Why $\lim\limits_{n\to \infty}\left(1+\frac{1}{n}\right)^n$ doesn't evaluate to 1? I am trying to identify what the flaw is exactly when reasoning about a limit such as the definition of $\mathbf e$:
$$
\lim_{n\rightarrow \infty}\left(1+\frac{1}{n}\right)^n={e}
$$
Now, I know there are ways of proving this limit, such as by considering the binomial expansion of $(1+\frac{1}{n})^n$ and comparing that to the Maclaurin series of $e$. So to make this clear, I am not looking for a proof of the limit definition of $e$.
I tried searching for "limit laws/rules" but none of the rules I found described the above case. Hence, I am looking for a specific rule (or perhaps a certain perspective) that will help me realize why the above does not in fact evaluate to 1.
My train of thought is as follows: at a first glance, if I wasn't already familiar with what the limit evaluates to, I probably would evaluate the expression inside the brackets first, and then apply the limit to the power. So,
$$\displaystyle\lim_{n\to\infty}\frac{1}{n}=0\quad\text{and then}$$  $$\displaystyle\lim_{n\rightarrow \infty}\left(1+0\right)^n=\lim_{n\to\infty}1^n=1$$
Why is my reasoning flawed?
 A: A similar flaw occurs in this reasoning:

What is $\displaystyle\lim_{n\to0}\left(n\cdot\frac1n\right)$? Well, evaluating the first term first, we have:
  \begin{align}
\lim_{n\to0}\left(n\cdot\frac1n\right)&=\lim_{n\to0}\left(0\cdot\frac1n\right)\\
&=\lim_{n\to0}0\\
&=0
\end{align}

This argument is clearly in error, as $\lim_{n\to0}\left(n\cdot\frac1n\right)$ is equal to $\lim_{n\to0}1=1$.
The flaw with this argument is that you can't evaluate a limit part-by-part. You need to consider the thing as a whole. In fact, since $\lim_{n\to0}n=0$ and $\lim_{n\to0}\frac1n=\infty$, the above limit is of the form $0\cdot\infty$. This is called an indeterminate form: Just knowing that a limit is of the form $0\cdot\infty$ doesn't tell you anything about the value of the limit.

Your example, $\displaystyle\lim_{n\to\infty}\left(1+\frac1n\right)^n$, is also an indeterminate form. In this case, we have a limit of the form $1^\infty$. Since it's an indeterminate form, we can't evaluate it part-by-part, only as a whole.

A list of indeterminate forms: $\infty-\infty$, $\dfrac00$, $\dfrac\infty\infty$, $0\cdot\infty$, $1^\infty$, $\infty^0$, $0^0$.

(The last one is odd in that it's hard to find examples that aren't equal to $1$, other than the easy $\lim_{x\to0^+}0^x$. There's a reason for this that I won't get into. An example where it's not equal to one: $\displaystyle\lim_{x\to0}\left(e^{-1/x^2}\right){}^{x^2}=\frac1e$.)
A: The limit must clearly exceed $1$. Here is why.
Take
$$\left(1+\frac1n\right)^n$$and expand it using the binomial formula.
For any $n>0$, you get a sum of positive terms, the first two being $1$:
$$\color{green}{1+\frac nn}+\frac{n(n-1)}{2n^2}+\frac{n(n-1)(n-2)}{3!n^3}+\cdots\frac1{n^n}\color{green}{\ge2}.$$

When you increase $n$, every $k^{th}$ tends to $\dfrac1{k!}$ because $k$ becomes neglectible in front of $n$, leading to the well-known sum
$$1+1+\frac12+\frac1{3!}+\frac1{4!}+\cdots.$$
A: Your "problem" already occurs with $n^{1/n}$. If you think "of $n$ first", then the limit would be infinite. If you think "of $1/n$ first", the limit would be zero. But it's neither!
(as Chris mentioned above, this already happens with products, and even with sums).
There is no justification in isolating one part from the other: each new value of $n$ obviously implies a new value of $1/n$, so there's no ground in thinking that they should behave "independently". 
This mistake is probably induced by the fact that there is actually "independence" in several situations, like "the limit of the sum is the sum of the limit", or "the limit of the product is the product of the limits"; but even these situations require both limits to exist. The power situation is no different, in the sense that you cannot freely "distribute" the limit.
A: There is a better way of approaching when the indeterminate form is either $1^\infty$ or $0^0$.
Write the given function as $e^{log(f(x))}$.
There is a rule for $\displaystyle\lim_{n\to a}f(x)^{g(x)}=\displaystyle\lim_{n\to a}f(x)^{\displaystyle\lim_{n\to a}g(x)}$.
So you can apply L'Hospital's rule to evaluate the limit in the given case which comes out to be e.
