How should I leave a startup. I own all their source code

As you understand, you have basically two choices:

1) Reach an agreement that everyone can live with, although perhaps no one will like.

2) Leave without reaching an agreement.

The process of attempting to reach an agreement (negotiating) should clearly be your first step. Are you familiar with the concept of BATNA?

In negotiation theory, the best alternative to a negotiated agreement or BATNA is the course of action that will be taken by a party if the current negotiations fail and an agreement cannot be reached. BATNA is the key focus and the driving force behind a successful negotiator. BATNA should not be confused with the reservation point or walkaway point. A party should generally not accept a worse resolution than its BATNA. Care should be taken, however, to ensure that deals are accurately valued, taking into account all considerations, such as relationship value, time value of money and the likelihood that the other party will live up to their side of the bargain. These other considerations are often difficult to value, since they are frequently based on uncertain or qualitative considerations, rather than easily measurable and quantifiable factors.

You should take some time to clearly understand what the best outcome is for both you and them if you are unable to reach an agreement. Presumably any agreement where both of you have an outcome superior to your respective BATNAs is superior to not reaching a deal.

If personalities are getting in the way of discussions, then perhaps an independent third party (mediator) can help all of you identify possible outcomes that are superior to no agreement.

You gave us your prospective on the situation, and we have not heard theirs. As they say , there are two sides to every story. I am not saying you are wrong; what I am suggesting is that they may see the "facts" differently than you do. If any of you proceed on your own without reaching an agreement first, and become successful, then the possibility of a lawsuit down the road is very real. In such cases the lawyers get very rich. Go watch the movie Social Network and consider the Winklevoss twins who got hundreds of millions.

Finally you state: "since I have never signed anything relinquishing my ownership of the code". Be careful, not all agreements need to be in writing. Oral agreements can not be ignored. Further a court might infer and agreement based upon the actions of the parties. For example in the previous question you stated:

This app is the thing that the other guys (who started the company before me, but said I would be a co-founder) have been flashing around to potential customers.

It may be that the potential customers inferred form these presentations that the company had the right to offer the application to them. Have you ever done anything to either support or dissuade this inference? If you have previously acquiesced to such presentations, then you may have given the company some rights in your software (like the right to present it to potential customers as theirs) already.

The real point is that if you proceed to use your software without first reaching an agreement things could become messy for all parties and the only big winners would be the lawyers. Things are seldom as clear cut as we would hope.

Unless I misunderstand your situation you may not be able to "take" anything with you. You are not required to relinquish rights to the code, unless you brought it all with you. Even as an owner you are likely considered an employee of the company and therefore your code falls under Work for hire rules, and is therefore wholly owned by the company.

At the very least this would enable them to tie you up in court, and could prevent you from taking even a single copy of the code with you, and may even eventually require you to prove, or at least certify that you posses no copies of the code.

None of the prevents you from making the exact same application, from scratch, but any code from the original source could not be used, even in a derivative work.

In your previous question you detail how the company you work for promised you equity then didn't provide it. Based on that I would recommend you don't offer any Future payoff as an option.

Say you want to leave and want some amount of shares or cash (assuming your happy with shares?) to compensate for your work so far. See what they offer and negotiate. If they wont give you anything reasonable then your options are limited to walking away with your source code or giving it to them.

I personally would go for the former but the latter is a more mature option :)

Just want to add a comment to the excellent advice offered above. I can't claim I came up with this, I read it here on onstartups somewhere. But at sometime during the negotiations you might be offered some stock which they'll buy back from you at a low low price.

What you do then, is offer to buy their stock at that same low low price. After all, they did it was only worth that, right?

Read Sun Tzu.

What is the best approach for me to leave without harming the future potential of the company (while getting a fair share myself)?

Walk out, send them a cease and desist to use your intellectual property attached with an agreement to transfer over all the rights.

After receiving a cash payment for the regular hourly rate for your work as contractor TIMES 3.

Alternativley offer them to accept transferring you 80% company stock (by issuing new shares so you have 80%) for a purchase price of USD 1 + the intellectual property rights.

Point.

When you get scewed, there is no sense in not having them burn. When leaving a startup on getting screwed terms, not harming the company is the LAST thing I am interested in. Actually having them burn to the grounds and loose as much as possbily is the desired outcome. I see it as a service - teaches my ex partners a lesson to take responsibility for their action.