One way to do this was discussed in the thread
How to set up a content server on a VPS?
And to build on what Kovid said: if you allow local users than you are likely to lose control of the machine for many reasons beyond command argument sniffing. The pesky users install insecure software or worse, malware. They use bad passwords that are cracked by the daily SSH/SMTP dictionary attacks. There will be pressure to support home-directory web sites that often open security holes. And so on.