in terms of SEO, it doesn't really matter. Choose the one that makes more sense from a navigational standpoint. Will there be other subdivisions of your business? If so, you might want to think about going with subdomains.
I would recommend a sub directory as it is way easier to pass PR via a sub directory.
What is your site? I will suggest using subdomain if you want to get PR.
Not if you wish to get penalized by Google.