How do we decide where to form our company?

Entities are formed, generally, to: (i) allow others' more-protectable investments; (ii) limit the liability of founders, officers, and investors for what the company is doing; and (iii) take advantage of tax treatment(s). Other considerations will include: (i) where the company will primarily be doing business, and thus where the source of disputes will arise; (ii) where the company's physical assets will need to be located; and (iii) in your case, the e-commerce regulatory environment, which will be related to the aforementioned tax treatment. Further, different jurisdictions different business entities which have different restrictions on ownership (e.g., s-corps in the U.S. generally cannot have non-resident alien owners).

If you are here in the U.S., it would be advisable to discuss tax implications of overseas-derived income with an accountant or tax attorney (just as your partners should); that may be the single biggest driver if you are indeed a "virtual team."