yep, that's how it works.
from starwars.com:
http://www.starwars.com/databank/organization/thesith/index.html
An ancient order of Force-practitioners devoted to the dark side and determined to destroy the Jedi, the Sith were a menace long thought extinct. The current incarnation of the Sith is the result of a rogue Jedi dissident from the order. Two thousand years ago, this Jedi had come to the understanding that the true power of the Force lay not through contemplation and passivity. Only by tapping its dark side could its true potential be gained. The Jedi Council at the time balked at this new direction. The Dark Jedi was outcast, but he eventually gained followers to his new order. Awakening beliefs from the dark past, the new Sith cult continued to grow. With the promise of new powers attainable by tapping into the hateful energies of the dark side, it was only a matter of time before the order self-destructed. Internecine struggle by power-hungry Sith practioners dwindled their numbers.
One Sith had the cunning to survive. Darth Bane restructured the cult, so that there could only be two -- no more, no less -- a master, and an apprentice. Bane adopted cunning, subterfuge, and stealth as the fundamental tenets of the Sith order. Bane took an apprentice. When that apprentice succeeded him, that new Sith Lord would take an apprentice.
Thus, the Sith quietly continued for centuries, until the time of Darth Sidious and his apprentice, Darth Maul. By that time, the galaxy at large had believed the Sith to be extinct, a fabled threat from the past. Qui-Gon Jinn's report of a Sith attack on Tatooine was met by the Jedi Council with hesitation and skepticism. Surely if the Sith had returned, the Jedi would have detected it, they reasoned.
The dark side, for all its power, is ultimately hard to detect when required. A shadowy master like Darth Sidious was able to keep his presence a secret, even when sharing a world with the Jedi Temple.
With the death of Darth Maul at Naboo, the Jedi Council realized that the Sith menace was true. What they hadn't puzzled was whether Maul was the master, or the apprentice. Years would pass before the Sith menace arose once more, a menace that would eventually come to engulf the entire galaxy.
