My thoughts:

Once again making money is the reason to own and conduct a business. Unfortunately, in this scenario you have "personal" reasoning that can be used. It must all be weighed out impartially with "the business" first and foremost in mind.

The one point that I don't think you addressed directly, is the issue of "proprietary" code. If your "business" uses this code, and you "give" it to the client, they could then claim it as their own and stop you from using it. Management needs to be alerted to this fact and quickly.

Since the client has not paid for the development of the code, it would be a really poor business decision to "give" it to them. They should be charged for it. It would also be a bad business decision to allow someone else to use your code to cripple your operation, which is one of the concerns I believe you have.

Evaluate your code and decide what percentage is client related. Then once you know that you can easily deduce what percent is "the business's" and you can make a better decision from there.

This has always been an interesting subject for me, so I would like to see what the final outcome is.

GOOD LUCK!