I don't know about the legal side, but I do know this much:

In most of the continental places which have folk music, 1) the entertainment is held in coffee bars, which may or may not sell alcohol;

2) the audience come to see a booked guest;

3) there are no floor singers - records are played instead;

4) the guests are all "booked in" through agents,mainly German, who operate a "circuit" as a "closed shop".

This relates to Germany, the Benelux, and northern France. I know there are bars in Paris where spontaneous entertainments take place, but as far as I know these and other similar sessions involving amateurs are what one would call accoustic sessions, rather than folk sessions with a traditional bias.