First off, you need to decide upon how many active/inactive positions you want to use. Ie. std Yahoo setting of PG, SG, G, SF, PF, F, C, C, Util, Util, Bench, Bench, Bench. Unless you add several other members, I'd consider adding at least a few spots, thus giving your league a little more complexity with depth.
Second, decide what scoring categories and other league settings you would like to employ. Some league style options are H2H, roto, points. Std categories on Yahoo is Pts, 3's, Reb, Ast, Stl, Blk, TO, FG% and FT%. As far as the draft, live one is good if everyone can agree on a time. Another good option for a dynasty is to employ an auction draft (at least for the first season). That way everyone has a chance on landing a Durant or Lebron instead of someone getting lucky with the random generator.
Third, decide the number of players you want to be kept from season to season. Half of them, the majority or all? Also, discuss whether you want any limits imposed. For instance, should teams be allowed to only keep players for 2, 3 or x amount of years.
There really are tons of stuff and variations to consider as I've barely scratched the surface. I'd recommend voting on everything with all your peers so that everyone generally feels happy and excited about the league.