LLC: easy to setup, vesting/equity can be tricky, pass through taxes. C-Corp: harder (more expensive) to setup, vesting/equity relatively easy, double-taxation.

If you can swing it, I think the "right" way would be to setup a C-Corp so you've got all your ducks in a row from the get-go -- you won't need to worry about restructuring if you ever add staff/funding in the future, one of you decides to leave, etc.

If nothing else, I strongly recommend that you setup this new product outside the existing company that the consulting is done under. (I have direct experience with this as one of the companies I'm advising had to deal with this mess recently when they wanted to give out equity to employees, deal with investors, etc.)