Create an SSH user and limit access to a specific folder

So, I am trying to do the following. I have a DigitalOcean Ubuntu server with SSH keys login by default.

I need to create another user that should only have access to the /var/www/mysite.com/public/b folder. My process was the following:

1. Creating a new user using the following command:

adduser 
    --home /var/www/mysite.com/public/b 
    --shell /bin/bash 
    --no-create-home 
    --ingroup www-data 
    --ingroup ssh 
    testuser

2. Then, as I wasn't sure how to handle this with a keypair, I enabled password login via SSH in the sshd_config file like this:

PasswordAuthentication yes

3. After doing this I was able to open the site via both SSH and SFTP with the user and password combination, but the user had access to everything.

4. I tried using this inside sshd_config in order to limit the user to his home folder:

Subsystem sftp internal-sftp

......

Match User testuser
    ChrootDirectory /var/www/mysite.com/public/b 
    X11Forwarding no
    AllowTcpForwarding no
    ForceCommand internal-sftp

5. After adding that part I was no longer able to login via SSH.

I checked the /var/log/auth.log file and the error related to this was:

fatal: bad ownership or modes for chroot directory component "/var/www/mysite.com/"

The ownership of my site is www-data:root throughout all the folders.

The permissions are like this:

]

Another issue I was having was that even when I managed to connect I wasn't able to upload anything, even after adding the user to the root group nothing changed. I tried owning the folder with www-data:www-data but there was no difference.

Is there an easy way to do this?