Knowing that I can use apache to host multiple websites can I allow users to sign up and use the server I have paid for? And if so would I be able to set disk quotas? And is it against the terms and conditions to charge for this?
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Yes you can add multiple users. For security I highly recommend making sure they can login with SSH Keys only!
See https://www.digitalocean.com/community/tutorials/how-to-enable-user-and-group-quotas to setup quotas.
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