I've always hated the drastic drawback familiars too. I've been thinking about how I would do them in LotFP, and my current ideas are:
* A MU can gain a familiar, but does not start with one, and can't get one at first level. Might make the minimum 4th or 5th.
* The MU must seek out and encounter any desired familiar in play. (I might allow a clever player to use a Summoned creature only IF it's a permanent summons.)
* The target has to willingly agree to become the MU's familiar of it's own accord. Any kind of magical compulsion prevents the bond from forming. Mundane coercion works just fine, as long as the target makes the decision on it's own (GM's discretion). In the case of a permanent summon, if the MU offer's the role of familiar to such a creature, and it refuses, it is dismissed immediately.
* If the target agrees, both parties participate in a bonding ritual that takes 24 hours. Creatures of very low intelligence (less than 6) receive a bonus to their intelligence score of 1d4+2 once the ritual begins, and before the point of no return. They also automatically learn of any past familiars the MU has had and the circumstances of their death/loss. The GM should factor this into the familiar's decision to accept or refuse the bond. If the bond is refused, any bonus to intelligence is also lost.
* Once the bond is formed, it is truly permanent. It can only be undone by death. (Might come up with some high level spell to allow breaking the bond)
* While bonded, neither entity dominates the other. They both retain their own agendas, personality, and free will, at least in regards to each other. Either can be charmed/compelled/commanded by others, as per normal (though each receives a +1 on the save to resist such effects, as long as the bond is not currently denied), but neither the MU nor the familiar can ever bring about any magical compulsion effect upon the other, unless the other willingly allows it.
* The bond (and all benefits provided) can be denied by either party independently (the MU can deny benefits to the familiar, even if the familiar continues to allow benefits for the MU, and vice versa)
* The Player of the MU assumes general control of the familiar throughout play, but the GM should remain in control of the familiar's personality (It's really an NPC after all). The familiar should maintain behavior appropriate for the kind of creature it is (cats slink away on their own, dogs explore and sniff anything that looks like it needs it, birds spend much of the time airborne, etc) though in normal circumstances, it should "check in" at regular intervals.
The benefits (and drawbacks) of the bond are as follows:
* Each party can automatically speak and understand the languages of the other. Languages with a written component can be read, assuming an intelligence higher than 7. The ability to write depends on what limbs the familiar has. (intrinsic to the bond, and can't be denied. all languages gained this way are lost if the bond is ever broken).
* Limited mental communication. Can send one word/idea/image to the other as a full round action once every turn. Things like Come, Help, Run, Trap, Intruder, a person's face, a simple tactical suggestion (think on-screen football play diagrams: "x goes around this way, circle goes up the middle" or "charge AFTER my Fireball" etc)
* Each can, with a moment's thought, know the general location of the other. Direction and approximate distance. (Can't be denied)
* Shared senses. If they are within 30 feet of each other, and both taking a search action, the highest search skill is used with a +1 bonus. Also, if both are awake and within 30 feet of each other, stealth rolls to sneak by them are at -1. They can also see through each others senses, which takes full concentration and requires the permission of the other. The one who's senses are being borrowed still sees/hears/smells/etc, but on a few seconds delay, and with a blurry, dream-like filter on things.
* The familiar grants the MU the benefit, of additional spells per day. My current thought is to make it a number of spell levels equal to the HD of the familiar. MU's choice how those levels are divided. These spell levels represent the familiar allowing the MU to draw upon it's energies and stamina to increase his arcane potency. (spells memorized with these levels should be marked separately, in case the familiar is offended and denies the bond before they are cast)
* When the MU gains XP, it decides how much of that XP to sacrifice to the familiar, up to 20%. 0% is an option, but the MU should expect the familiar to be less than impressed, in that case. The familiar advances ONLY through the XP given to it by the MU in this fashion. (An appropriate advancement table would have to be drawn up for the familiar. My first instinct is to limit the progression of the familiar to one half of MU level in HD)
* Intense pain (a critical hit of any kind, dismemberment of any kind, or single hit damage in excess of 25% of max HP) suffered by either is felt by both, though damage is not shared or transferred. (Can interrupt spellcasting just like real damage. cannot be denied)
In the event that the familiar dies, the MU immediately knows how it died, regardless of distance. The MU receives a vision of the familiar's last moments (5 rounds or so), as seen through the senses of the familiar. This vision takes no time to receive, but is deeply shocking to the MU, and very likely to interrupt ANYTHING he is doing. The destruction of such a deep magical bond leaves a raw wound on the MU's connection to the arcane, effectively giving him a penalty on saves versus Magic and Magical Devices equal to half the hit dice of the familiar. This wound heals slowly, one point per week. The MU cannot seek out a new familiar until the wound is completely healed.