sole prop or partnership

Hello-

My wife and mother-in-law are going to start a sewing business.  They will
work out of the home and will basically split all profits 50/50.  To start,
they are just going to make a few things and sell to a local store or sell
the products at craft shows.

They don't want to incorporate or anything yet to reduce the cost of startup
to practically 0 except for fabric and thread costs as well as to see if the
products will sell.

My questions are these:

Can a Sole Proprietorship exist with 2 people splitting the profits?  What
is the difference in between a Sole Prop. and a Partnership?  Is a
partnership more appropriate in this case?

Also, how is the best way to maintain expenses?  A separate checking account
just for the business?  Do we open that in their names or in the name of the
business?  When reporting taxes, do you only report the profits?  What about
the profits that you turn around and reinvest into the business (like buying
more fabric in this case)?

Thanks a lot!
troy