3rd state (not the state of formation or of the client)?
5. And to throw a monkey wrench into the whole mess, what if my friend is a foreign national? What are our options then?"