Usually one light, off camera....but not too far off of the camera axis, because (as mentioned) it's harder to avoid shadows falling onto other people, when you're shooting a group.
I would use an umbrella, but most of the time I'm shooting outside and an umbrella on a light stand is basically a sail and would blow the stand & light over with a little wind.
We have been using a large diffusion panel though. When we can, we hold it up between the sun & the subject, but we also hold it between the flash and the subject. Since it takes one (or even two) people to hold the reflector, I guess that person could hold the stand with umbrella as well...but it's nice to have the flexibility of the panel.